When is the right time to create a Family Office

November 1, 2022


Family wealth that transcends generations is not the result of luck (with a few exceptions), rather the result of a lot of effort, a long-term strategic plan and excellent management and organization. Without these components, it is difficult for a family’s wealth to be preserved over time.

When we talk about less valuable assets, managing them is not usually a problem. Sometimes it can be done by the owner of the assets and sometimes it can be done with the assistance of a financial advisor who plans investments and adapts them to their objectives and goals. 

However, when it comes to organizing a very large family fortune, other issues come into play, such as family cohesion, domestic wealth management, legal or tax advice, among many other issues. It is at these moments when the need to create a “family office” can and should arise.

What is a family office?

The so-called family offices are constituted as a private company that is created with the objective of managing and preserving wealth in a family. Family offices are in charge of managing everything related to family wealth, such as investments, inheritance planning and family governance issues, tax issues, insurance, pension plans, real estate, boats and airplanes management, etc. They are usually made up of managers, trustees, financial advisors, accountants, tax specialists and legal experts, etc. 

There are two options when considering a family office for wealth management:

  • To use a “single family office” (SFO). As its name suggests, this is a company that is for a single family. This means that the professionals who manage the fortune of this family group will do it exclusively for them.

  • To use the services of a “multi-family office (MFO)”. If the wealth is not large enough to form a family office of its own, the best option is to use a multi-family office, which is a wealth advisory office for different families whose cost is usually cheaper since there is no exclusive dedication “multi-family office” (MFO). Si el patrimonio no es lo suficientemente elevado como para formar un family office propio la mejor opción es acudir a uno multifamiliar, que se trata de una oficina de asesoramiento patrimonial para diferentes familias cuyo costo suele ser más económico al no existir dedicación exclusiva.

When is it appropriate to create a family office

The creation of a family office is necessary when there is a certain amount of business wealth that, due to its volume, is difficult to manage. It can also happen that a family cannot agree when it comes to managing the wealth and needs to delegate this management. Sometimes families or individuals inherit or gain wealth in very short periods of time and are not able to manage such fortunes, for example, sportsmen or lottery winners. 

The main reason for a family to create a family office is to preserve their fortune and to ensure that it will last for future generations managed as a single unit.

How does a family office work?

Family offices manage global family wealth in a personalized way. With the constitution or hiring of a family office, the aim is to have greater control over the wealth in order to manage it in a comprehensive manner, guaranteeing its preservation over time. 

To this end, the services on which these types of companies are based are:

  • Wealth management. By means of wealth management, the family and corporate structure is reviewed, a family protocol is organized and adjusted over time to plan the generational handover.

  • Wealth growth. Growth is sought through a global investment strategy, which contemplates both investment ideas and opportunities, as well as the follow-up that these involve.

  • Family relationships. One of the significant and differential points of the services offered by the family office is the care of family members at all levels.

Who can help me create a family office?

If the main objective of the family wealth is to guarantee its preservation and growth so that it can be passed on to future generations and we are considering the creation of a family office, we will first have to analyze the volume of the fortune, since it will be necessary to evaluate if we need to create a single-family office or if it will be enough to turn to a company specialized in multi-family advice that can be in charge of all the management.

If your wealth is large enough to create a single-family or multi-family office, you can turn to specialized advisory firms that will help you create the foundations and structure to manage the family fortune in an optimal and effective way.

By Florencia Ribes.