Sustaining Generational Wealth: Exploring the benefits of a Family Office

A Family Office is an organised way to manage a family's wealth and investments, typically motivated by the desire to invest together across family branches and generations. The structure and setup of a Family Office can vary and there is not a one-sized-fits-all approach.  The right structure for each family depends on factors such as the size of wealth, complexity of investments, and the number of generations and households being supported by the wealth.

There are several triggers that may lead to the consideration of establishing a Family Office. These triggers include a large equity event, such as the sale of an operating business or a single large asset.  Other examples can include significant positive cash flows from a successful operating business or a balance sheet that could provide options for creating liquidity.

When it comes to structuring, there are different options available based on the family's specific requirements, level of complexity, size of wealth, along with their purpose and vision for their Family Office.

There are three common types of Family Office structures:

Virtual Family Office (VFO): This is a less structured option where the family collaborates with a team of different advisors, which can include existing and new. Usually, there are no dedicated employees, and services are typically outsourced to various professionals such as investment advisors, accountants, lawyers, bookkeepers, and family succession and dynamics specialists. Regular meetings, often quarterly or half-yearly, are held to discuss and manage the family's wealth.

VFOs are usually suitable for:

• first or second-generation families;

• families with lower levels of complexity or less households to manage;

• those with wealth under $100 million; or

• those with smaller quantities of investments or asset classes to manage. 

At Lineage, one example that we see most often is a VFO morph out of the operating business.  That is, a family’s private affairs and investments are generally looked after by the operating business’ finance team and at some stage, usually 2nd generation, the family decide that they would like their affairs to be discreet, and/or the personal items have begun to “clog up’’ the processes and procedures within the business.

In this case, we will work with a family to outline what they would like to transition out of the business and execute the transition.  This usually means that, initially, we are working with the family and investment advisors, chairing quarterly meetings, providing bookkeeping and investment reporting services.  Over time, we will work with the family to put more structure in place such as documenting Investment Policy statements, ensuring that the structure is appropriate for what the family are wanting to achieve, and that asset protection and estate planning have been reviewed and optimised.

Multi-Family Office (MFO): This option is similar to a VFO from the family's perspective but involves engaging a service provider that offers a wide range of in-house services. Depending on the specific MFO chosen, additional service providers may need to be included to ensure that all the family’s requirements are executed and managed.

For example, at Lineage, we have the ability to provide an extensive range of services which a Family Office needs, such as helping a family outline their purpose and values, set their strategy, manage their compliance or assist with investment reports, however we do not provide investment services.  We will work with a family’s advisors to ensure the family gets the best outcome based on their needs.  We will happily arrange introductions into our networks for families who need additional advisors – such as lawyers or investment managers/CIOs. 

MFOs are suitable for families that, at this stage, do not wish to set up their own separate Family Office structure. They are typically suitable for families:

• with wealth under $300 million; or

• those with a smaller quantity of assets or asset classes to manage.

Single Family Office (SFO): This is a separate structure established by the family to manage investments, accounting, tax and company compliance, concierge services, and family governance and dynamics. SFOs often have a physical office space and dedicated employees. The size of the SFO's in-house team can vary depending on the purpose and strategy of the Family Office.

We work with SFOs who have a small number of in-house employees, such as an accountant and bookkeeper, while relying on Lineage or other external advisors for additional services.

Other SFOs may have a larger number of in-house employees, including a Chief Investment Officer (CIO), investment analysts, and additional professionals.

SFOs are best suited for multi-generational families:

• supporting multiple households;

• those with wealth exceeding $150 million;

• families with more complex assets or a larger range of asset classes; and

• families seeking greater control over their wealth management.

At Lineage, we provide support to SFO’s in a variety of ways.  However, we most commonly assist families with strategy and structure:

Strategy for a Family Office involves outlining the long-term purpose and the vision of the Family.  What does the family want from the office and the investments in 5,10 or even 15 years? Whilst many families will outline a financial vision, non-financial is equally important, if not, more so.  Some non-financial strategies include greater communication across family; improving or optimising family dynamics; generational transitioning and talent development, both for family and non-family employees.

Structure for a SFO could cover establishing or enhancing governance frameworks (such as Family Councils and Investment Committees) and documentation needed to support the family and the office, such as Family Constitutions, Investment Policy Statements, asset protection and estate planning considerations.    

In our experience, SFO’s spend considerable effort on operational aspects, however often overlook the essential tasks of documenting and executing a well-defined strategy and structure to ensure that the office is working towards the family’s vision and purpose.

It's important to note that these descriptions provide a general overview, and the specific structure and services of a Family Office can vary significantly based on the family's unique circumstances and preferences.

Michelle De Lucia, Partner at Lineage Group
Nearly 2 decades working with business families and family offices has given Michelle a unique perspective to both family and business issues. And having worked as a CFO for a large family office, Michelle has hands-on knowledge of reporting, systems, policies and procedures specific to successfully set up or manage a complex family office.

To find out more about how we can help with your individual family office requirements, please get in touch to arrange a confidential discussion.