Reasons to Establish a Family Office — Susan Schoenfeld
Susan R. Schoenfeld, CEO and Founder of Wealth Legacy Advisors LLC, serves as a ‘thought partner’ to families of wealth through personal attention and human spirit. Susan is an award-winning Thought Leader; she guides legacy, next-generation, stewardship, governance, leadership succession, and philanthropy. She recently spoke on Family Office Structures at Opal Group’s Family Office Forum West in Napa, CA.
What are some of the reasons that families establish a Single Family Office?
The reasons are as unique as the families themselves, but ultimately, they tend to fall into a few different buckets.
One of the most common reasons is that the family office services provided evolve. When the wealth creators run their own operating company, often they will start having their company’s employees — perhaps their admin or their bookkeeper — take care of some personal matters. As long as the time spent on the owners’ matters is insignificant and immaterial relative to their corporate duties, it generally does not present an insurmountable issue, but often it takes on a life unto itself.
If the wealth creators then sell their operating business, now what do they do? They often feel that they still need their faithful bookkeeper or CFO to run their financial lives, and so sometimes they’ll personally hire those individuals, and the family office will have started in that way.
Ultimately, the inquiry of why families start a family office starts with the decision of whether to establish their own single-family office (SFO), join a multi-family office (MFO), or perhaps some hybrid of the two.
When it starts organically as I’ve described out of an operating company and the wealth creator needs someone to pay their bills, make sure their Crummey letters are sent out, their tax planning is coordinated and their investment reports are rolled up into a comprehensive summary, that frequently becomes a single-family office.
But when a family thinks about it in the bigger picture, they will need to decide whether it is more advantageous for them to form their own single-family office with custom services but a high price tag, or instead to join up with an established multi-family office where costs are scaled and services offered are institutionalized. That’s when families get into that calculus of the decision to build their own SFO versus outsourcing it into an MFO structure.
My general rule of thumb is that a family with assets of less than $500 million should not undergo the considerable expense of establishing its own SFO but should instead outsource to a MFO, unless there are compelling reasons to do so. The structuring of, and the calculus of, how you might decide those things is unique to each family.
Another important consideration is who the family office will serve. Is it simply serving the wealth creator generation, or will it also serve the next generation down, and potentially succeeding generations? If Mom and Dad have two kids, and each of them has several kids, before you know it there are a lot of people that the family office might serve. Who are the intended clients, and what services will they require that the wealth creator generation may not have envisioned? This aspect is another big factor in the calculus of creating a family office.
Each family must weigh a variety of issues when deciding whether to form their own single-family office or hire a multi-family office. The pros and cons for each option are as unique as the families themselves, based on their particular family makeup, needs, and wishes.
Susan Schoenfeld, a public speaker & thought partner to families of wealth and their advisors, is an award-winning thought leader. Susan’s switch from a successful estate planning attorney and CPA to a trusted family advisor and thought partner was inspired by families of wealth asking her searching questions beyond estate tax planning. As a conflict-free advisor who provides no investment, tax, or legal advice and sells no product, Susan shares her insights directly with wealthy families and with financial services experts. She is active as a keynote speaker and a leader of break-out sessions and workshops at conferences throughout the US.
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