What is a family office? Single, multi-family and virtual offices explained

"Family office" is used for several quite different things. To one person it is a glamorous team in a Mayfair townhouse managing a nine-figure fortune. To another it is the part-time bookkeeper and the accountant who happen to look after one family's affairs. Both are family offices in the sense that matters: somebody is responsible for making the family's financial life work.

This guide explains what a family office is, what it does, the three common types, what drives the cost of running one and how to tell when a family is ready for more structure than it has today.

What a family office is

A family office is the function that sits behind a wealthy family and handles the things the family does not want to do itself, and cannot afford to get wrong. It keeps track of what the family owns across companies, funds, property, art and cash. It pays the bills and the staff. It reports what everything is worth and how it is performing. It deals with the tax authorities, the banks and the family's advisers, and it keeps the records that make all of that auditable.

The key word is function. A family office can be a company with an office and employees, or it can be one capable person with the right advisers and the right tools. What makes it a family office is that the work is joined up and that someone is accountable for the whole picture.

What a family office does

The work falls into five groups, and most offices spend most of their time on the first two.

• Accounting and reporting. Keeping the books for every entity in the right currency, reconciling them to the bank and to fund administrators' statements, and producing a clear report of net worth, performance and cash for the principal and the family. This is where the volume is, and where errors do most damage.
• Investment oversight. Tracking private funds, listed securities and direct investments, receiving capital calls and distributions, monitoring managers and keeping the family's investment policy in front of the people making decisions.
• Tax, legal and structure. Coordinating the family's tax advisers and solicitors, maintaining the trusts, companies and partnerships through which wealth is held, and making sure filings and registers are current.
• Household and lifestyle assets. Property, staff, insurance, vehicles, art and collections, travel and philanthropy: the assets and costs that are part of the family's wealth but never appear in an investment report.
• Governance and the next generation. Decision-making rules, approvals, family meetings, and preparing younger family members to take part in the family's affairs with the information they need.

Single, multi-family and virtual offices

There are three common models, and many offices sit somewhere between them.

A single family office serves one family. It is usually owned and funded by that family and staffed by people who work only for it. The family controls everything: the people, the systems, the priorities and the confidentiality. The price is the cost of a dedicated team and the difficulty of replacing key people.

A multi-family office serves several families. The team and the systems are shared, so each family pays for a fraction of the cost and gets access to a depth of expertise that it could not hire alone. The trade-offs are less control and the need for clear separation between clients.

A virtual family office has little or no permanent staff. One coordinator directs outside specialists, such as an accountant, a lawyer and an investment manager, and relies on shared software to keep a single view of everything. It suits families whose affairs are complex enough to need coordination but not yet large enough to justify a team.

Many families move between these models as their wealth and their needs change, often starting virtual, adding an in-house finance lead, and later building a fuller single family office.

What a family office costs

The cost depends far less on how much the family is worth than on how much work there is to do. The main drivers are:

• the number of entities: companies, trusts, partnerships and personal accounts;
• the number of currencies and jurisdictions involved;
• the volume and variety of investments, particularly private funds, each of which sends its own documents in its own format;
• the amount of reporting the family wants and how often;
• the household and property side: staff, houses, vehicles, art;
• the level of governance: approvals, controls and audit expected;
• and the people: how much is done in-house, by outsourced providers, or by software.

A family with ten entities and four hundred transactions a month is likely to need less than one with sixty entities, two hundred private funds and four properties, even if their net worth is the same. Cost is best estimated against the work, not the fortune.

When a family is ready for a family office

There is no threshold of wealth at which a family office becomes necessary. These are more reliable signs that the family's affairs have outgrown an informal arrangement:

• Nobody can answer "what are we worth?" quickly. The answer needs several people and several spreadsheets, and the figure is already out of date when it arrives.
• Documents pile up. Fund notices, statements, tax forms and bank reports arrive faster than they are filed, and finding one means searching several inboxes.
• Key knowledge sits in one head. If one person leaves or is unavailable, the family would not know where to start.
• Advisers do not talk to each other. The accountant, solicitor and investment manager each see part of the picture, and nobody sees all of it.
• The next generation wants to see. Younger family members ask for their own view of what they will inherit, or take on responsibility for part of it.
• Entities keep multiplying. Each new company, trust or fund adds filings, reconciliations and reporting.

If three or four of these are true, more structure is worth considering, and the structure does not have to be a full single family office.

How to start without building a full office

Most families do not begin by hiring a team. The sensible first steps are usually:

1. Get one accurate view of the whole family's wealth. A consolidated register of what is owned, by whom and where, kept current.
2. Put the accounting on a proper footing. Entity by entity books, reconciled to the bank, on a system everyone can read.
3. Choose how much to outsource. An accountant who works with family offices can take on the finance function, in whole or in part, as described in our guide to outsourcing family office finance.
4. Choose the tools. Software built for the work removes much of the manual effort and makes a small team far more effective. Our guide to family office software sets out what to look for.
5. Revisit as the family changes. The right model for a family with six entities is not the right model for one with sixty.

Where Tributom fits

Tributom works on both sides of this. Tributom Advisory is an ICAEW-regulated practice that provides accountants and outsourced finance to family offices and to high net worth individuals. TributomOne is a platform that reads fund documents and bank feeds, keeps one double-entry ledger and produces the family's reporting, with every figure traceable to the page it came from. Families can use the practice, the platform or both.

Some families also hold their investments together in a company: see our guide to family investment companies.

If you are working out what your family needs, a short conversation is a good place to start.