Establishing a Family office for wealth preservation

Recent research from Deloitte, 2014 Private Wealth Outlook Championing growth, highlights how balancing the diverse needs and desires of various family members can be very difficult when large amounts of wealth are involved.

I am finding that competition remains intense for the business of ultra-high net worth families and the family office model is an attractive option for wealthy families. The structural advantages are direct oversight and the customisation of services and privacy.

My clients are telling me that as their family businesses’ interest grows in terms of new products and expansion into new geographies, this can lead to an increase in their reporting demands.

Family Offices are now taking a more structured and formal approach to risk, compliance, and reporting. Their purpose is to preserve and protect the family wealth for current and future generations.

Typically a family establishes a family office to invest the cash generated from a liquidity event such as; the sale of a family business, a significant inheritance and/or a build up over time from cash flows from a trading business.

I am finding that the family dynamics are the greatest risk to the success of the family office and it is the particular family values and rules which are the foundation on which the family office should be built on and governed by.

The most common issues that cause a breakdown in families include:

  • Lack of communication
  • Lack of transparency
  • The preceding generation keeping control
  • Lack of education
  • Inequalities amongst family members

When considering the composition of a family office, it should not be comprised purely of family members but thought needs to go into which individuals have the best skills to actually govern the business.

Click here for an infographic on examples of how FOs address risks they may face and six trends in the private wealth industry in 2014global-ultra-hnwi-assets

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