Family Office -Philanthropy (2)
Family philanthropy is also capable of providing wealthy families with a mission of service to others. This mission often brings the family together and forces it to organize itself to do something larger and more transcendental than minding the financial wellbeing of its members. Much as in the Bill and Melinda Gates Foundation, family philanthropy often becomes the purpose that keeps bringing a family together, to work together. The Harris family, owners of the Display Company, ultimately decided to sell the family business. But they continued to meet as a family, in a family council, to do the work of the Harris Family Foundation.
This brings us to the way in which many enterprising families organize themselves to further their philanthropic objectives. Usually, philanthropy is an important subject in family council meetings. Here guidelines for giving, criteria for selecting gift recipients and policies for evaluating the effectiveness of the giving are developed. Gift decisions are then made. And the management of the work of the philanthropy is delegated either to a family member or to a foundation professional, depending on the size of the philanthropy and the complexity of its portfolio of charities. In many cases, families also launch a separate foundation board to oversee the work of the foundation and to reap the rewards of engaging, through the foundation, those family members who may be the least likely to be attracted to business matters.
Family philanthropy and family foundations, then, are part of the arsenal of governance mechanisms available to families in business, and to wealthy families in general. Not only do they help achieve important social goals that may be totally unrelated to the economic function of the family’s enterprise, but they also help nurture family unity by recognizing that non-economic goals also have a place at the family table. Family unity, after all, is good both for the family and for a family enterprise that thrives on patient family capital.
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Family Office – Assisting Shareholders
A growing number of second- and later-generation family firms are creating family offices to assist shareholders in their owner duties and responsibilities. Although the services offered vary, family offices can
shoulder primary responsibility for:
- Joint family investments
- Family philanthropy
- Family private equity and venture capital investments
- Tax and legal advice to shareholders, tax-return preparation
- The filing of required legal documents on behalf of the shareholder
- Shareholder education
- The planning and execution of family-council meetings, shareholder meetings and family assemblies
- Administration of shared assets or properties—forexample, a family vacation property, farm, or ranch
With roots in Rockefeller’s Room 56 (so named because the family office originally operated out of Rockefeller Plaza’s suite 5600 on the 56th floor) and in the family office at Cargill, the largest private corporation in the world, many leading families today rely on their own family office or a shared service family office, a multifamily office. The latter, usually housed in the family office of a larger family, represents a way to outsource the administration of a family office, with its corresponding cost savings. Family offices assist family members with their ownership
and wealth responsibilities, and help make the owner/company or family/wealth relationship a more positive and disciplined one.
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Family Office Services – Part A
At the heart of any family office is investment management. However, a fully developed family office can provide a number of other services, which range from training and education to ensuring that best practices are followed in family governance. First we will have a look at financial planning:
Investment Management Services
Typically this will be the main reason for setting up a family office, as it is central to ensuring wealth preservation. These services include:
- Evaluation of the overall financial situation.
- Determining the investment objectives and philosophy of the family.
- Determining risk profiles and investment horizons.
- Asset Allocation – deciding on the mix between capital market and non-capital market investments.
- Supporting banking relationships.
- Managing liquidity for the family.
- Providing due dilligence on investments and external managers.
Philanthropic Management
An increasingly important part or the role of a family office is managing its philanthropic efforts. This might include the establishment and management of a foundation, and advice on donating to charitable causes. These services would typically involve:
- Philanthropic planning.
- Assistance with the establishment and administration of charitable institutions.
- Guidance and planning a donation strategy.
- Advice on the technical and operational management of charities.
- Formation of grant-making foundations and trusts.
- Organizing charitable activities and related due dilligence
Life management and budgeting
Some of these services are typically defined as concierge in nature, but they are broader in scope inasmuch as they also include budgetting services. Services under this heading include:
- Club (golf, private,etc.) memberships.
- Management of holiday properties, private jets and yachts.
- Budget services, including wealth reviews, analysis of short- and medium-term liquidity requirements, and long-termm objectives
If you have questions regarding any of the mentioned points – don`t hesitate to contact us.
Why set up a Family Office?
As concerns about wealth preservation and succession planning within family businesses continue to rise, wealthy families are incresinglyevaluating the benefits of setting up a family office.
There are some good reasons to set up a family office
There are many reasons why setting up a family office makes sense, but root of these is the desire to facilitate the inter-generational transfer of wealth and reduce intra-family disputes. This desire inevitably increases from one generation to the next, as the complexity of managing the family´s wealth grows. Without being exhaustive, the following points set out the reasons why a family office makes sense:
- Governance and management structure
A family office con provide governance and management structures that can deal with the complexities of the family´s wealth transparently, helping the family to avoid the future conflicts. At the same time, confidentiality is ensured under the family office structure, as wealth management and other advisory services for the family members are under a single entity owned by the family.
- Alignment of interest
A family office structure also ensures that there is a much better alignment of interest between financial advisers and the family. Such an alignment is questionable in a non family office structure where multiple advisers work with multiple family members.
- Potential higher returns
Through the centralization and professionalization of asset management activities, family offices may be more likely to achieve higher returns, or lower risk, for their investment decisions. Family offices can also help to formalize the investment process, which mayhelp to maximiseinvestment returns for all family members.
- Separation
Familly offices allow for separation, or at least distinction, between the family business and the family´s wealth or surplus holdings.
- Centralization of risk
Family offices allow for operational consolidation of risk, performance management and reporting. This can help the adviser and principalsto make more effective decisions to meet the family´s investment objectives.
- Centralization of other services
Family offices can also coordinate other professional services including philanthrophy, tax and estate planning, family governance, communications, and education to meet the family´s mission and goals.risk
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