Family office: What does it entail and do I need one?

One of the ways of managing wealth for high-net-worth individuals is to utilise a family office. FILE PHOTO | SHUTTERSTOCK

All of us on some level desire to be wealthy or harbour ambitions of success that today is largely measured by how much you have in the bank or in assets.

Once you have attained these dreams and climbed to the one percent, it is imperative that you make your money work for you and achieve a state where you are making money in your sleep, so to speak.

One of the ways of managing wealth for high-net-worth individuals (HNWI) or ultra-high net-worth individuals (UHNWI) is to utilise a family office.

What is a family office you ask?

This is a private wealth management advisory firm that serves high-net-worth individuals.

They are different from traditional wealth management firms in that they offer a total solution to managing the financial and investment needs of an affluent individual or family, a one-stop-shop for your financial needs as it were.

Other services that a family office may offer include but are not limited to financial planning, insurance, charities, wealth transfer planning, trust services, tax services and concierge services. These may differ in different territories according to the laws of the land.

There are two types of family offices. The first is the single-family offices which serve an individual and their family.

The second is the multi-family offices (MFOs) that serve more than one family. The main advantage of the latter is the reduced costs due to economies of scale.

Does one need a family office?

To determine this, we can delve deeper into how they operate. We have already established that they are a one-stop-shop of sorts for the financial needs of HNWI, where among other services, they can also structure succession planning.

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Given the emotive nature and the various complexities that accompany such situations, a family office is probably a good bet in managing the family assets and aligning the interests of the family.

Indeed, one of the most important roles of a family office is educating the younger members of the family in the proper handling of wealth and the various options they have in the utilisation of said wealth.

A prudent family office must of course guide the younger generation in making the right choices even after providing all options available.

In doing this, the family office can help instil in the next generations an appreciation for their wealth and its demands.

With the right education, a family office can help maintain family unity and prevent discord over money issues between the generations.

The family office may often times also handle non-financial issues such as family travel, private schooling and miscellaneous household arrangements.

Family offices, as we have seen are quite versatile, from providing bespoke guidance from a range of experts on the one hand to organising a family’s lifestyle needs and financial wellness on the other.

The spectrum of services that a family office provide is far beyond the capacity of any one professional adviser. It is thus, the responsibility of the family office to bring together a team of professionals from the investment, insurance, estate planning, business, tax and legal professions to then enable comprehensive service to its client(s).

Therefore, in a nutshell, whether or not someone needs a family office depends on the extent and complexity of their wealth, as well as the demands that wealth puts on their family.

Certain situations may require a variety of teams of specialists with access to high-value resources that can address a long list of important issues.

These operations are also usually very expensive to establish and operate, only the ultra-wealthy who have complex financial, investment and personal needs require one and have the muscle to keep one going for generations.

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In Kenya, it is important to speak to an accredited financial adviser to further guide you, as financial needs are usually specific to individuals and in this case families.

It may also be useful to look at other methods of wealth and succession planning vehicles such as trusts, trust funds, retirement plans and other wealth management shops with the guidance of a financial advisor as you build your net worth.

Mr Otenyo is a consultant on retirement solutions. | [email protected]