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Guide: How to Establish a Family Office

For families with significant wealth, a dedicated family office offers a comprehensive solution for managing financial affairs, preserving legacies, and fostering long-term prosperity. However, when answering the question how to establish a family office, the endeavor requires careful planning and execution across several key areas.

Key Takeaway:

  • Strategic planning and resource allocation are paramount to answering the question How to establish a family office.
  • Professional support and technology are crucial partners.
  • Understanding the cost-benefit balance.

1. Determine Need and Feasibility

A thorough assessment of the family’s needs and goals is paramount. What services are most crucial when determining how to establish a family office? Are there specific investment strategies or philanthropic aspirations to consider? The family structure and dynamics also play a vital role. Understanding the number of generations involved, their risk tolerance, and potential conflicts of interest is essential for establishing a harmonious and effective structure. Finally, a realistic evaluation of the family’s financial resources is critical. Setting up and operating a family office incurs significant costs, including staffing, technology, and professional fees. We’ll discuss this in more detail in the next section.

2. Choose the Right Family Office Model

Once the need is established, selecting the appropriate family office model becomes crucial. Single family offices (SFOs) offer the highest degree of control and customization, catering solely to one family’s needs. However, they also require a substantial financial commitment. Multi-family offices (MFOs) provide cost-efficiency by serving multiple families, but personalized service may be less extensive. Virtual family offices (VFOs) outsource most functions to external providers, making them ideal for smaller families or those seeking a flexible approach.

What is the Value of Your Assets, What Kind of Services Do You Need, and What is Your Budget to Avail These Services?

Initially, we need to understand the balance between a single-family office and a multi-family office. If you’re considering establishing a family office and need various services, you should be prepared to allocate a significant portion of your assets – similar to the fee a multi-family office would charge – to obtain the services you desire.

A family with assets worth $50 million or $100 million can probably get most of these services at a lower cost by employing a multi-family office. This is because multi-family offices usually have the advantage of larger asset levels and scale, and they may also offer a wider range of services.

3. Decide Governance and Family Engagement

A well-defined governance structure is essential for effective decision-making and long-term stability when addressing the issue of how to establish a family office. Creating a family council provides a formal platform for communication and collaboration among family members. A comprehensive family constitution documents the family’s values, goals, and operating principles for the family office, ensuring alignment and clarity across generations. Moreover, a robust succession plan safeguards the family office’s future by outlining a clear path for ownership and management transition.

Crucial aspects to ponder upon include:

Balanced Command and Delegation

Family offices are frequently initiated by the elder generation of the family. The effectiveness of governance relies on the seasoned leadership of these senior family members and judicious delegation to others. The family should be the ones setting the vision and strategy, leaving tactical decisions and execution to the capable personnel of the family office, supported by external consultants.

Effective Communication

The family office often acts as the communication hub for family members. It is common for the family office to host family gatherings and plan retreats, and the leadership of the family office is often entrusted with the task of conveying certain messages to the younger generations.

Board Supervision

A best practice among family offices is to form a board of directors to provide oversight and guidance. The composition of the board requires thoughtful consideration. In most scenarios, the board should comprise both senior family members and unbiased outsiders who can provide diverse perspectives.

Succession and Contingency Planning

Another best practice is to secure the long-term future of the family and the family office through succession and contingency planning. For instance, formulating a plan and educating family members about the proceedings after the demise of the family patriarch or matriarch is a crucial factor in minimizing confusion and preventing disagreements and misunderstandings regarding the direction of the family wealth.

4. Settle on Staffing and Professional Services

Depending on the family’s needs and chosen model, staffing requirements may vary. In-house personnel like investment managers, accountants, and administrative staff might be necessary for certain families. Additionally, identifying and engaging trusted external advisors in areas like legal, tax, philanthropy, and investment management is crucial for navigating complex financial matters and maximizing returns.

5. Evaluate Legal and Regulatory Considerations

Careful consideration must be given to the legal structure of the family office. Choosing the appropriate legal entity, such as a limited liability company or trust, can significantly impact tax implications and liability protection. Furthermore, ensuring adherence to relevant regulations and reporting requirements is paramount to maintaining compliance and avoiding legal repercussions.

6. Build a Technology Stack

Last, but certainly not least, technology plays a vital role in streamlining operations and enhancing efficiency when determining how to establish a family office. Investment management software facilitates portfolio tracking, performance analysis, and risk management.

Financial reporting systems ensure accurate accounting, tax preparation, and financial reporting. Secure communication and collaboration tools enable seamless information sharing within the family office. Implementing robust cybersecurity measures is paramount to protecting sensitive data and assets from cyberattacks.

A robust wealth management software solution is the family office resources cornerstone of any successful organization. This technology serves as the centralized hub for managing and tracking all aspects of the family’s financial portfolio, encompassing investments, real estate, philanthropic endeavors, and estate planning.

Key Family office resources for family wealth management software:

Tax Planning and Reporting

Integrated tax planning tools and compliance reporting capabilities ensure tax efficiency and adherence to ever-changing regulations.

Data Security

Robust data encryption and security measures safeguard sensitive financial information, ensuring the protection of the family’s financial legacy.

Alternative Asset Management

Family offices tend to have more sophisticated and unique portfolios compared to other types of investment manager groups. Alternative assets not only vary from traditional assets, they can come with idiosyncratic requirements that a software package may or may not be set up to handle. Crypto, for instance, uses far more decimal spaces than say equities.

Most developers and software providers support most, if not all asset classes. However, is an area where you will want to take a close and careful look. Supporting an asset class and actually specializing in it can mean the difference between just having a placeholder field and work-arounds available, compared to having robust reporting capabilities dedicated to that asset class. Each type of investment has unique functionalities and features that must be accounted for individually. If these are not properly addressed in the system, reporting can suffer. When an asset class has been meticulously gauged and the properties of each and every class are considered to ensure that it is fairly represented, the payoff comes to fruition when charting and generating reports.


Data sensitivity is increasingly an issue in an era where cloud storage is prominent and large providers such as Amazon, and even the government, potentially have access to information you would rather not have privy to prying eyes. Cloud storage can be very secure, but if you still hold some level of concern, look for a provider that makes it possible to store all your data on your own premises, giving you complete control and sole access to it.

Single Source of Truth

Data integrity has always been at the forefront of the accounting industry for obvious reasons. When inputs are compiled into separate ledgers, however, it’s not hard to see how the information can be at a minimum, hard to assess when pulled from those different ledgers in the reporting process. A unified accounting methodology addresses this by using a single book, the general ledger, providing the end user with what is known as and can be relied upon as a single source of truth.

A unified ledger is more flexible than a multi-book system that has separate general, sales and purchase ledgers. One advantage is that books don’t have to be closed to run reports. Reports can be drawn at any time since there is no need to wait until the other ledgers are balanced.

Continuous Accounting

Traditional accounting is a closed-book system. Reporting is typically run at the end of each quarter when the books on that quarter are closed and the official numbers are released. This methodology comes with limitations. Management decisions require data and if the data is based on last quarter’s numbers, new developments simply cannot be factored in with any reasonable level of accuracy. Estimates are of course possible, but nothing is really known for a fact until the books are closed and the reports are run.

A robust wealth management software solution is the family office resources cornerstone of any successful organization

We live in an era of disruptive technology and accounting is being impacted by new solutions along with many other conventions. Continuous accounting is an innovative approach to accounting that gives you a real-time look at the data, no matter where things are at in the accounting cycle. This takes all the guesswork out of the decision-making process and provides a crucial edge over firms that only have access to current information. Before making your own decision on which accounting package to choose for your office, make sure the vendor you are considering offers this inventive approach.

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