Sykes Anderson LLP is a niche law firm and provides Family Office services for UK and Irish families including those with interests in France and Monaco.

Please note that you should not rely on this article without professional advice on the facts of your case. Nothing herein constitutes investment advice.

Q: What is a Family Office?

A: A Family Office is a structure which is often informal under which a family runs their business and other matters.

Q: Who needs one?

A: Every family has one. This may be the mother who manages the finances and keeps an eye on the bank statements or the father who manages a buy to let. For wealthier families a more formal structure can be helpful for protecting and growing the families’ wealth and providing a means for new projects to grow.

Q: Why would I need to get professionals involved?

A: Most wealthy families already have a “team” of advisers around them. There is usually no structure to the team it is just people such as bankers, accountants, solicitors, estate agents and stockbrokers who work together on family matters when needed and know each other through the common client connection. These people normally know and work with the older generation usually the entrepreneur running the family business. They usually have minimal contact with the next generation who may regard them with some suspicion. The usual scenario is that the next generation and remoter relatives end up “doing their own thing” with varying degrees of success. Usually the next generation is hampered by a lack of access to sufficient capital because it has been divided up. If there is no desire to continue the family as a unit for pooling wealth and business talent then there is no point in establishing a Family Office.

Q: So how can a Family Office help?

A: A more formal Family Office creates a structure in which the family can decide what assets are going to be pooled and how they are to be invested and managed. The Family Office also needs to provide worthwhile services to family members. It is important all family members who are involved have confidence in the way the Family Office is run. There also needs to be a mechanism for family members to leave the structure if they become disaffected.

Q: When is a good time to set a Family Office up?

A: Usually it happens when there is a significant change in business or personal life. The sale of a family business which triggers questions about inheritance and investment of funds may be one. This involves a change in the role of the older generation who are usually not ready to step down but would like to maintain an active role in both establishing the next generation in their careers, managing property and financial investments and ensuring a smooth hand over in due course.

The skills which were required to successfully build the family business are often not directly transferable into the new role which usually arrives suddenly with no opportunity to learn the new “trade”.

Q: What do you need to think about when setting one up?

A: The key issue is to see how the extended family as a unit can be better off than the individuals who make it up. This is the only rational for having a Family Office. It also means that if any individual’s personality makes it impossible for him or her to work within the Family Office structure then they should not be included and separate arrangements made for them. Family Offices work best if they are kept as open investment and support structures which allow family members to invest their money elsewhere if they wish and which do not require family members to be closely socially integrated into the family and attending regular family functions. A member being allowed privacy with his financial affairs if he wishes is a good idea. Family Offices work best when meetings are about investment and benefits and not about internal relationships.

Q: Practically, when is the family as a unit better off?

A: Almost always.

• If there is a bigger fund to invest better financial advisers will be interested and a more tailored approach can be taken. Risk can be more widely spread.
• Financial advisers can be monitored more closely by the Family Office. The Family Office should meet on a regular basis with a structured agenda and reports so that under performing investments can be identified and if need be, financial advisers replaced.
• There are economies of scale in use of professional advisers to monitor investments and ensure optimum tax position which individual family members can probably not achieve.
• There is a forum to discuss investments and strategy with each other and professionals can be “put on the spot”.
• There will be more capital to say invest in property ventures without recourse to high borrowings.
• Shared assets can be bought such as holiday homes and managed through the Family Office with no burden on individual family members.
• Family members starting their own businesses can be helped with initial capital. Equally more extended family members with business talent can be identified and brought in to new business ventures.
• Educating the family members in the investments and in other matters. Older members can act as mentors to younger members.
• A supportive structure where family members can discuss financial and personal issues with other family members and receive support in a considered way. Family members with special needs can be helped by the others.
• If there is a need or desire for family wealth not to be visible because of say the effect on younger members then the Family Office can ensure wealth is discreetly shielded.
• Professional advisers who can raise an early warning if a family member is getting involved in a venture with insufficient experience or in which conflicts of interest arise.

Q: If this is the case why are there not more Family Offices?

A: Because it only takes one day to destroy relationships within an extended family structure and it takes many years to build a strong enduring structure. Getting a Family Office to run well is a difficult ongoing job and like everything in life the more you put in the more the family will get out. The Family Office must have a clear purpose if it is going to benefit the family and an easy exit for people who want to leave. Decision making within the structure needs to be thought through and can change with time and circumstances. It must allow everyone to participate in the decision making process without a structure which ends in paralysis. This can be difficult to get started as historically the older generation has taken all the decisions and younger members need to learn how to put forward ideas and accept they will have to be modified and may be rejected. The older generation needs to have patience and encourage the younger members to become involved and accept that whilst they will make mistakes the experience they are gaining is invaluable. This is an important learning curve for all involved and where a professional acting as a moderator will help. Successfully getting over this intergenerational hurdle is the key to ongoing success. Professional advisers having power to point out potential problems and make suggestions without any power to finally decide is useful.

Q: What about “outsiders” like spouses?

A: This is always an area of debate. The worry is that a divorce could destabilise the Family Office and its investments. It needs to be discussed and as with other matters the risk factored in. The birth of children or investment of personal money or employment within the family business by a spouse probably indicates the spouse should be part of the Family Office. The negative approach of worrying about divorce should be tempered with the positive approach of the skills the spouse has and how the new person can contribute to the family’s future.

Q: I have built my wealth myself and am suspicious of advisers. Why should they get involved in my Family Office?

A: You are right to be suspicious. They could milk the structure for fees and cause long term damage to the family. However an adviser who knows the family and its investments well and is able to communicate across generations is a great asset. The adviser needs to be able and willing to work with other advisers to put the family first. An adviser must be willing to use other advisers if he does not have expertise in a field the family needs. Confidentiality, avoiding conflicts of interest and honesty towards whole family are essential. The adviser must always act as an adviser (an outsider) not a decision maker which is the sole prerogative of the family.

Need to know more about family office? Email David Anderson or call 020 3178 3770.