Family office

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Chart of family office services

A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations. The company's financial capital is the family's own wealth. Family offices also may handle tasks such as managing household staff, making travel arrangements, property management, day-to-day accounting and payroll activities, management of legal affairs, family management services, family governance, financial and investor education, coordination of philanthropy and private foundations, and succession planning. A family office can cost over $1 million a year to operate, so the family's net worth usually exceeds $100 million in investable assets. Some family offices accept investments from people who are not members of the owning family.[1][2][3][4][5][6][7][8][9] It came to light during the 2021 implosion of Archegos Capital Management that family offices were reportedly "more loosely regulated than other investment vehicles, with fewer disclosure requirements."[10]

Some firms that cater to multiple clients offer personality psychology services for family members to support better alignment and communications among members of the family.[11]

A family office either is, or operates just like, a corporation or limited liability company, with officers and a support staff. Officers are compensated per their arrangement with the family, usually with incentives based on the profits or capital gains generated by the office. Family offices are often built around core assets that are professionally managed. As profits are created, assets are deployed into investments. Family offices might invest in private equity, venture capital opportunities, hedge funds, and commercial real estate. Many family offices turn to hedge funds for alignment of interest based on risk and return assessment goals. Some family offices remain passive and just allocate funds to outside managers.[12]


The firm DuPont, after Irenee died in 1834 was conceived as a kind of family office, where three of his sons split management duties of their late father's gunpowder mill, which was obviously indivisible.[13][failed verification] The Rockefeller family first pioneered family offices in the late 19th century. Family offices started gaining popularity in the 1980s, and since 2005, as the ranks of the super-rich grew to record proportions family offices swelled proportionately.[14]

In 2007, the case of the Ayer family office highlighted family office risk when a "family confidant allegedly siphoned about $58 million away in a few years."[9]

Under the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, an organized effort was undertaken by single family offices (SFOs) nationwide led by the Private Investor Coalition that successfully convinced Congress to exempt SFOs from having to meet certain criteria from the definition of investment adviser under the Investment Advisers Act of 1940. Previously, such family offices were deemed to be investment advisers and relied on the "less than 15 clients" rule to avoid registration under the Act, a rule that was eliminated under Dodd-Frank. The Obama U.S. Securities and Exchange Commission under chair Mary Schapiro promulgated the final "family office rules" on June 22, 2011,[15] after hearing from around 100 family offices through their attorneys, who invoked solicitor-client privilege in the communications with the SEC. In the words of one solicitor: "The extended family that controls the family office has asked this firm to provide the Commission with comments to the Proposed Rule on its behalf, as it believes that providing comments directly to the Commission might compromise its privacy, including publicly revealing the manner by which it conducts its family office business."[16]

Family offices became more common in years since 2010 after the rapid increase in valuations of technology companies led to many people having newly created wealth.[6] Also in 2010, the academic Journal of Family Business Strategy was launched by Torsten Pieper to "publish research that contributes new knowledge and understanding to the field of family business."[17]

According to a 2015 report by the Financial Times, the label "family office" was increasingly replaced by other business names, such as "private investment office", with services in relation therewith called "private company services" or "strategic philanthropy advice".[18] Globally in 2015, one source numbered 79,000 families that controlled $50 million or more.[18]

In January 2021, it was revealed that Leon Black paid Jeffrey Epstein $158 million over the period from 2012 to 2017 for family office tax advice.[19]

In spring 2021 the implosion of Archegos Capital Management drew the scrutiny of several regulators and the questioning of Sherrod Brown, Chair of the US Senate Banking Committee to the ideology of family offices.[10]

Traditional and modern usage[edit]

A traditional single family office is a business run by and for a single family. Its sole function is to centralize the management of a significant family fortune. Typically, these organizations employ staff to manage investments, taxes, philanthropic activities, trusts, and legal matters. The family office invests the family's money, manages all of the family's assets, and disburses payments to family members as required.[20]

In June 2008, Wharton Magazine reported that "About 1,000 SFOs are in operation around the world catering to families with a least $100 million in assets. More than half the SFOs are managing family wealth of more than $1 billion." Services handled by the traditional SFO include investment management, property management, day-to-day accounting and payroll activities, and management of legal affairs, and they often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning.[21] An academic investigation defined SFOs as "professional organizations dedicated to managing family wealth and family matters, represent the leading edge of a broad trend in substantial personal wealth accumulation. The worldwide concentration of wealth in the hands of relatively few is well documented. As the rich grow even richer, and particularly as fortunes filter down through generations, wealth management becomes ever more complex. It is in this context that SFOs — dedicated to the service of one multi-millionaire or billionaire family — have evolved."[22]

In 2016, a systematic review of SFOs was published by Glucksberg and Burrows.[23]

Modern family offices[edit]

Defining the service proposition is not straightforward and a common phrase used by industry insiders is: "When you have seen one family office you have seen one family office". For this reason there is major fragmentation within the family office market without much consensus on definitions.[24][25] Some professionals have created models to try and explain the types of family offices which exist and different levels of services offered. Scott Gardner, President of Sterling Wealth Management, separated into four classes:[citation needed]

Class I Family Offices provide estate and financial services and typically are operated by an independent company that receives direct oversight from a family trustee or administrator. A typical Class I family office:

  • Offers comprehensive financial oversight of all liquid financial assets.
  • Offers daily management of all illiquid assets, such as real estate.
  • Can administer and manage the entire estate with little to no supervision.
  • Charges a flat monthly fee for all family office services.
  • Offers advice free from conflicts of interest and will not sell products.
  • Offers a comprehensive monthly report of all estate activity for no additional fee.

Class II Family Offices are also known as Virtual-Family Offices (VFO). A typical Class II family office:

  • Assists in the financial oversight of all liquid financial assets.
  • Assists in the daily management of all illiquid assets, such as real estate.
  • Assists in the administration of the family estate with little to no supervision.
  • Charges a flat monthly fee for all family office services.
  • Offers advice free from conflicts of interest and will not sell products.

Class III Family Offices focus on providing financial services and are typically operated by a bank, law firm, or accountant firm. A typical Class III family office:

  • Offers investment advice for a fee.
  • Can offer products and services outside the scope of a family office.
  • Does not directly manage or administer illiquid assets in the estate.

Class IV Family Offices focus on providing estate services and are typically operated by the family with the assistance of a small support staff. A typical Class IV family office:

  • Has a staff that will monitor the estate and report into the family trustee with any irregularities.
  • Provides basic administrative functions, such as bookkeeping and mail sorting.
  • May have an office inside a family member's home.

In 2016, single family offices are in a state of transition largely because the founding patriarch/matriarch is aging or deceased. The next generation often finds the costs to maintain the office prohibitive. New models are emerging, including the virtual family office.

See also[edit]


  1. ^ "EY Family Office Guide" (PDF). Ernst & Young. 2017.
  2. ^ Frank, Robert (June 10, 2004). "How to Bank Like a Billionaire". The Wall Street Journal.
  3. ^ "Family Offices". Investopedia.
  4. ^ Hawthorne, Fran (March 18, 2008). "The Family Office, Granting Every Wish". The New York Times.
  5. ^ KOLESNIKOV-JESSOP, SONIA (September 6, 2011). "Setting Up an Office to Manage a Wealthy Family's Affairs". The New York Times.
  6. ^ a b Das, Anupreeta; Chung, Juliet (March 10, 2017). "New Force on Wall Street: The 'Family Office'". The Wall Street Journal.
  7. ^ "Defining 'Family Office'". September 15, 2013.
  8. ^ Steinberg, Julie; Greene, Kelly (May 17, 2013). "Financial Advice, Served Rare". The Wall Street Journal.
  9. ^ a b Douglas, Craig M.; Wollack, Todd (June 8, 2007). "Case highlights family office risk". American City Business Journals.
  10. ^ a b Fedor, Lauren (5 April 2021). "US Senate banking chair queries Credit Suisse and other banks on Archegos". The Financial Times.
  11. ^ Milburn, Robert (November 21, 2014). "Mr. Freud in the Family Office". Barron's.
  12. ^ "Opalesque BACKSTAGE Video-Terry Beneke: What attracts family offices to alternative investments". Opalesque. 30 April 2010.
  13. ^ du Pont, B.G. (1920). E.I. du Pont de Nemours and Company: A History 1802–1902. Boston and New York: Houghton Mifflin Company.
  14. ^ Scheiber, Noam; Cohen, Patricia (December 29, 2015). "For the Wealthiest, a Private Tax System That Saves Them Billions The very richest are able to quietly shape tax policy that will allow them to shield billions in income". The New York Times.
  15. ^ "SECURITIES AND EXCHANGE COMMISSION : 17 CFR Part 275: [Release No. IA-3220; File No. S7-25-10]" (PDF). U.S. Securities and Exchange Commission.
  16. ^ "Comments on Proposed Rule: Family Offices" ([Release No. IA-3098, File No. S7-25-10]). US Securities and Exchange Commission. 25 May 2011.
  17. ^ "Journal of Family Business Strategy - About the journal". Elsevier B.V. Retrieved 3 April 2021.
  18. ^ a b Warwick-Ching, Lucy (21 October 2015). "Cascade Investment, Bill Gates' wealth manager". The Financial Times Ltd.
  19. ^ Paulden, Pierre; Steverman, Ben (26 January 2021). "What Leon Black Got for Paying Jeffrey Epstein $158 Million". Bloomberg News.
  20. ^ Welsh, Dianne H.B.; Memili, Esra; Rosplock, Kirby; Roure, Juan; Segurado, Juan Luis (2013). "Perceptions of entrepreneurship across generations in family offices: A stewardship theory perspective" (PDF). Journal of Family Business Strategy. 4 (3): 213–226. doi:10.1016/j.jfbs.2013.07.003.
  21. ^ "SFOs in Action: How the Richest Families Manage Their Wealth". Wharton Alumni Magazine. 1 June 2008.
  22. ^ Liechtenstein, Heinrich; Amit, Raffi; Prats, M. Julia; Millay, Todd (2008). "Single Family Offices: The Art of Effective Wealth Management". Family Values and Value Creation. pp. 166–193. doi:10.1057/9780230594227_9. ISBN 978-1-349-30332-8.
  23. ^ Luna Glucksberg; Roger Burrows (2016). "Family Offices and the Contemporary Infrastructures of Dynastic Wealth". Sociologica (2). doi:10.2383/85289.
  24. ^ Botha, Francois. "Family Office Strategy". Forbes.
  25. ^ "Family Office Insights". Simple.

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