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The things you should know before setting up a family office

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Setting up your own family office is a great way to grow, protect and transfer family wealth. But there are specific issues to consider before creating one.

According to research estimates, between 7'000 and 10'000 family offices globally manage more wealth than the entire hedge fund industry.

With the ongoing growth of the number of family offices, you will find a variety of research, guidelines, opinions, and much more information about the industry.

Still, starting your own family office is challenging, and you may want to consider a few things before making a decision.

Since you are about to build a complex wealth management services entity, it's worth the effort to assess options and alternatives thoroughly.

In this blog post, we will guide you through some of the most imminent aspects to consider and hopefully provide value for the process towards your family office.

Do you need a family office?


This question is essential and not straightforward to answer.

You may want a family office, but a thorough and objective assessment is required to understand whether you need one.

The first step is to get your books in order to obtain a comprehensive overview of your and your family's wealth and an initial understanding of the wealth management challenges to solve.

At this stage, the main focus is on potential alternatives to a family office, exploring the possible transition to an enhanced wealth management level.

Suppose you can integrate and align your interests with existing setups at a highly professional level at predictable costs.

Would you then still opt for a single family office?

The target is to develop a perspective beyond individual wealth management services and views to include your family and life plans in a comprehensive arrangement.

Efficiency plays an important role, and a single family office needs to pass the efficiency test against alternatives.

Family office industry standards


It would be best if you don't base assumptions on what worked for someone else some time ago and don't underestimate the implications of running a family office.

Industry reports, such as the 2022 Citi Family Office Survey or the UBS 2022 Global Family Office Report, provide a good overview of the complexity of family offices, required capabilities, correlated costs, and the desired professional standards to be achieved.

Seeking objective advice rather than family office implementation offerings is the ideal approach in this part of the process.

Sometimes the most valuable advice is questioning your needs and motivations and directing you to more appropriate solutions to solve your pressures.

The alternatives


The wealth management industry has substantially changed over the past years and is evolving into a more collaborative ecosystem to cater to global wealth owners' needs.

In particular, technology enables wealth owners to unbundle the wealth management services value chain and rebundling individual components into comprehensive solutions.

That's an opportunity to assemble the best offerings and solutions in the market with predictable costs and results.

Multi family offices


Multi family offices are plug-and-play solutions, although you will have to compromise on the level of service customization.

Here it would be best if you place close attention on the alignment with your interests.

In our view, the multi family office should not perform asset management but act as a control and administration function.

There's a simple reason: if an asset manager is not performing as expected, you can implement changes without further dependencies.

In all potential setups, an effective control function ensures that conflicts of interest are managed accordingly and that you have an independent source of truth for informed decision-making.

Thus, monitoring and control is the essential capability to look for.

The multi family office should then select and overview the best independent services providers and report transparently and regularly.

Virtual family offices


A virtual family office is a single family office that leverages technology and collaboration.

It's a lean structure with specific core capabilities while external experts provide other services on an as-needed basis.

Core building blocks are assembled with technology solutions that empower the collaboration of service providers and lead to a single source of truth.

The market offers a variety of specific cloud-based technologies that can be combined to oversee investment and project management.

The family office can grow as needed with a modular approach while costs are kept under control. Still, it can efficiently cater to varying needs.

Thus, a virtual family office can be an exciting entry-level solution.

Dedicated family office structures


This variation of a single family office is a recent variation offered by the market.

It's a single family office managed by a professional service provider such as a multi family office or trustee company.

The family controls the shares in the family office corporation, while the professional service provider performs day-to-day administration.

The main advantages of such a setup are professional administration and flexibility since the family can change administration anytime without building internal capabilities.

Furthermore, the professional service provider may not have to apply all its sometimes restrictive in-house policies; thus, individual settings can be tailored to the family's needs.

A family can also learn from the professional service provider how to deal with regulation and operational challenges and become autonomous after a certain period.  

The decision


There are various options and opportunities to enhance your and your family's wealth management framework.

In many scenarios, effective and efficient collaboration between service providers can lead to high-quality results.

Ask the following question: what is the one factor determining your decision to set up a family office?

We believe independent investment management direction and a practical control function are decisive factors.

Irrespective of how and where you receive wealth management services, you'll need to ensure independent control to separate execution and monitoring.

If none of the above options meets your needs and requirements, then let's assess what you must consider when setting up a family office.

It will take time


You will have to be patient during the design process and see the added value afterward. Teams must consolidate, service delivery grow, and service quality levels settle.

The entire process is comparable to building a start-up; thus, it would be best if you see it like creating your next business.

This is also the inspiration for the design and implementation process, where you can leverage proven tools of successful technology firms.

The design process


Designing and adapting an individual family office concept will reveal many challenges.

It's about exploring opportunities, solutions, and gaps in light of the family's new potential wealth management reality.

The value proposition


After a needs assessment where nice-to-haves are separated from core requirements and capabilities, you define the value proposition of your family office.

The outcome is a clear understanding of what the family office will deliver to cover needs and pains and to avoid the risk of substitution.

It starts with a profile of the family and the assessment of their pains and jobs to better understand their needs.

The second step examines the family office's gain creators and services and how they relieve pains and create solutions for the family.

In practice, we regularly observe the lack of a value proposition when family members start to look for their own service solutions rather than working with the family office.

You avoid this dilemma from the beginning with a sound value proposition.

The business model canvas

A business model canvas is a visual chart capturing a business's value proposition, infrastructure, finances, and customers. It comes with sever building blocks for its activities.

This model helps to grasp the different components of the family office and how they relate to each other. The approach is dynamic and will and should change during the process.

That's what start-ups do: they figure out, learn and adapt. The benefit is that changes in one specific area don't occur isolated but in context with other areas.

In our experience, the business model canvas unpacks the overall family office proposition, permits a concrete understanding of the challenges ahead, and assists in communication with stakeholders.

Such an analysis of the environment and ecosystem the family office will be embedded in will lead to a deep understanding of its users, i.e., the family, and best position it to ideally cater to their needs.

The next step is the business plan to understand better how the family office will fit into a competitive landscape. As mentioned above, that's another crucial test for the viability of the family office.

If it doesn't outperform substitute offerings, why implement one?

Let us make a point: the entire guiding idea is to identify core capabilities where excellence can be achieved.

Thus, it's not about offering as many services as possible but identifying the few realistic services that will make the difference.

The almost inevitable outcome of the above steps is that the family office will be integrated into an ecosystem to receive essential services and must provide interfaces for collaboration with external service providers.

Still, the family office can start lean with a focus on crucial, realistic core capabilities that can grow over time.

The Working Backwards Method


Another design approach is Amazon's Working Backwards Method, where the product team imagines the product is ready to be delivered.

The process starts with the result in mind addressed to customers, their problems, benefits, and experience.

Again, customers – in our case, the family - and their needs are at the core of the design process. Something that should also be the north star for every family office.

The family office will not be enough


The family office needs to integrate into a broader wealth management framework as a service entity for wealth growth, preservation, and transfer to the following generations.

Otherwise, you run the risk of a siloed approach that will not achieve the desired results.

Thus, family governance, ownership structuring, and estate planning are essential building blocks of a comprehensive wealth management framework that a family office supports as an enabler.

Family governance captures the way and how of a family. It's ideally based on the family's narrative and values and provides a decision-making framework.

Depending on the family's seize next to family meetings, it can also foresee a family council as a communication interface with the family office. 

Ownership structuring regulates how the family owns its wealth, such as through trusts and foundations. Such a setup protects wealth and ensures its transfer to the following generations.

Finally, estate planning defines how family members will benefit from family wealth in the long run under which conditions.

As mentioned above, the family office is an enabler to ensure the coordination of the above building blocks within the overall wealth management architecture.

An emotional connection of all factors is the secret sauce for family wealth preservation, and a family office will deliver the best results if fully integrated rather than acting isolated.

Family Office Governance Model

Taking wise decisions


Defining the family office's in-house core capabilities lays the foundation for its infrastructure and service delivery.

Research shows that most family offices focus on strategic asset allocation, investment guidelines, monitoring, and control.

We also believe the decisive in-house element is the family office investment strategy in combination with effective monitoring and control of its execution.

Another essential aspect is technology selection to gather and analyze data. Technology will have to enable investment-related clarity and internal and external collaboration.

Since the family office will be integrated into a broader ecosystem of service providers and peers, e.g., for co-investments with other family offices, it also makes sense to define a collaboration strategy and model.

Family Office Core Capabilities

Keeping it simple


Focusing on realistic core capabilities provides clear service definitions and real and tangible service quality metrics. Thus, less is more and will reduce complexity.

A lean organization will align entirely with the family's interest in predefined service areas.

It will also enable leadership and steady growth toward excellence. A transparent service landscape will manage the family's expectations and avoid opportunistic decisions.

Finally, specific and measurable performance indicators such as effective monitoring and control, cost and complexity reduction, and access to particular asset classes or co-investments allow you to evaluate the family office's added value.

Why the family office location matters


In recent years there has been global competition between wealth management centers to attract family offices.

Some jurisdictions offer tax incentives, while others provide a regulatory framework with specific exemptions for single family offices.

In addition to regulation and taxes, cultural fit, proximity, and connectivity are some elements that should determine your decision on the family office's location.

Furthermore, a comprehensive wealth management ecosystem will impact the family office in many aspects.

It can inspire innovation and service quality, provide the ability to learn from peers and professional service providers, and enable access to specialized talent, products, and services.

To conclude


The journey to your family office is full of challenges and findings that will fill many gaps in the family's existing wealth management setup.

The family office is not a product but a solution that integrates into a more comprehensive governance framework.

Thus, the family and its needs are at the core of the design and implementation process.

Focusing on realistic capabilities such as strategic asset allocation and monitoring and control ensures the expected service quality of an inherently complex wealth management services entity.

Furthermore, it should be designed for collaboration for integration into an ecosystem of service providers and peers.

There's no standard template for all of this, and if this blog post made you think about whether you need a family office, then you are on the right path to a genuinely individualized solution.


Woman looking at Lake Zurich
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