Home Editor's Pick An Introduction to Family Offices

An Introduction to Family Offices

by internationaldirector

By Alpa Bhakta, CEO, Butterfield Mortgages Limited 





In the decade succeeding the financial crisis, one of the biggest developments in the world of wealth management has been the rise of the family office. But what is a family office, and how has their proliferation already begun to change how ultra-high-net-worth individuals (UHNW) manage their assets?

A family office is a private advisory firm set up by an UHNW to manage their business interests and investment portfolios on a day-to-day basis. There is no set amount of wealth needed to create a family office, though given the operating costs involved, it is generally estimated that family offices command at least £30 million in investable assets. 

According to EY, there are around 10,000 family offices operating globally today, compared with just 1,000 in 2008. What’s more, the average size of these family offices in terms of assets under management (AUM) has grown considerably with some of the largest commanding enough capital as to occupy the upper echelons of the wealth management world alongside global banks and private equity firms.

Clearly, family offices have begun to play a major role within the financial ecosystem. But what exactly has changed in order to make establishing a family office so attractive for wealthy individuals?

Why do family offices appeal to UHNWs?

In large part, the rise of family offices reflects a change in the preferences and priorities of UHNW individuals. Post the 2008 financial crisis, many have been disenchanted by the lack of autonomy when placing their assets under the stewardship of a private bank. By setting up a family office, UHNW investors can have their fortunes managed by a handpicked group of financial and legal professionals who report to them directly.

However, family offices are more than just private investment houses. In many instances, they act as full service advisory firms, capable of catering to a range of professional needs. These include but are not limited to securing mortgages, business consulting and even concierge services.

However, it won’t be a surprise to learn that their primary function outside of simply, managing the family’s investment portfolio is in orchestrating an individual’s succession plan. Succession planning is especially important for UHNWs who are keen to avoid internal family conflict. Moreover, having an office of full-time advisors in place can help to overcome any transitional challenges when a vast amount of wealth passes from one generation to the next. Indeed, the 2018 UBS Global Family Offices Report found intergenerational wealth management to be by far the most important consideration for individuals with a family office––87% of those surveyed rated it as “very important” or “important”.

The appeal of family offices has been driven by a range of other factors as well. For instance, the rise of impact investing––investment to further an individual’s social or environmental goals as well as their bottom line. This has led many, keen to maintain a greater level of central authority over the investment vehicles their money is placed in, to bring their financial operations in-house. Moreover, as technology makes it easier to circulate personal information, individuals have become amenable to paying large premiums in order to ensure discretion when it comes to their financial affairs. The fact that many family offices are situated in London reflects this as single family offices are not required to register with the Financial Conduct Authority (FCA).

How should you approach working with a family office? 

Of course, the need for confidentiality represents an obstacle for investors and entrepreneurs looking to engage with family offices; not only do they rarely publish details of forthcoming deals; they rarely accept meetings from unknown entities.

Consequently, patience is a virtue when it comes to working with family offices. Relationships need to develop organically over time, and this can make the entire process time consuming. Still, as more and more UHNWs opt to set up a family office, I have no doubt that more will be amenable to bespoke investment opportunities.

One potential avenue for obtaining an audience with a host of these secretive organisations is via an association like the Family Office Council. While it does not release detailed figures, the council reportedly represents more than 100 family offices with a combined $100 billion in AUM. Associations like the Family Office Council are increasingly attracting new members as they act as a focal point for industry figures as well as a forum for new ideas. Attending conferences run by these associations, certainly represents one avenue for generating leads.

With the number of UK UHNW families at an all-time high there’s no denying their growing importance within the UK’s financial ecosystem. However, Bloomberg anticipating that the amount of UHNW families globally predicted to reach 263,500 by 2025, attention is increasingly turning to emerging markets, where new UHNWs increasingly hail from. Consequently, the challenge for investment houses, banks and financial firms, is learning to appropriately engage with very wealthy individuals from an array of financial and cultural backgrounds.


Related Articles

Leave a Comment