Family offices are lately the talk of the town, and with the increase in the number of high-net-worth individuals in our country, they are more relevant than ever. There is an increasing trend of first-generation entrepreneurs and top management professionals turning to family offices for wealth management.
But what are family offices, what do they do exactly and do they differ from conventional wealth management services? Let’s find out.
A Family Office is an advisory firm specialising in managing the wealth of affluent families or individuals. These privately owned entities exclusively focus on the growth and intergenerational transfer of family assets of ultra-high-net-worth individuals.
Family offices do not invest funds pooled by third-party investors but operate with a single or multiple family’s assets. Although traditionally family offices have been used to manage the intergenerational wealth of large business families, in India there is an increased demand for family offices among successful entrepreneurs and accomplished individuals.
Fundamentally, there are two types of family offices – single-family and multi-family.
A single-family office focuses on managing the wealth of a single family and usually has a corporate structure with a CEO, finance professionals, etc.
One of the most well-known Single Family Offices is the Premji Family Office, which manages 10 billion dollars in family assets.
A Multi-Family Office oversees the financial management needs of multiple UHNWI. Multi-Family Offices have the same structure as SFOs and ideally, are required to be registered with SEBI as advisors. Since MFOs work with many families the cost is shared, and they are cheaper than SFOs.
Family Offices offer a wide range of financial and non-financial services, some of the most prominent ones are-
Investment Management – This is a primary function of family offices and includes functions like asset allocation planning, structuring, product selection, investment execution, risk management, and reporting.
Wealth Structuring & Succession – This involves creating and managing wealth-holding structures like trusts, LLPs, etc. It also involves planning the wealth transfer to the next generation.
Family Governance – This function applies to large families and involves creating ground rules for family members to avoid disputes. It also includes managing family disputes.
Philanthropy – involves planning for the family’s charitable endeavours. The family offices will be responsible for identifying causes to support and keeping track of the progress made in different initiatives.
The major difference lies in their client focus, wealth managers and financial advisors offer standardised services to a wider client base. They focus mainly on investment management, Financial planning, and Tax planning. Also, wealth managers earn money by selling financial products to their target clients. This means the advice is based on commission.
Family Office on the other hand offers a plethora of personalised services to UHNW, like lifestyle management, long-term wealth planning, succession planning, and even next-gen training.
With the boom in the startup ecosystem in India, startups have become a highly sought-after investment class. Startups have the potential for high returns with valuations hitting the roof on many startups, some even becoming unicorns( valuation of $1 billion and more).
Many families are also keen to invest in promising entrepreneurs revolutionising traditional industries.
