What is a Family Office?​

A family office broadly manages finances, investments, and, in many cases, the personal affairs of a wealthy person or family. The simple answer to what is a family office is family offices are usually a setup established to manage and pass wealth across generations. 

A family office is not often born, but tends to grow with the establishment of numerous functions, both in-house and external. 

For affluent families, wealth planning involves more than just profound questions about legacy and shared values; it also entails numerous details and strategies for maintaining, investing, transferring, and preparing loved ones for the responsibilities that come with inheritance.

But what is a family office in India? In this guide, we will delve into the concept of family offices, including their types, target clients, and services they provide.

What is a Family Office, and How Does it Work

A family office is a private company in which its employees are involved in managing and addressing the family’s assets and needs. Under that broad definition, the purposes are virtually infinite. 

Typically, the mission revolves around planning wealth to contribute to the present and future requirements of the various generations and to the families achieving their philanthropic goals. That can mean the knowledge of such varied fields as trust and estate planning, investment management, accounting, and management of homes, personal aircraft, or yachts.

Depending on the needs and which services are provided in-house or by outside experts, the size of a family office can range from a handful of employees to a large group of specialized professional staff. 

Here arises a simple question:

What is a Family Office in Wealth Management?

Let’s simply break it down. As such, there is no difference. Family Office works the same in Wealth Management as well. A family office is a private wealth management firm that serves ultra-high-net-worth individuals and families by providing comprehensive financial and administrative services to manage and preserve their wealth across generations.

What is a Family Office in Finance

A family office in finance is a private organization that handles the wealth, investments, and finances of high-net-worth individuals or families. A family office exists to serve a single family, as opposed to investment firms, which manage many clients, and it is customized to provide services to that specific wealthy family rather than to all clients. These may be tax planning, estate planning, philanthropy management, budgeting, and even lifestyle or concierge support. 

A simple answer to what is a family office in India is to establish to maintain, and grow wealth across generations, to provide financial security, and to create a smooth succession plan. They may be single-family offices (one family served) or multi-family offices (a number of families served). In simple terms, a family office is a one-stop shop to handle complicated financial requirements privately, efficiently, and with personalized approaches. 

Types of Family Offices in India

There are primarily three types of Family Offices – 

• Single Family Offices (SFO):

What is a single-family office? These offices are dedicated to just one family. The family office teams are internally hired by the UHNWIs and have an almost corporate-like structure with a CEO/Head, CIO, Finance, and operations professionals, etc. The SFO entails costs (such as salaries and offices), challenges around retaining quality talent, etc. 

• Multi-Family Office (MFO)

What is a multi-family office? An MFO is a family office that caters to the needs of many UHNWIs. These specialized teams use their expertise to provide solutions catering to the individual needs of each client’s family. Since the MFOs are not dedicated to just one family, the cost of working with an MFO is much lower than having a dedicated SFO, as the cost of the team is shared. 

The MFO has a similar talent structure as an SFO, with a CEO, CIO, operations, and service professionals etc. Ideally, the MFOs need to be registered advisors with SEBI, with a strong focus on customized advisory across all family needs. 

• Virtual Family Office (VFO):

A relatively newer type, this structure entails outsourcing all primary functions to different external entities. 

Unlike an MFO or an SFO, which provides all services like investment planning, wealth holding structure strategy, investment execution, tax planning, operations, and finance support, etc., a VFO outsources these functions. In simple terms, a VFO is an SFO where all major employees are replaced by external entities. This is not a very common structure for a family office.

What is a Family Office Hedge Fund?

A Family Office Hedge Fund is an investment fund managed by a family office that pools and actively invests the family’s wealth in other assets, including equities, bonds, derivatives, and private equity, with sophisticated strategies to achieve greater returns and capital preservation. 

What is a Family Office in Investing

A family office in investing is a personalized advisory company that handles the wealth and investments of high-net-worth individuals or families. Its primary aim is to expand, defend, and transfer wealth across generations. 

Unlike traditional investment firms answering what is a family office business is that manage several clients, a family office is dedicated to the financial demands of a single wealthy family, or, in the case of a multi-family office, a small group of families. 

These usually include portfolio management services, private equity or venture capital investing services, tax planning services, and estate management. Professional expertise combined with a customized approach enables family offices to provide families with more control, privacy, and flexibility in how their money is invested, both in terms of long-term growth and long-term legacy. 

• Who Needs a Family Office

A family office is ideal for a high-net-worth family or individual with a complicated set of investments. It is appropriate for individuals who are interested in personalised wealth management, tax planning, estate management, and preservation of wealth over the long term. Families aiming to streamline investments and ensure financial security across generations benefit the most.

What is a Family Office Structure

A family office structure defines how the office is organized to approach both wealth and investment and family demands. Typically, it is a team of financial professionals, a legal advisor, and support teams, depending on the complexity of the family assets. Below is a simple breakdown: