By Lee Sherman
Depending on the size of your family and whether or not you are actually running a family business, you may have different needs when it comes to selecting a financial advisor.
What is a family office?
A family office is a privately held company that provides dedicated wealth management services for a wealthy family, typically one with over $100 million in investable assets. Family offices have become increasingly common as wealthy families seek a way to maintain their dynasties across generations. The capital for a family office comes from the assets of the family.
A family office can be set up as a corporation or limited liability company (LLC) with officers that get paid by the family and are incentivized to maximize profit for the family as with any corporation. Expect to spend upwards of $1M a year to run your family office. How much you spend is entirely dependent on how much wealth you have acquired. Experts say you should spend about 1% of the assets under management to staff your family office. Your family office is a business, therefore selecting a financial advisor should be treated as seriously as you would with any money-making endeavor .
What to look for in a financial advisor
For some families, a personal assistant may suffice, especially if you think you’ll use an outside fund manager to do the actual investing. This person, regardless of their training can help the family manage such things as managing staff, making business travel arrangements, and scheduling public appearances. A large family with significant wealth will need more and may be staffed with experienced advisors that can handle day-to-day accounting, legal issues, property management, philanthropy, and succession planning.
A financial advisor in a family office typically wears many hats. On any given day, they will act as a psychologist, a banker, or a fixer. They play a critical role in how you go about building a legacy and ensuring that your wishes for your estate are passed on to the next generation. They will also be deeply involved with your family’s business activities so you’ll want to pick people of a similar education level, experience, political persuasion, and general temperament. You’ll want someone with a breadth of legal knowledge who is ready to handle any situations that may come up. The person you choose could be a lawyer, an accountant, or a fiduciary. It may be difficult to find this in one person so in some cases, it may make sense to turn to external advisors who are specialists in a particular legal or investment domain. Turning to external counsel can help in situations where the family office needs confidentiality and the protection of legal privilege. Your in-house advisor then becomes the liaison to those outside advisors. Who you choose is largely dependent on how complex your financial situation is.
When setting up your family office, it’s important to keep your eyes on the prize, your family fortune. Keeping it in the family is the ultimate goal. A family office can help you cement your legacy even if your name isn’t Rockefeller or Gates.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.