Setting Up a Family Office: Key Considerations, Costs and Alternative Solutions

For high-net-worth families needing support and for business owners who have recently experienced a major liquidity event, establishing a family office could help preserve and grow wealth across generations. However, setting up a family office may be more challenging and costly than anticipated.

While family offices provide key benefits for ultra-high-net-worth families, such as tax efficiencies, centralized financial management, and philanthropic opportunities, they require significant financial contributions, careful planning, and a thorough understanding of the complexities involved. These complexities often stem from the need to manage various responsibilities, coordinate across family members, and maintain an effective structure over time, all of which can drive costs higher than expected. However, there are alternative solutions that can provide the same value with less of a burden, but before reviewing those alternatives, it’s important to understand the key components of establishing an in-house family office.

Key Considerations When Establishing a Family Office

1. Defining Purpose and Scope

Before launching a family office, families should clearly define their objectives, whether that is wealth management, philanthropy, legacy planning, business succession, or a combination of these. This can help decide future decision-making and ensure alignment with the values of the family. Additionally, determining the scope of services is crucial. Some family offices provide investment management, tax planning, estate planning, concierge services, risk management, and even lifestyle management. The breadth of services should reflect the family’s needs and long-term goals.

2. Structure and Governance

Families must decide between a Single-Family Office (SFO), which serves one family exclusively and provides personalized services but requires greater financial commitment, or a Multi-Family Office (MFO), which offers cost-sharing benefits but pools resources among multiple families. A strong governance framework ensures clear decision-making, accountability, and conflict resolution. This includes:

• Defining leadership roles (i.e., Chief Investment Officer, Chief Financial Officer, etc.).
• Establishing decision-making protocols for investments and operations.
• Ensuring regulatory compliance across tax, legal, and fiduciary responsibilities.

3. Operational Setup

Establishing an operational foundation is a critical component of creating a family office and requires careful planning:

• Location Selection: Choosing jurisdictions with favorable tax laws and financial regulations can optimize efficiencies.
• Technology Infrastructure: Implementing secure data management systems and financial reporting tools enhances operational security.
• Talent Acquisition: Recruiting experienced professionals in investment management, tax, legal, and administration is crucial for long-term success.

4. Investment Strategy

A well-defined investment strategy is crucial for preserving and growing multi-generational wealth while aligning with the family’s unique values, goals, and risk tolerance. Some key components include:

• Risk Management: Establishing a framework that aligns with the family’s risk tolerance.
• Asset Allocation: Diversifying investments across equities, fixed income, private equity, real estate, and alternative assets.
• Performance Measurement and Liquidity Management: It’s essential to have defined objectives and benchmarks to enable the family to measure investment performance effectively and ensure sufficient liquidity to meet financial obligations and unexpected expenses.
• Governance and Decision Making: Clarifying roles and responsibilities sets a framework for investment decisions, enhancing consistency and reducing conflicts among family members and external advisors.
• Alignment with Family Values: Many families want their investments to reflect their values and long-term vision. Making it important for families to develop a strategy that properly allocates their capital according to their priorities (i.e., environmental, social, and governance (ESG); impact investing; mission-driven ventures).

5. Legacy and Succession Planning

Long-term wealth transfer strategies safeguard the financial security of future generations by preserving family wealth, facilitating smooth family business succession, reducing tax liabilities, and ensuring assets are managed and utilized as intended. Key elements include:

• Family Governance Mechanisms: Establishing family councils, trusts, and educational programs to prepare next-generation leaders.
• Succession Planning: Identifying and mentoring future leaders within the family to manage assets effectively.
• Philanthropic Initiatives: Structuring charitable giving through foundations or donor-advised funds to create a lasting impact.

6. Confidentiality and Security

Given the sensitive nature of financial and wealth management, robust data security protocols must be put in place to protect a family’s information and assets. This includes:

• Cybersecurity Measures: Implementing multi-layered security systems to safeguard financial data.
• Reputation Management: Establishing guidelines for handling media relations and external communications to protect the family’s privacy.

Expenses Associated with Running a Family Office

As is evident from the considerations outlined above, the time, energy, and costs of establishing a family office can be significant, and families with a net worth below $100 million typically find it cost prohibitive to operate one efficiently. From staffing and technology to office space and advisory services, these expenses play a crucial role in maintaining an efficient family office. Below are key financial considerations to keep in mind when setting up a family office:

• Personnel Costs: Salaries for financial advisors, investment managers, legal experts, and operational staff can be significant, especially for specialized expertise.
• Investment Management Fees: Costs vary depending on whether services are managed in-house or outsourced.
• Legal & Compliance Expenses: Ensuring compliance with tax and regulatory obligations incurs significant costs.
• Technology Infrastructure: Systems for financial reporting, cybersecurity, and portfolio management require ongoing investment.
• Office Space & Operational Costs: Rent, utilities, and administration expenses depend on the scale of the family office.
• Human Resources Solutions: Whether in-house or outsourced, hiring and retaining talent is a necessary function. When there is turnover in the family office team, time, money and resources must be allocated to recruiting, onboarding and training.
• Philanthropy & Succession Planning Costs: If the family office manages charitable giving and estate planning, related legal fees and financial consulting must be accounted for.

The Alternative Solution – A “Personal CFO” or Outsourced MFO

Given the challenges and costs associated with establishing a family office, outsourcing family office functions offers high-net-worth individuals and families transparency into their finances and assurance that plans are being executed in accordance with their priorities. Working within a “Personal CFO” or “outsourced MFO” model allows families to work with the top advisors in their respective disciplines in a seamless manner without bearing the costs and responsibilities associated with running a family office. Specialized professionals, like Anchin, offer a wide range of services – from sophisticated tax strategies to routine financial administrative tasks. They provide a practical, cost-effective alternative for families seeking the benefits of a family office without the burdens of establishing and managing an in-house team.

These providers focus on families’ needs and goals, offering vital financial and operational services, including bill payment, household payroll, cash flow analysis, integrated tax and financial strategies – created by professionals with deep knowledge of current laws and extensive experience working with multi-generational high-net-worth families – and more. With immediate access to expert guidance and proven financial and wealth management solutions, outsourced providers streamline processes such as advisory coordination, financing arrangements, risk management, and banking needs —ensuring seamless management and preservation of wealth.

At Anchin, our approach to family office management extends beyond basic financial oversight to include the implementation of internal controls, cybersecurity protocols, recordkeeping processes, and asset protection strategies, ensuring every aspect of wealth is carefully safeguarded. Whether it’s succession planning, philanthropy, or personal financial security, Anchin serves as a trusted partner, offering the infrastructure and expertise needed to manage and preserve family wealth with confidence and flexibility.

For further information about establishing a family office, please reach out to Elizabeth Zabludoff, Principal and Family Office Services Leader, or your Anchin Relationship Partner.