The family office was frequently a separate entity, with employees ranging from a chief executive or chief financial officer, to a staff of bookkeepers and personal assistants who could do everything from monthly financial statements to booking travel and personal-care appointments.

In a traditional family office, no service or calling is beyond the scope of the office's services. Employees may be called upon to pick up the car from the auto dealership or bail a troubled family member out of jail. In other words, the CEO of the family office is the CEO of the family - sans the parenting. Although, if you speak to those at the helm of a family office, you'll hear stories of the pseudo-parenting and mentoring that is frequently part of the job as the relationships build.

Many of these wealthy families have made their money from success in business. Typically the family office staff will not be involved in the operations or even the accounting for the business. They will, however, be extremely familiar with the business as it relates to the family. The family office will stay on top of loan guarantees, timely reporting to shareholders and the family office itself, dealing with tax planning or other benefit planning as it relates to family members, obtaining current valuations of the company, and making sure that the value of the business is enhanced by smart family and succession planning for that business.

 

PUT THE RIGHT PERSON IN CHARGE

Frequently it is the family lawyer or accountant who sits in the chair of the executive of the family office. Clearly it is a role for an educated financial executive, and not a sales person. This person should be well-versed in many areas, including accounting and recordkeeping systems, law, finance, markets, taxes and risk management. In addition to their own personal experience and knowledge, this person should be able to build a team of subject matter experts in any area to support the family's needs.

The traditional family office may or may not actually manage the financial assets. It should be noted that asset oversight is different from asset management. Oversight typically involves coordination and working with investment advisors and money managers, and not actually selecting the individual investments. The family office may perform due diligence on investment managers and consultants, but not always the actual day-to-day management of the assets.

Those that do get involved with day-to-day asset management are typically those whose fortunes were built by skillfully managing investments and also those that are so large that they built or acquired their own investment management staff.

The common tasks that a family office may oversee include:

Oversight of family assets.

Contemporaneous recordkeeping of all financial assets.

Daily management of property and other real asset holdings.

Preparation of monthly financial reports to show cash flow, income, gains and losses, and a statement of assets and liabilities.

Coordination of advice and services received from the cliente_SSRqs other professionals.

Being responsible for overseeing implementation and ongoing management for each matter under oversight.

Personal concierge services to the family members for personal or business matters.

Family governance and carrying out the wishes of the family matriarch or patriarch.

Oversight of philanthropic activities, foundations or gift trust accounts.

In the traditional family office, where the entity is owned and controlled by the family, there are typically no conflicts of interests or other profit-making activities. The entity's sole purpose is service to the family.

Beyond the traditional family office, there is the multi-family office. In a multi-family office, as the name implies, the entity is built to serve more than one family. The origin of the multi-family office comes from traditional family offices where the family decided to use their team to help others for a fee. But beyond a traditional family office that decides to serve others, many for-profit enterprises have flourished in the multi-family office model.

The multi-family office frequently serves families less wealthy than the traditional family office, but essentially performs many of the same critical functions with respect to the financial side of the family life. For the CPA firm with clients whose net worth exceeds $25 million or so, this model offers lots of potential. The firm is probably involved deeply in many family financial matters and often has a strong personal relationship with the founding or senior members of the family who may have created the wealth.

A multi-family office is typically a for-profit entity. And as such, before you as an individual or CPA firm get involved, you need to seriously consider your offerings, compensation methods and the required licenses.

Many firms will often want to track their time and simply send bills each month based on the time spent. While this can work, it is not the most common method of compensation. More common than hourly charges would be flat fees for a list of covered services. Some firms will also add fees for assets under management. Consider whether it may be appropriate to segregate your fees for AUM versus traditional family office services.

Whether your family office fees are based on hours or flat-fee billing, the issue of licensing will still apply. CPAs can avoid registration as an investment advisor if their investment advice or financial planning advice is merely incidental to the practice of public accounting, and not really advisory in nature. Naturally, this is a very subjective standard and many CPAs that I talk to do not register. For many firms, however, they could be dancing on the edge of a highly regulated industry and should seek professional counsel as to whether registration as an investment advisor would make sense.

You may be deemed by regulators to be practicing investment advice and financial planning to the extent that you get involved in matters such as shaping goals and objectives and providing advice that is more than incidental to the practice of accounting for the family wealth.

 

NOT THE TYPICAL PROFILE

Many multi-family offices do oversee or actually manage assets for their family office clients. Offering these services is easier if you are already a larger investment advisory firm with experienced asset managers on staff. This is not the typical profile of the average CPA financial planning shop, and these are not the types of clients where you should be cutting your teeth in the investment advisory business.

A model that makes sense here is to affiliate with a firm that already serves the types of clients that you are seeking to serve. This will shorten your learning curve, cause fewer mistakes and allow you to take advantage of a seasoned staff already in place. Of course, you will be sharing fees, but you may net as much utilizing this method as you would if you built something from scratch or if you are making payments from your investment in an advisory business.

I have met many financial advisors who describe their services as a multi-family office, but some of them are, in my opinion, far from family offices. These firms have no separate fees or engagement letters for their family office services, they do not prepare the accounting and financial reports that a typical family office would deliver and they frequently do not deliver written advice for matters other than what are really their core revenue generators, frequently investment or insurance services.

It seems as if "family office" has become a bit of a buzzword in the industry, and some are simply using the term as a sales pitch, with little attention actually being paid to the services being provided by someone who only serves the family office needs.

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