What is a family office and what is its function?A family office is a professional platform dedicated to accounting for, protecting and managing a family's wealth assets.
The benefits a family office can bring include: ensuring family wealth is structured in compliance with relevant legislation; spreading investment risk by diversifying family wealth; clarifying governance over how a family stewards its wealth; and providing dedicated administrative support for the family's needs.
A well-run office can also free up family members' time so they can focus on the family business, new philanthropic projects, outside careers and other pursuits.
About the experts
Clare Stirzaker (pictured left) is Director, Family Offices at PricewaterhouseCoopers (PwC), while Ruby Parmar (pictured right) is a senior partner who heads up PwC's UK Private Business practice.
PwC, one of the world's largest professional services networks, has a Family Office team which provides a full array of business services to both single and multi-family offices.
PwC's 2015 Guide to tax and wealth management contains a section on family offices. The firm also recently published its Family Business Survey 2014.A family office can be a trusted adviser through to a hundred people managing every aspect of a family's personal and corporate wealth. Some families may desire only basic administrative support, whereas others may want the family office to oversee asset management or even help run their daily financial affairs.
We often find that where clients have wealth that has built up over time, they have become burdened with the responsibility of managing that wealth. Dealing with lots of different banks and asset managers almost becomes a job in itself, and a family will turn to us and say: "I feel I could be managing my affairs much better - what should I be thinking about?"
Often it is a case of trying to pin down what is driving a client to think they need a family office, then working out what support they need. Do they need their own dedicated team? Or would they be better off with a virtual version of that by using teams within banks, special multi-family office companies, law firms or professional services firms like PwC?
What different types of family office are there?There are two main categories of family office: the single and multiple.
A single family office (SFO) allows the family to pursue its own customised wealth management approach and guarantees the highest degree of confidentiality. While legal and tax expertise, financial and possibly global custody services would be outsourced, an SFO provides families with a lean platform for making major investment decisions.
A multi-family office (MFO) offers families the opportunity to achieve independence as well as certain benefits of scale, such as shared resources, in managing wealth.
What new challenges are family offices facing? How are they evolving to meet those challenges?As clients become more international and have a wider spread of assets and family members across the globe, they are exposed to more burdensome tax regimes than before.
We're particularly seeing a lot of questions about the growth in international tax exchange agreements worldwide - in particular the
US Foreign Account Tax Compliance Act (FATCA). One of the main aims of such laws is to make sure all financial institutions and clients comply with US and UK tax laws.
Family affair
Family offices in numbers*:
Number of family offices operating globally: around 5,000
Number of family offices in the US: around 3,000
Total amount managed by the global family office industry: $2.5tn
Percentage of global wealth management assets that family offices account for: 13%
Amount it typically costs each year to run a fully integrated family office: more than $1m
Average estimated family office investment portfolio return on the year: 9%
Proportion of families with financial endowments of at least $10m: One-third
*Sources:
The Global Family Office Report 2014
The Global State of Family Offices
The UBS/Campden Wealth European Family Office Survey 2013We are also facing the introduction of a
global reporting standard in the next few years that would introduce a common approach to the automatic exchange of financial account information worldwide, which families may need to comply with.
Families and their family offices need better infrastructure and support to help assess how best to deal with such tax compliance.
How are advances in technology affecting family offices and the way they are run?Families with a certain level of wealth can lose track of how their assets are performing - and technology can help keep them in the picture. We increasingly help clients assess how they can use technology to consolidate and monitor their financial information to help them achieve different objectives, such as tax compliance or investment strategy reviews.
There is also growing concern among family office clients about the security risks that come with technology. The families we deal with often have a high profile, so they might ask: "What is my public profile like, how easy is it for people to find out things about me on the internet, and how well am I protecting myself and my affairs online?"
What are the biggest markets for family offices?There is huge demand for family office services in the US, which has had a well-established family office market for years.
As for emerging markets, we are seeing a significant increase in demand for family office services in Russia and the Middle East. There is growing interest in China too, while Latin America - and Brazil, in particular - is another potential growth market.
Wherever they are located, we talk to family office clients a lot about succession planning and the importance of teaching the next generation about wealth management. We have families that are keen for their children to attend next-generation networks, so they can learn from other families in similar situations to their own - and so their kids gain a better understanding of the choices they will eventually face.