When Should You Consider Establishing a Family Office?

Ken Hargreaves, CFP®, AIF®, AWMA®, CRPC®

We’re approaching what could be the largest wealth transfer in American history. However, wealth has a way of disappearing. According to a 20-year study of over 3,200 high-net-worth families, 70% lose their wealth by the second generation, and that number jumps to 90% by the third.¹ While Ultra-High-Net-Worth individuals and families are projected to pass down unprecedented amounts of wealth by 2030, history suggests most of this wealth won’t survive the transition.

After working so hard to set your family up for potentially many generations to come, you don’t want to see it squandered, wasted, or simply lost to mismanagement, taxation, and evolving economic situations.

So, how can families help ensure their wealth is there to stick around? In our blog, we’ve talked about trusts, reducing taxes, and risk mitigation strategies. But there’s one thing that can help bring it all together: a family office. A family office is a team of professionals that works exclusively for your family to manage wealth, handle complex financial matters, and ensure proper governance across generations.

Typically, family offices best suit families that have over $100 million in assets. But the question may not simply be “Do I have enough money?” but rather: “Do I have enough complexity to justify this structure?” Let’s take a look at how and when an ultra-high-net-worth family should consider establishing a family office.

When Complexity Necessitates More

You may be wealthy, but having $10 million sitting in index funds doesn’t create the kind of complexity that requires a family office.

Now, imagine juggling multiple operating businesses across different states, each with its own regulatory requirements and tax implications. Add to that a real estate portfolio spanning several countries, a variety of private equity investments that need active monitoring, and perhaps a family foundation that makes substantial grants each year. Now we’re talking about the kind of complexity that might justify a family office, even if your net worth hasn’t hit the traditional $100 million threshold.

A family office brings all these moving parts under one roof, ensuring that decisions in one area don’t unknowingly create problems in another. It’s not just about having lots of assets – it’s about needing active, coordinated management of those assets in a way that a traditional wealth management firm might struggle to provide.

Family Governance: The Challenges of Generational Wealth

Here’s a surprising statistic: 43% of family offices report that their biggest risk isn’t market volatility or economic uncertainty – it’s family member dynamics.² On top of that, only 38% of wealthy parents have fully disclosed their financial status to their adult children over 25, and just 38% strongly believe their children will be properly prepared to handle their inheritance.³ How can a generation be expected to preserve their family’s wealth when they’re left in the dark about their financial reality until it lands in their lap?

This is where family governance becomes crucial. A well-structured family office creates frameworks for decision-making that help prevent conflicts before they arise. They establish clear protocols for everything from how family members can access funds to how the next generation should be educated about wealth management. Think of it as creating a family constitution – a set of agreed-upon principles and processes that everyone understands and follows. This might sound formal, but it’s often the difference between preserving wealth across generations and becoming another statistic in the “three-generation curse.”

The Lifestyle Management Question

Let’s talk about the practical side of wealth for a minute. If you’ve got multiple homes across different countries, a yacht that needs staffing, a private jet that needs maintenance, and a calendar full of complex travel arrangements, who’s keeping track of all that? As your lifestyle becomes more complex, so does managing it. A family office can handle everything from hiring and managing household staff to coordinating private security, managing aircraft maintenance schedules, and ensuring your properties are maintained whether you’re there or not.

Of course, you could hire separate firms to manage each aspect of your life – one for the jet, another for property management, another for staff hiring – but at some point, the coordination between all these services becomes a job in itself. A family office brings all of this under one roof, ensuring someone is always keeping track of the details. They can handle the mundane (making sure the groceries are stocked at your Aspen house before you arrive) to the complex (coordinating security teams across multiple international properties). When your lifestyle reaches this level of complexity, having a centralized team that understands your family’s needs and preferences becomes a necessity for maintaining your sanity.

Understanding the Costs: What Makes Financial Sense?

A traditional single-family office isn’t cheap – you’re looking at annual operating costs between $1 million and $3 million when you factor in a core team (think investment professionals, accountants, legal staff) and overhead. This typically means you need at least $100 million in assets for the math to make sense. Even then, you’re looking at costs of about 1% of your assets annually – not insignificant when you’re dealing with large numbers.

But there are other options. Multi-family offices, which spread costs across several families, can be a good fit if you have between $30-100 million in assets. They typically charge between 0.30% and 0.70% of assets under management for investment services, plus fees for additional services.⁴ There’s also a middle ground that’s becoming increasingly popular: the outsourced family office. This model brings together a network of independent professionals (your existing trusted advisors like lawyers, accountants, and investment managers) who collaborate under one coordinating advisor. It gives you many of the benefits of a family office without the overhead of building one from scratch.

The key is matching the solution to your actual needs. If you’re mainly dealing with investment management and basic tax planning, a traditional wealth management firm might be all you need. But if you’re juggling multiple business entities, complex tax situations across different countries, and need help with family governance, then a more comprehensive family office structure – whether single, multi, or outsourced – could end up being the savior of your fortune by preventing costly mistakes and maximizing opportunities.

In Conclusion

The reality is that most wealthy families don’t need a family office – at least not yet. If your wealth is primarily in liquid investments and your family situation is straightforward, a good wealth management firm, combined with a CPA and perhaps an estate attorney, can handle your needs effectively. But as your business expands into new territories, your investment portfolio grows more complex, or you start thinking seriously about multi-generational wealth transfer, that’s when you might want to reconsider your options.

Until you reach that point, focus on building a strong foundation with your current advisor. If you don’t currently have one or would like a second opinion, feel free to reach out by clicking the button below. We specialize in helping families build and maintain generational wealth with high-tech, low-fee, customized financial planning.

Sources

  1. https://www.forbes.com/sites/forbes-shook/2023/08/24/dont-risk-it-all-areas-of-focus-for-high-net-worth-families/
  2. https://www.forbes.com/sites/francoisbotha/2024/09/08/breaking-the-third-gen-curse-how-family-offices-are-evolving-today/
  3. https://www.businesswire.com/news/home/20140620005091/en/U.S.-Trust-Survey-Finds-Modern-American-Family-Dynamics-Complicate-Wealth-Management
  4. https://www.schwab.com/learn/story/do-you-need-family-office
Disclosures

Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author/presenter as of the date of publication and are subject to change and do not constitute personalized investment advice.

A professional advisor should be consulted before implementing any investment strategy. WealthGen Advisors does not represent, warranty, or imply that the services or methods of analysis employed by the Firm can or will predict future results, successfully identify market tops or bottoms, or insulate clients from losses due to market corrections or declines. Investments are subject to market risks and potential loss of principal invested, and all investment strategies likewise have the potential for profit or loss. Past performance is no guarantee of future results.

Please note: While we strive to provide accurate and helpful information, we are not Certified Public Accountants (CPAs). The information in this article is intended for informational and educational purposes only and should not be interpreted as tax advice. It is crucial to consult with a CPA or tax professional to discuss you

Author

  • A Florida native, and full-time Sarasota resident, Ken founded WealthGen Advisors, LLC after spending more than fourteen years in the financial advisory industry. Ken holds multiple industry designations, as well as a master's degree in Financial Planning. Prior to founding WealthGen Advisors, Ken spent almost a decade in New York and then Texas as Vice President at The Capital Group, a $2T global investment manager serving institutional clients and pension funds.

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