6 Best Practices For Single Family Offices

Over the past decade, an increase in private wealth, along with a lack of advisors with the ability to provide for the needs of ultra-high net worth families, has fostered the creation of more single-family offices than ever before.

As the growth in family offices continues, there is a definite necessity for those involved in family offices, whether directly or as service providers, to consider both the financial and non-financials sides of the business equally.

For banks, strategic planning on both fronts may identify new opportunities that necessitate the inception of independent advisories equipped to assist clients with the set-up of entire operations. A service that is becoming a necessity as exits occur or the next-generation cashes out on family businesses and seeks to set up new family offices, often approaching their family’s bank by virtue of the fact that they are a trusted advisor.

This week, Morgan Stanley Family Office Resources announced the launch of their new Single Family Office Best Practices report. The report was a collaborative effort between Morgan Stanley’s Single Family Office Advisory team along with the company’s wealth management professionals and single-family office executives as well as the Family Office Resources team and the network of preferred providers in the Morgan Stanley Signature Access program.

The report offers insight into the considerations and best practices for single-family offices based on six core issues Morgan Stanley clients raise most often as they seek the best ways to drive mission and impact. Here is a summary of best practices for those involved in family offices to consider.

 

1. Mission and purpose

Mission statements have been around since the 1940s. While every organization seems to be creating one, very few seem to have any notable significance and may occasionally even prove counter-productive.

This, however, does not have to be the case. When family office purpose, mission and vision statements are customized and crafted according to the single-family office service needs and act as the foundation for strategic decision making, linked to measurable results, they can be highly beneficial.

The Morgan Stanley report begins with an exploration of the family’s mission statement and encourages families to engage in meaningful discussions to define their mission so that they can answer one critical question – is a family office necessary?

The report’s authors believe that such discussions allow families to discover whether conducting their affairs through a single entity best serves them. If the answer to this is yes and a shared purpose unites the family, every aspect of the family office can flow and be evaluated against the family’s mission. Samples and guidelines on how to formulate documentation surround this are also included in the report’s appendices.

 

2. Set-up and Operations

When establishing and operating a family office, several vital factors need to be carefully considered. The second chapter of the report is devoted to these, encompassing everything from selecting a legal entity and the various implications of each form, to procuring talent and organizing leadership, competitive compensation, selecting third-party vendors and even cybersecurity concerns.

Equipped with information in each of these areas, those new to family offices and even those looking for ways to improve existing ones, can understand and make meaningful contributions.

 

3. Asset Management

Part three of the report covers asset management and steps involved in formulating an investment policy statement. This is vital for any family office as it will help to clearly define the family’s objectives, which may include both financial and non-financial aspects when it comes to investing. Knowing and making investment decisions based on these is vital to long-term success. It helps the family and their advisors identify relevant deals and ensures time is not wasted evaluating those that do not align with these objectives.

Other topics covered in this section include philanthropy, intergenerational wealth transfer, reporting resources and practices, consolidated reporting and even a discussion on art as an asset class. With the latter increasingly considered part of an overall wealth management strategy by a growing number of wealth managers, it serves families to be well-informed on the subject.

 

4. Financial administration

Successful families are adopting a more business-minded approach to wealth management. This, of course, necessitates implementing comprehensive accounting, reporting and cash management systems to record all financial transactions and data. The report discusses various aspects of these and how they can serve to safeguard the family’s wealth, preventing risk mismanagement and fraud.

 

5. Wealth Advisory

Many ultra-high net worth families face wealth management issues far beyond investment strategies. The implications of every decision must be weighed carefully and all family members, including the next generation, need to be timeously educated to these facts. How wealth is organized and shared can have considerable tax implications, while other aspects of the affluent lifestyle have the potential to cause loss and liability.

The success of the family’s long-term legacy can be significantly influenced by ensuring that adequate insured coverage is in place, appointing the most appropriate trustees, and structuring philanthropic activities to ensure cost-efficiency and reduce tax liabilities. All of which are discussed in chapter five.

 

6. Lifestyle Advisory and Concierge

A significant benefit of single-family offices is their potential to serve the family by facilitating lifestyle advisory and concierge services. Everything from procuring the best health care to ensuring personal safety and travel can all be planned, organized, and executed under one umbrella. This removes the challenges often presented by hiring staff for these functions privately.

The report offers guidance in this regard with practical consideration on how to identify, train and manage staffing requirements for such functions on a day-to-day basis.

According to Head of Signature Access and Single Family Office Advisory, Morgan Stanley Family Office Resources, Valerie Wong Fountain, “There is no simple formula to follow when creating or maintaining a single family office. In fact, some family offices are formed explicitly because the existing service models don’t sufficiently address the family’s unique needs.”

By starting with a clear family office purpose statementLearning from these best practices, addressing the questions that may arise as a result, identifying areas that require specific services and implementing these along with tangible measurements and benchmarks to assess performance in each area are all building blocks to greater long-term success.

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