Family Office: Definition, typical Tasks & for whom it is worthwhile

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Butlers and chambermaids have become rare, which cannot be explained by lowered expectations of the rich and super-rich. The situation: concentration and increase in wealth on the one hand and skepticism toward established financial advisors and banks on the other. The demands have grown and in the last ten years have caused an industry to grow: the family office. Without bank guidelines, specialists there take care of the preservation of large family assets.

But why are family offices often more suitable for entrepreneurs to preserve what they have created than traditional asset managers?

The most important at a glance

• A family office is a company that manages large assets of an owner family.
• In comparison to traditional asset management, the family office takes on additional activities related to the assets. These include, for example, the development of suitable investment strategies, controlling, administration or mediation in the case of far-reaching decisions.
• Above all, better control and the authority to issue instructions to the players are among the main advantages.
• There are so-called single family offices and multi family offices. The difference is whether the assets of one party are managed by several parties.
• Everon makes possible what was previously only open to wealthy families. Wealth management via a Multi Family Offices for normal earners and access to first-class financial products.

Family Office: Definition & History

The term family office is not clearly defined. In general, it is understood to mean a company that manages large private assets independently of banks. The priority is to preserve the assets and, ideally, to increase them. To this end, specialists develop suitable strategies and take care of legally compliant investments.

The essential difference to the classical asset management, for example at a bank: The asset managers of a bank are under instruction and control of the bank. The family office is exclusively bound to the instructions of the owner family.

The idea from America: separate family companies for optimal management of family assets

In 1838, the Morgan family of entrepreneurs founded the first family-owned company to manage their assets: “House of Morgan” was thus the first family office. The Rockefeller family followed suit with the founding of their family office in 1882. Over the years, more and more wealthy families followed these examples.

Single Family Offices and Multi Family Offices

Since the term family office is not defined by law, you will find different organizational forms in practice. One important distinction is the number of families per office.

Single Family Office

In a single family office (SFO), only the assets of one family are managed. It is either integrated into the company as an “embedded SFO“, or the company is managed separately.

Multi Family Office

Families with assets of around 15 million swiss francs or more can call on the services of a so-called Multi Family Office (MFO) to manage their assets. These are service providers with a high level of expertise in the management of large family assets. The main difference to a single family office is that they work for several families.

The experts working for a multi family office have usually acquired their expertise at banks or management consultancies. Multi family offices often emerge from single family offices, which today also make their organization and know-how available to external clients.

The essential services at a glance

Compared to other asset managers, such as banks, family offices have a different approach: In most cases, an independent and individually operating family office does not sell its own products. When compiling the service catalog, the interests of the family are what count first and foremost, detached from yield optimization. It is therefore about the holistic approach, which clearly goes beyond short-term profitability. The family office acts in the interest of the family’s long-term wealth preservation and involves external specialists where appropriate.

The classic tasks of the family office are:

• Developing and planning investment strategies for the assets
• Implementation of the strategies in the form of fiduciary transactions
• Consolidation of different asset areas
• Monitoring performance and developing a reporting system
• Legal and tax advice
• Planning of succession and inheritance (acting as mediator between the parties involved, if required)
• Establishment of foundations
• Administration including accounting for the assets
• Establishing risk parameters and monitoring them
• Planning and execution of charitable engagements
• Real estate management
• Personal services such as travel arrangements for family members or assistance with health care proxies

Since the tasks are based on the requirements of the respective families, the list can be expanded as needed. The assumption of partial tasks is also conceivable.

The differences: family office vs. asset manager

The tasks of a family office are not regulated by law in Switzerland. However, there are associations in which interests are bundled and requirements for new members are defined.

In these associations, the admission requirements for new members are clearly regulated. These aspects often come into play:

• Independence of the institution: The focus of the company should be exclusively on the family office service. Thus, it must not be a partial service of a provider offering other services, such as tax advisors or banks.
• Focus on total assets: The holistic management of the family’s assets is an essential characteristic of the family office. It offers not only special services, such as the management of the securities portfolio or real estate management. Consulting services, administration, management and controlling are performed for all asset classes.
• Monitoring functions as well as coordination: The family office advises and assists in the selection of providers and coordinates as well as controls the commissioned services. The players do not conduct their own asset management and do not broker any financial products themselves.
• Fee compensation and revenue transparency: Fee compensation by the commissioning family dominates. Any commission payments from third parties must be fully disclosed and may only be collected after consultation with the family receiving the service.
• Congruence of interests: The activities of the family office are exclusively focused on the interests of the family in question. Own business interests are put aside.
• Impeccable reputation: The seriousness is confirmed by a reputation confirmation of established members of the association.
• Code of honor: This confirms the observance of ethical principles, which are documented in the association’s statutes.

The independence as well as the overall asset focus show: The services cover all issues and tasks that arise with assets. For example, in the case of a real estate investment, it is not only the expected return that counts. Tax issues and questions relating to inheritance, property management and the overall structure of the assets are also taken into account. The consulting services are thus also always aimed at the possible effects of future generations.

In refraining from operational activities for Multi Family Offices, the increased concern for security is taken into account. While decent returns are desirable, the priority is asset preservation.

Legal requirements

FINMA has dealt with the licensing requirements for family offices. To this end, family offices must meet personal, financial and organizational requirements. These regulations include risk control, experience and suitability of the management, collateral or professional liability, minimum capital and proof that they are supervised by a supervisory organization.

Compared to traditional asset management, family offices provide a whole range of additional services for the families they serve. For this reason, a distinction must be made between multi-family offices with regard to the obligation to obtain a license. Not all activities offered are subject to licensing. This is relevant, for example, if no operational activities are performed, as described above under point 3.

In Switzerland, the individual activities must also be considered. According to this, there are obligations to join a self-regulatory organization (SRO) to combat money laundering or to submit to the Swiss Financial Market Supervisory Authority FINMA. Furthermore, an AMLA officer must be appointed with the obligation to attend annual money laundering training courses.

The investment forms show the long-term strategies

The “Global Family Office Report” was created in 2020 from a survey of 121 family offices. The results provide information on the most important investment forms and you can see the ranking of the asset classes below:

• Equities (29 %)
• Bonds (17 %)
• Private equity (16 %)
• Real estate (14 %)
• Liquidity (13 %)
• Other (11 %)

Other statistics also confirm that family offices invest money where it can grow safely over the long term. The principle applies: “We do not speculate with large assets“. Therefore, shares, real estate as well as company participations dominate. The addition of a relatively high proportion of bonds underlines the security aspect. In the real estate asset class, family offices are also increasingly shifting from commercial real estate, which is difficult to calculate, to residential real estate.

Family offices have evolved into large investors that increasingly participate in start-ups (venture capital) with risk capital. Here, their experience as their own entrepreneurs plays a major role in assessing the commitments. Finally, they use their entrepreneurial expertise in this way to positively influence returns as part of a balanced investment mix. In general, one of the considerable advantages is that you can influence the investment forms yourself, compared to a traditional asset manager.

Under which conditions is a family office worthwhile

The staffing of a family office adapts flexibly to the needs of the asset owners. In addition to the holistic and interest-congruent approach, cost advantages can play a role. However, it is not only prominent operators of their own family office, such as the Swiss pharmaceutical billionaire Hoffmanns family (Roche) or Sandoz, who enjoy the advantages of self-determined asset management. The various forms of organization, especially in the area of multi family offices, enable an increasing number of asset owners to manage their assets independently of banks.

Single Family Office

Without a doubt, the Single Family Office is the highest form of independence. Since this involves fixed costs, experience has shown that it can be operated in a commercially sensible manner for assets of around 250 million or more.

Multi Family Office

From assets of around 15 million, you can have them managed by a Multi Family Office. The market for providers has grown in line with the increasing demand. It is not only service providers that have evolved from a single family office that offer asset management. In recent years, new multi family offices have also emerged independently of families.

The market is growing and attracting more interested parties

Progressive digitization has now even found its way into individual wealth management. This by no means only refers to the robo advisors that have emerged in recent years.

The family office market is also evolving and is now not just the preserve of high earners. Everon is one of the first digital family offices, with the fundamental difference that asset management is now also open to normal earners.

family office organization is the foundation of efficient and secure wealth management

One of the greatest advantages of the family office is the comprehensive control over one’s own assets. In the case of a single family office, this control is exercised by specialists who report to the asset owner.

Many accounting firms maintain specialist departments that assist the owners by providing professional know-how during the formation process.

In the Multi Family Office, the separation of consulting and operational business is the best form of security, even according to some solid providers. This also guarantees asset management that is congruent with interests. You should always be critical of providers who launch or broker their own financial products.

Switzerland as a financial center: high in the ranking of family offices

The worldwide increase in assets has triggered a boom in family offices in connection with the financial crisis. The published figures are based on estimates and are therefore inconsistent. While some talk of a good 4,000 providers in Europe, others assume 7,300. What is uniform, however, is the description of a clear upward trend.

In Europe, Switzerland – along with Great Britain and Germany – is very popular. The American management consultant Celent describes Switzerland as the hub for family offices in Europe. The market is best developed here and shows enormous growth potential. Big names from Switzerland have their own family offices here. In addition, the list of offices includes no less well-known personalities from Germany, Italy, Greece and France. They prefer to draw on the expertise of employees from Switzerland. Among them are not infrequently portfolio managers from major banks.

The main advantages of the family office

The particular advantage of having your own family office is the optimal control over your own assets. An efficiently structured family office ensures management that is congruent with the interests of the family in a way that the direct link between the bank and the family cannot. It allows an individual control of the assets in the sense of the family. With a well-organized family office, there are no hidden fees and the total costs are usually more favorable above a certain level of assets.

Conclusion

With a family office, you lay the foundation for organizing wealth management. What was previously reserved for wealthy families is already possible for consumers with medium capital with digital providers such as Everon.

The structure of the assets is thus not based on fixed parameters as they arise from the offers of the providers of financial products. Instead, all strategic considerations focus exclusively on the individual interests of the family or investors. This includes one of the biggest challenges of large family businesses: succession.

You, as the owner of the assets, set the return expectations and are not guided by the benchmarks of the major indexes. It should be noted that with a family office, especially with large assets, the return is already positively influenced by cost advantages.

Family offices are now regarded as welcome investors. Banks have set up their own departments to look after them. Advisors know that family office players bring a high level of expertise and are used to having investments tailored for them. The relationship is reversing: The family office constructs an investment and several banks compete for the contract. As a result, the banks’ margins are crumbling in favor of many family offices’ returns.

The concept of asset protection can be viewed from many perspectives. If you, as a wealthy family, want to sustainably secure the lifestyle you have achieved, preserve what you have created, and think across generations, a family office is the optimal instrument for this.

Continue reading in our journal:

• More about digital wealth management
• Background on private banking
• More about long-term investments
• Types of asset management mandates