Concerns about setting up a Family Office!
The establishment of a family office is a major undertaking and there have been cases when family offices have not met the family´s expectations. Some potential concerns about setting up a family office are:
This is something every family needs to be aware of. The cost of regulatory and compliance reporting remains high, which means that the level assets under management by a family office needs to be high enough to offset its fixed costs.
- Market, Legal and Tax Infrastructure
Family offices function better when operating from centers where there are sophisticated markets and legal tax structures. The absence of these in emerging markets has undermined the development of family offices there.
- The Multi-Family Office offering
To address the problem of the high operating costs of a family office, families often set up multi-family offices (MFO) in which several families pool their wealth. These MFO will often be directed by the lead family that initiated the office. In MFO, all assets are managed under one umbrella. However, MFO typically cater to a range of family sizes, wealth and maturity levels. This means that families can run the risk of not receiving the same level of personalized advice as in dedicated single family office set up.
When considering establishing a family office, some people see potential positives and negatives. This tends to be particularly prevalent in the following areas:
- The Preference for Privacy
Some families may be hesitant about consolidating their wealth information through centralized family office structure.
- Trust of External Managers
Setting up a family office is typically contingent on the level of trust and comfort families have with external asset managers. However, trust typically stems from longstanding relationships withh external managers.
- Expectations on Returns
Ultimately, family offices rely on their longevity through ensuring wealth preservation. The difficulty of securing market returns in recent years has led to some tension in this respect. Furthermore, during generational transitions, family office structures can bbe tested, often to the point of destruction, as the next generation presses for different goals and objectives to manage the family´s wealth.
Your welcome to add, if you feel some important points are missing.