Creating Your Family Office
If you are worth $50M, you may or may not need a family office of your own, and some families set up a lean virtual family office at this stage. If you are worth $100M, you almost always need some type of single or virtual family office in place.
The best time to start is before your liquidity event, or once it is clear your net worth will reach that level. Many industry studies say you need $100M to $250M to set one up and $1M a year to run it. I do not believe that is true. I have seen successful single family offices with $30M to $50M.
The reason to start is defense. If you are worth $1M and make a 5% mistake, you lose $50,000. If you are worth $100M and make a 5% tax mistake on your estate, you lose $5M. Your CPA, insurance agent and wealth advisor probably speak once a year at best, and you should not be the one remembering when to sell an asset, close a deal or start a new LLC.
Three versions
The quickest way to lose your wealth is at the two extremes: trying to do everything yourself, or outsourcing 100% of everything.
The five steps we use with family clients
Most single family offices take three to eight months to set up. More deliberate families take up to three years.
First hires
An average family office team is a CEO, often a family member, a CIO, and one or two analysts. At most small and mid-sized offices the accounting is outsourced. Have trusted legal counsel on retainer. Hire a specialist and expand their role over time, and make sure every hire will return a multiple of their salary.
Costs
In my experience, reduced fees alone can cover 25% to 50% of the cost of running your own team. Many single family offices are startled by how much goes out the door to outside vendors, so review every contract at least once a year.
Mistakes I see most
I help manage a $180M single family office as CIO, and we have helped set up more than 200 family offices.
Which version fits where your family is right now: virtual, single or multi-family?
