For many families with significant assets and wealth, taking care of legalities to keep wealth internally can be a struggle. Hence the existence of a family office which handles anything from financial to administrative services to governance and philanthropic efforts. Because of the confidentiality agreement and the scale required for efficient and strategic asset allocation, family offices may sometimes limit the number of clients they take in, with a minimum wealth requirement of $200 million.
In the Asia Pacific, the use of a family office is prevalent, and rightfully so. The region’s first-generation entrepreneurs prefer to pass on their wealth to their young, but because the successors are not yet ready, professionals need to step in and help to maintain, preserve and govern assets.
When did it all begin?
According to the New York Times, the first family office was established by the Rockefellers in the late 19th century. The popularity of such services began to swell in the 1980s, and again in 2005, as the super-rich began to record how their assets grew with the help of a family office.
Traditionally, a single family office is explicitly built for one family. It hires staff tasked to manage investments, legal matters, trusts and philanthropic services. Other services include property management, payroll activities and day-to-day accounting, and so on.
Meanwhile, modern family offices can be classified into four: Class I Family Offices, Class II Family Offices, Class III Family Offices and Class IV Family Offices.
Class I Family Offices provide financial and estate planning. Class II Family Offices provide Virtual-Family Offices that assist in the financial oversight of all liquid and illiquid financial assets. Meanwhile, Class III Family Offices focus on financial services that’s why banks or accounting firms operate them. Class IV Family Offices provide estate services and are run by the family with the help of small support staff.
Issues and Recommendation Solutions
Tax avoidance using sophisticated techniques is one of the leading issues associated with family offices. The US Securities and Exchange Commission lobbies for the favorable conditions that can reduce the tax burden. Allies also urge the US Congress to expand provisions for tax avoidance.
Like in other financial circumstances, open dialogue is critical. Remember that the concept of a family office is broad enough to encompass different services where there are portfolio managers or family principals that also act as managers.
For a large family office, a chief investment officer and an investment committee might be present.
However, small family offices are having a hard time keeping up with regulatory issues. Family offices need to be set up based on the country’s terms of governance rights, structure, investment objects, and management and so on.
The best solution to neutralize all these issues is to go to a competent family office that sets up your wealth structure well.