What are Family Offices: As the name implies, the original family offices were set up by ultra-wealthy families, such as the Vanderbilts, the Fricks and the Rockefellers. The family in question would hire top talent in disciplines such as investments, accounting and law to manage their vast financial interests on a fulltime basis. Other miscellaneous responsibilities also could fall to the family office, as diverse as real estate management, travel booking, entertainment planning, etc.
A single family office (SFO) is dedicated to just one family. A multi-family office (MFO) serves several. Some venerable family offices, notably the Phipps family's Bessemer Trust, have long since accepted clients from outside their founding families, thus converting from single family offices to multi-family offices. The primary motivation for doing so has been to spread the considerable operating costs of the family office over a wider base of clients and assets.
Only 40% of U.S. families in an early 2008 Wharton School study of single family offices were involved in the family business, as opposed to 70% of the Europeans and 89% of those from other regions.
Meanwhile, some organizations categorized as family offices never had a connection to a specific wealthy family. These firms, by contrast, were established to serve, from day one, virtually all comers who could meet their eligibility criteria and pay their fees.
Unique services: To enhance their appeal to potential clients, family offices strive to be an all-contained, one-stop-shopping experience to a degree that goes far beyond what the typical integrated, full-service financial firm offers. A prime example is tax preparation, a line of business that major financial services firms typically avoid at all costs, fearful of the potential liabilities. Another is bill payment, in which the firm assumes this responsibility on behalf of the client.
Family offices also tend to offer an array of concierge services that are, strictly speaking, totally unrelated to their primary function as financial services providers. However, these activities vastly increase their value to wealthy clients who will pay to be relieved of these responsibilities. Some family offices will act as travel agents for their clients, or will secure hard to obtain event tickets. Others may, no exaggeration, post bail for unruly clients who land in jail. The list of these ancillary services is potentially limitless.
The Wharton study found that newer U.S. SFOs are less likely to offer ancillary concierge services not directly related to asset management than older ones. The same study reported that, despite their high costs, only 41% of American SFOs handled financial administration (like investment management) in-house, as opposed to 70% of European SFOs. A 9/28/09 Barron's article cited below suggests that such outsourcing in accelerating in the U.S.
Business management firms: This variety of family office specializes in an entertainment clientele, such as top actors and musicians. Not surprisingly, many of these firms are headquartered in southern California. Sometimes these firms are controlled by entertainment agents, but more often they are independent entities that rely upon agents for referrals.
Sports management firms: This species of business management firm focuses primarily on serving professional athletes.
Size of the sector: According to the 9/28/09 issue of Barron's, in the U.S. there are approximately 3,000 family offices. Also per the same article, family offices typically are economic only if their assets under management exceed $100 million, with optimal performance at $1 billion or more. Thus, in response to the market declines of 2007-09, there has been a recent trend in outsourcing key functions and in merging family offices to regain economies of scale.
As of 2011, the Family Office Exchange estimated that there were between 3,000 and 5,000 family offices in the U.S., with an average of $400 million in total client financial assets each.
The 2008 Wharton study indicated that there were about 1,000 single family offices worldwide. This study also put the minimum economic size of a family office at $100 million in assets, based on average annual operating costs of about $3 million. About half of the single family offices in this worldwide study served families worth over $1 billion. That may have changed dramatically given the subsequent sharp drop in asset prices.
Staffing: The Wharton study found that the average single family office in the U.S. employed 8.7 people, versus 13.2 in Europe and 11.8 elsewhere. The Wharton study indicates that the average SFO serves 13 related households, with about 40 members across 2 or 3 generations. The median figures are much smaller: 4 households and 8 persons. About 43% of SFOs in the study were headed by a family member, ranging from 55% for the least wealthy families in the study to 27% for billionaire families.
Positives: Working for a family office, business management or sports management firm will appeal to people who enjoy the notion of getting to know famous and/or influential people. For those less impressed with celebrity or power, this work environment will attract those who desire a fast pace and an opportunity to focus their talents on a small set of clients whom they get to know intimately. The Wharton study indicates that SFO investment professionals enjoy less stressful and more flexible work conditions than their counterparts elsewhere.
Negatives: The clientele can be much more demanding and eccentric than the general population. The broad nature of the services offered by the firm, reaching into the minutiae of clients’ lives, can make you feel more like a personal servant than a professional, with little private space in your life. The Wharton study also indicates that SFO investment professionals earn less than what they can get elsewhere.
