A family office is an entity that provides complex financial and advisory services to support a specific family group. It integrates services like investment management, tax planning, estate planning, asset protection, and personal services. Family offices can be structured as single-family offices serving one family or multi-family offices serving multiple families. They provide a comprehensive set of services and help families achieve their financial, philanthropic, and wealth transfer goals over multiple generations. Real estate is a common direct investment for family offices, either through individual projects or real estate funds.
2. Understanding Family Offices
What is a Family Office?
A family office is an entity that supports the complex financial needs of a specific family group
and acts as their “chief advisor”
A family office integrates the execution of investment strategy, tax services, insurance planning, philanthropic
advice, estate tax planning, asset protection planning, risk management, pre-marital planning and personal
services
A family office provides ongoing, holistic advice, implementation and administration
A family office is the global best-in-class structure for long-term wealth management and
preservation
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3. Types of Family Offices
Serves the needs of more than one family with similar values and
investment philosophies
Combines resources for efficiency
Creates a single point of contact for planning and implementation
Shares family office functions
Multi-family
Office
Created, managed and owned by an individual family
Single Family
Office
Implementing the fundamental legal and tax structure underlying a
family office to achieve investment management synergies, asset
protection attributes, and wealth transfer objectives.
The structure is utilized with both Multi-family Offices and Single
Family Offices
Virtual
Family Office
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4. Services Provided by Family Offices
Source: Family Office Exchange
Services Provided by the Office, 2006
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5. Detailed Family Office Services
Comprehensive Family
Office Services
Wealth Transfer Planning
Develop objectives
Diagram current plan
Legal and tax strategies
Financial modeling
Action plan to implement changes
Liability Management
Property & casualty insurance
assessment*
Specialty lines of insurance*
Personal security*
Collectibles inventory, appraisal &
storage*
outsourced to third party providers.*
Family Philanthropy
Multi-generational objectives
Personal giving programs
Private foundation management
Strategy analysis and implementation
Foundation and grant administration
Family Continuity/Education
Family governance
Family education plan
Family meeting coordination
Coaching and mentoring
Coordination of outside advisors
Integrated Financial Services
Balance sheet analysis
Retirement planning
Bank financing analysis & negotiation
Life insurance analysis
Private aircraft consulting
Tax Review & Compliance
Review of individual & entity tax returns
Estimated tax payments
Year-end tax planning
Tax legislation updates
Services are customized to address a wide spectrumof long-termfinancial needs.
Lifestyle Enhancements
Personal bill paying*
Domestic help and payroll*
Property management*
Concierge services*
Travel management*
outsourced to third party providers.*
Client Information Mgmt
Consolidated reporting
Quarterly performance reports
Online access to custom reports
Document management and retention
Record keeping for personal property
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6. Investments by Family Offices
Vary According to the Nature of the
Office
Invest in both funds and specific projects
Invest via family holding companies that look like funds
and via trusts
Invest in real estate / mortgage hybrid funds
Single Family
Office
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Tend to invest in funds
When investing in specific projects, tends to invest as a
fund
Multi-family
Office
7. Investors / Decision-Makers
Understand who the decision-maker may be . . .
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Investment Committee / Investment Officer / Fund Manager
Multi-family
Office
CFO / CIO / Investment Committee / Fund Manager / Trustee /
Trust Investment Advisor
Single Family
Office
CEO / CFO / Investment Committee / Trustee / Trust Investment
Advisor / Family Member
Virtual
Family Office
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9. Rental Agrmts.Equip. Lease Mgmt. Agrmt.Mgmt. Agrmt.
Mgmt. Fees
Mgmt. Fees
Mgmt. Agrmt.
Mgmt. Agrmt.
Mgmt. Fees
1% GP Mgmt. Fees
FAMILY
FOUNDATION
EQUIPMENT
LEASING COMPANY
OPERATING
COMPANY
REAL ESTATE
LLC
FAMILY OFFICE
DESCENDANT’S
TRUSTS
OFF-SHORE
ASSET
PROTECTION
TRUST
FAMILY LIMITED
PARTNERSHIP #1
FAMILY LIMITED
PARTNERSHIP #2
FAMILY LIMITED
PARTNERSHIP #3
Mgmt. Agrmt.
DOMESTIC
ASSET
PROTECTION
TRUST
VFO and SFO
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10. Critical Investment Criteria
Direct Investments:
– Alignment of interests
– Minimum 3-5 year track
record
– Long-term
– Equal-basis investment
terms
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Fund Investments:
– Alignment of interests
– Back-end performance
compensation
– Hurdle rate
– Return of capital on preferred
basis
– No up-front commissions or
general partner / manager fees
– Efficient syndication / fund fees
– Intermediate term liquidity
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11. Investment Decision Review Framewor
Managing return expectations for accommodation of spending, inflation and increased purchasing power across generational needs
Determination of appropriate platform (in-house, consultants or partnerships)
Legal framework of underlying entities/beneficiaries require a high standard of care related to investment decisions
Family Offices face numerous objectives when establishing an investment policy
Coordinated global investment philosophy
Oversight of global and entity level asset allocation and performance metrics
Risk and reputational management
Establishing an investment policy requires considering these competing issues within a risk-controlled framework
If applicable, Philanthropic goals and Foundation management needs including required 5% spending rate and 2% excise tax on
realized capital gains
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12. Role of the Investment Committee
Benefits of
Investment
Committee
Formalizes management process
Provides format for "inclusion" of family members
Outside members bring expertise - help "isolation" problem
Composition of
Investment
Committee
Family members
Outside advisors
Outside investment professionals
Investment
Written policy statement provides documents for family to "buy into" investment strategy
Investment Committee serves as extension of or alternative to a Chief Investment Officer
Education programs give family members the basics
Investment
Committee vs.
Investment
Consultant
Consultants help to manage the process
Investment Committee has responsibility for Asset Allocation Manager Selection
The Investment Committee
Functional
Investment
Committees
Effective chairperson
Flexible model - consensus vs. directed
5-7 members
3-4 meetings a year
Actionable agendas
Support material provided well in advance of
meetings
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13. Role of the Investment Committee
Formalize the investment process
Enhance the portfolio strategies
Provide a sounding board for internal professionals
Involve and educate family members
Formalize family review and approval of the strategic investment process
Goals
Select experienced investment professionals for the committee
Use generalists with broad experience and specialists for key areas
Appoint a strong, intelligent, well-respected Chairperson
Ensure no conflicts of interest
Strategies
Agree on a set of procedures and a decision-making process
Develop a written Statement of Objectives and an Investment Policy
Monitor the strategic allocation and asset classes
Review the performance of managers
Manage the strategy reassessment process
Identify and investigate new investment alternatives
Responsibilities
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14. A Dynamic Investment Process
6. Sophisticated analytical reporting tools
regardless of custodian; web access
5. Global investment perspectives
4. Jointly establish implementation
strategy with client; considers
existing holdings
3. Global sourcing network along with
proprietary quantitative and qualitative
analysis and rigorous due diligence
2. Modeling tools using global capital
market assumptions and stress
testing
1. Assist with policy development; determine goals,
disbursement targets, diversification and volatility
framework is essential
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Custom-Tailored
Portfolios
15. Thomas J. Handler, J.D., P.C.
Chairman, Advanced Planning &
Family Office Practice Group
Handler Thayer, LLP
thandler@handlerthayer.com
191 N. Wacker Drive, 23rd
Floor
Chicago, IL 60606
312.641.2100
312.641.6866
WWW.HANDLERTHAYER.COM
Contact Information