Family enterprises are expanding, and as they do, the need for a family office becomes more apparent. A family office is a private wealth management advisory firm that provides comprehensive financial services to ultra-high-net-worth individuals or families. Its primary goal is to preserve and grow the family's wealth over multiple generations. In this article, we will explore how to start a family office, including the definition and goals of a family office, steps to establish one, and tips for monitoring and evaluating performance.

Defining a Family Office: Goals and Objectives

A family office offers tailor-made financial and investment services to meet the unique needs of a family accordingly. Its ultimate goal is to help the family achieve long-term objectives like preserving the family legacy, maintaining financial security, and passing on wealth to future generations. In addition to managing investment portfolios, a family office can provide a wide range of services, including tax planning, estate planning, philanthropy, and governance.

Step 1: Determine Your Family's Needs and Objectives

Straight forward enough, the first step is to assess your family's financial situation, goals, and values. Services and resources such as investment management, tax planning, philanthropy, etc. from your family’s requirements are the priority you need to identify. A definition of your family's long-term objectives, such as preserving family wealth, supporting family members, and giving back to the community is also a must in your to-do list.

Step 2: Decide on the Type of Family Office

There are three main types of family offices: single-family office (SFO), multi-family office (MFO), and virtual family office (VFO). 

A SFO serves one wealthy family and provides highly customized and personalized services. In contrast, a MFO serves multiple wealthy families, offering a broader range of services and resources but with less customization. A VFO is a combination of in-house staff and external service providers that work together to provide wealth management services to a family, offering flexibility and cost-effectiveness compared to the two former types of services.

Step 3: Determine the Staffing and Resources

Once the type of family office is decided, you need to determine the staffing and resources required to operate the office. This includes identifying the key roles and responsibilities to the office, for instance,  the chief investment officer, chief financial officer, and chief operating officer. You also need to consider the office space, technological infrastructure, and external service providers, such as lawyers and accountants.

Step 4: Establish Policies and Procedures

To ensure the smooth operation and governance of the family office, policies and procedures must be established immediately to govern the management, investment, and distribution of family wealth. This includes defining the decision-making process, investment strategy, risk management framework, and communication protocols.

Step 5: Monitor and Evaluate Performance

Last but not least, monitoring and evaluation of the performance to the family office on a regular basis is a must. This procedure involves assessing the investment performance, compliance with policies and procedures, and overall satisfaction of family members. Also, a review and update of the family office's objectives and strategies based on changing market conditions and family needs should be conducted thereafter.

In Conclusion

Establishing a family office requires careful planning and execution. These steps are meant to be ten times more significant for a small family office as a well-developed operating system helps you manage the business more efficiently. By following the above steps, you can create a family office that meets your family's unique needs and objectives, and helps you achieve long-term financial and personal success. Be reminded that a family office is a long-term commitment, and it requires ongoing attention to maintain its effectiveness. With the right approach, a family office can provide peace of mind and financial security for generations to come.