Welcome to a new theme here at Shift your Family Business, (the website). In some ways it’s long overdue, and in others, well, it’ll be more of the same.
I’ve begun to realize that I haven’t written nearly as much about the Family Office space as I have about Family Business.
Of course there’s a huge overlap of topics that suit both areas, and these have been covered here at length.
But for some reason, I get way more questions from families about operating their businesses than from those who’ve made the transition to managing and transitioning their wealth.
What’s the Difference?
If you stop anyone on the street and ask them what a family business is, everyone will give you some kind of answer that would score at least a few points on any grading key.
I daresay that if you asked “what’s a family office”, a lot more people would ask you to repeat the question, or would have only some vague idea of what you were asking about.
I consider myself to be pretty good at explaining complex things in simple terms, and this one is a big challenge.
In the simplest explanation, a family office is a formal structure set up by a family to manage the family’s wealth and everything that goes with it.
In the last decade or so, the term “family office” has been discovered and co-opted by many professionals who work in the area of wealth management.
I come across examples regularly that make me shake my head, where I see this very broad term used as a label to describe a very narrow service offering.
The image I have in my head is of a hot dog stand with a sign that says “smorgasbord”, where you can have your hot dog with mustard, or ketchup, or both!
OK, but where’s the rest of it?
Not for the Mass Affluent
Financial institutions typically like to attract the clients with the most wealth, and they also have products and services geared to lower levels of wealth too.
There are terms that get used in their industry to segment different wealth levels, and they kind of make my skin crawl when I hear them.
There are the “mass affluent” with “only” a few million dollars, then you get to HNW (high net worth) and eventually UHNW (ultra HNW!)
Who qualifies for what level of services varies over time and from one institution to the next.
Let’s just say that family offices have historically been for families in the upper reaches of society, and so anyone who markets their services as “family office” is trying to be seen as more “big time”.
That, and the hope that families will use their services because then they can talk about “their” family office at cocktail parties, I guess.
How Do They Get There?
Historically, family offices are set up once a family has achieved a certain level of liquid wealth, and/or a certain level of complexity.
Liquid wealth is money that can be quickly transferred from one asset to another, like cash, stocks and bonds.
Family operating businesses and real estate are usually considered “illiquid”.
The most common way a family arrives in the land of a family office is after a liquidity event, i.e. the sale of a family business.
Custom Made Mystery
But every family is different, and so every family has different needs.
Most families are not 100% sure of what they need, and they have an over-abundance of providers who are trying to convince them that “I am your solution”.
There’s an expression in family office circles that “If you’ve seen one family office, you’ve seen ONE family office”. There are no two the same, nor should there be.
Demystifying Family Offices
From discussions with families, acquaintances, and peers, I realize that some demystification is overdue.
So look for more frequent posts on this fascinating subject in this space going forward.
Looking to get a head start?
– See chapter nine of my book
Chapter 9: Towards a Family Office Mindset
- See this article by Jaffe and Grubman