WHAT IS A FAMILY OFFICE?
Maximizing wealth potential and preserving wealth across generations remains a chief concern of Ultra High Networth Individuals (UHNI). However, to comprehensively attend to the scale of services required to maximize and preserve wealth at this level, typically, a family office is required.
A family office is a privatelyheld wealth management advisory organisation that manages the totality of investments and wealth for UHNIS with the goal to effectively grow and transfer wealth across generations. They differ from traditional wealth management firms, in that, they are typically made up of a team of professionals across the several disciplines required, to successfully manage the complexities of the family’s the wealth portfolio.
GLOBAL DATA ON THE GROWTH OF FAMILY OFFICES
The concept was first pioneered in Europe by the rulers and the ruling class but formalized in the United States by the Rockefeller family, when in 1882, Rockefeller established an office of professionals to organize his business operations and manage his rising investment needs, with generational wealth transfer as a crucial undertaking.
Since then, there has been a significant increase in the number of family offices, globally, proportionate to the increase in the ranks of the UHNIS. As of Q2 2019, Campden Research estimated that there are 7,300 family offices worldwide, with a marked increase in numbers between 2017 and 2019.
NUMBER OF FAMILY OFFICES BY GEOGRAPHICAL LOCATION
While the primary intent behind the establishment of a family office is wealth management, in some cases, especially for single family offices, it also includes organising philanthropic initiatives, family counselling, concierge services, and trust/ estate planning.
STARTING A FAMILY OFFICE
The UHNI may choose a singlefamily office ( SFO) or multifamily office (MFO); the former is run by and serves one UHNI, while the latter serves multiple families. SFO activities are typically broader and more tailored than MFOS as they generally develop gradually in response to the unique organisational, managerial and maintenance of all or part of needs of the family. Their support ranges from non-financial needs, such as tax and legal services to lifestyle management.
While MFOS may provide similar services, the key difference between the two is that MFOS are commercially operated companies that aim to generate profit for themselves, in addition to the families they work with, and they are becoming increasingly popular because of the economies of scale.
Advisedly, an individual or family should have a minimum of USD 100 million in investable assets for the services of a family office to be profitable. A singlefamily office costs $1million, typically, to maintain each year depending on the complexities of the family’s needs and is mostcost-effective for families with a networth of USD 500 million and above. Family offices are as distinctive and multifaceted as the families themselves, thus, UHNIS must pay particular attention to the intricacies of their needs and objectives in making a decision.
It is widely acknowledged that most family businesses and assets are rarely sustained by the 2nd generation and a high number of those that do, expire by the 3rd generation. This is especially problematic for an entrepreneurial, developing nation like Nigeria where most businesses or investments do not survive their originators, meaning that each successive generation begins from scratch to build wealth, negatively impacting the rate of economic growth in the nation.
A key driver for the retention and successful transfer of wealth is succession planning, and most UHNIS choose to establish family offices because they want more control over their investments. Recently, the wealth of the shareholders of Nigeria’s biggest companies declined significantly because of the Naira devaluation, economic recession and the global pandemic. As such, this may present an opportunity to review the state of one’s assets and determine if a family office, -single or multiwould be more fitting.