The purpose of a family office is to organize and centralize the management of a family's personal and financial affairs, and to maintain the financial house in as good an order as that of a well-run public company.

The origin of the family office concept came from extremely wealthy families, with net worth in today's dollars well in excess of $100 million. The family office was frequently a separate entity, with employees ranging from a chief executive officer or chief financial officer, along with a staff of bookkeepers and personal assistants that could do everything from monthly financial statements through booking your 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, minus the parenting. Although, if you speak to those at the helm of the family office, you'll hear stories of the pseudo-parenting and mentoring that is frequently part of the job as the relationships build and expand to other family members.

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, 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.



It is not uncommon for the family lawyer or accountant to sit 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 record-keeping 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.

For example, some family offices own property, businesses or investment accounts overseas. Unless this represents a majority of the family's interests, the CEO of the family office would not necessarily need to be an international expert, but should positively have experts on the family office team who are extremely well-versed in such matters.

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 coordinating 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. Family offices that do get involved with day-to-day asset management are typically families whose fortunes were built by skillfully managing investments or the very wealthy families who may have built or acquired their own investment management staff.



The common tasks that a family office may oversee include:

• Comprehensive oversight of family assets.

• Contemporaneous record-keeping of all financial assets.

• Daily management of property and other real asset holdings.

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

• Coordinate the advice and services received from all of the client's other professionals.

• Be 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 family philanthropic activities, foundations or gift trust accounts established.

• Oversight and management of trusts and other entities established to carry out the family's objectives.

Each family has its own set of unique issues, and each family wants to delegate some or all of these matters. But in a 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 are firms known as the multi-family offices. 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 and CPA firms 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.

Clients who are candidates for these services are clients who are busy. They have assets and investment accounts in many places, like to spend their time travelling, with the family or on the golf course, and not looking at their statements and doing their own record-keeping. Don't pre-judge either the simplicity of a basic bill-paying and record-keeping service or the cost/benefit associated with outsourcing this clerical necessity to a professional services firm. Let your client decide if they'd rather spend money to have the records kept timely and accurately while they enjoy the fruits of their labor.

The accounting firms that often serve these types of clients are larger firms with old-school partners who want nothing to do with matters beyond accounting and tax. Left to them, your firm will never add these services. It may take a strong managing partner or management committee to officially add this service to the menu of offerings for the firm.

A multi-family office is a for-profit entity. And as such, before you as an individual or accounting firm can start, you need to document your value proposition, compensation methods and any licenses that may be required.

Many CPA 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 would be flat fees for a list of covered services. Some firms will also add fees for assets under management. If your firm does prefer to be paid for assets under management or advisement, then a separate entity and either licensing as a registered investment advisor or a fully disclosed solicitation agreement with another RIA would be required.

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 the engagement is pure record-keeping or 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 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.

Don't let the name "registered investment advisor" fool you. The RIA license and registration is the same license that covers all financial planners. You may be deemed by regulators to be practicing 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. Registration as an investment advisor will also subject you to the same rules about compensation, marketing and regulatory audits as any other financial services firms registered as RIAs. If your family office service gets involved in check signing, then your scrutiny as an investment advisor would be heightened, as you would be deemed to have custody of your clients' funds. Avoid custody and check signing if you can. A better way would be to queue up the clients' bills to be paid, but make them at least sign the checks or electronically release the funds for payment.

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 with the firm with whom you affiliate, but you may net as much utilizing this method as you would if you built something from scratch.

With the CPA firm heritage in record-keeping and financial analysis, there aren't many professionals who can do a better job. Start small, and consider taking on one or two clients in the first year. If it is something that your clients appreciate, then take it to the next level for your other clients who may also benefit from this higher level of service.


John Napolitano, CFP, CPA/PFS, is chairman and CEO of U.S. Wealth Management, in Braintree, Mass. Reach him at (781) 849-9200.

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