As wealth grows, so does the complication of managing it. This is especially true as generations expand the number of family members, and diverse opportunities -- real estate investment is a prime example -- attract attention beyond passively watching the pile grow.
Enter the family office. While no two are exactly alike, family offices take money management and extend that into areas such as tax and legal services, philanthropy, and lifestyle considerations.
Mike Krueger, a Bay Area attorney whose practice includes the legal machinations of real estate investing -- including extensive current work with opportunity zones -- provides this description of family offices: "It's a high net worth group or family that have engaged one person as a wealth manager, one as an attorney, say, one as a day trader… basically an office full of professionals that usually have one client."
A team integrating wealth, priorities, and values
Family offices are basically for families that want to have a dedicated team to provide key services and achieve long-term goals, such as maintaining control of their assets, preserving their privacy, maximizing family members' collective buying power, and keeping the family together.
That's directly from the Family Office Exchange, which divides the field into two sides: the single-family office and the multifamily office. It provides this definition: "The family office is a unique family business that is created to provide tailored wealth-management solutions in an integrated fashion while promoting and preserving the identity and values of the family."A single-family office is just that -- it wholly serves a single family's needs. A multifamily office, according to the Family Office Exchange, integrates those services into a single firm that serves a limited number of families.
Families with assets of $100 million or more might be best served by a single-family arrangement, while those with $20 million or more might be most efficiently handled by the multifamily office, the Family Office Exchange says.
Such service comes at a price
How much a family office costs might fall under the category of "If you have to ask, you can't afford it." But there are some general parameters available, including in this piece titled "Seven Considerations Before Creating a Family Office" by the private banking and investment management firm of Brown Brothers Harriman.
"High-quality executives (median CEO annual compensation ranges from $290,000 to $822,500), investment professionals (median CIO annual compensation ranges from $226,000 to $684,000), attorneys, and accountants all command six-figure salaries and benefits," that article says.
There are tables in the article that break down the fees, including paying $7 million a year to manage $1 billion in assets. And that's just their pay. Aligning values and objectives is another task.
A little history lesson
Family offices are often associated with family-owned mega businesses. Indeed, America's original oil baron, John D. Rockefeller, is generally credited with creating the first family office. But according to Tharawat Magazine, the idea has been around for a while.
"While today's family offices are a modern phenomenon, they have always existed in various shapes and sizes since ancient times," the magazine says in a piece penned by UBP senior wealth planner and family office advisor Jan van Bueren.
He points to Augustus Caesar, the Roman emperor who personally owned a large piece of an empire that accounted for about a fourth of the world's GDP at the time (27BC-14AD). "In the distant past, wealth and possession were almost always connected to rulers and the ruling class because they were the only ones with the power and means to amass vast wealth," van Bueren writes.
"But what is often forgotten is that their fortunes needed the kind of management and stewardship that we can see today."
Hard to quantify, but more on the way
Because they elude a pat definition, van Bueren says, they're also hard to quantify.
"Interestingly, single-family offices often don't carry the title of 'family office' and it's not uncommon that a family does not realize that the services they have lined up fall under that umbrella," van Bueren writes.
"Single and multifamily offices will continue to grow in number," he adds, "not only because there will be more affluent families, but because families now want to exert more control over their wealth."
11% of the mega-wealthy swear by this investment…
The richest in the world have made their fortunes in many ways, but there is one common thread for many of them: They made real estate a core part of their investment strategy. Of all the ways the ultra-rich made their fortunes, real estate outpaced every other method 3 to 1.
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