Discover new insights on how to setup, manage, and advise wealthy families and their family offices
The Complete Family Office: A Guide for Affluent Families and the Advisors Who Serve Them, 2nd Edition represents the newest update to an essential series. This book prepares the members of wealthy families to collectively manage, sustain, and grow their wealth across multiple generations. It also assists professionals who advise families to better serve their needs.
This book teaches those who advise family offices and wealthy families on:
· How to setup, structure, and advise a family office
· Current compliance, fiduciary and risk management practices for a family office
· Forward-thinking investment management, estate planning, and private trust company considerations
· Fresh insights on philanthropy, legacy, and impact investing
· Best practices to managing family wealth education and preparing next generation owners
· New insights on family governance, strategic planning, and succession
· Methods to create a family constitution, mission, and vision for families and their family offices.
The Complete Family Office Handbook provides the most comprehensive, current research, practical guidance, and approaches from leading family offices from around the globe and illustrates, by way of practical case studies and examples, how families can effectively manage their wealth for the long term.
Table of Contents
Foreword xix
Preface xxi
Acknowledgments xxv
Chapter 1 Introduction to the Family Office 1
Kirby Rosplock, PhD
A Macro View of Global Wealth 2
Billionaire Update 7
How Much Do I Really Need to Fund a Family Office? 10
Purpose and Definition of the Family Office 11
Historical Background of the Family Office 12
Family Office from the Industrial Age to Current 13
Key Roles of the Family Office 16
The Executor and Trusted Advisor 16
The Guardian and Watchman 17
The Librarian and Guru 19
Family Office Orientation to Family, Strategy, and Operations 19
Conclusion and Final Thoughts 24
Notes 24
Chapter 2 Family Office Evolution: Inceptions and Archetypes 27
Kirby Rosplock, PhD
Inception of a Family Office 27
Scale: How Much Is Enough? 28
Impact of the Family Business on the Family Office 30
Attractions and Challenges with Embedded Family Offices 30
Separating the Family Office from the Family Business 32
Sudden Wealth 33
The Investment-Focused Family Office 34
Family Offices Through the Back Door 35
Family Business Exit and Liquidity Event 36
Family Office Archetypes 37
The Founder’s Family Office 37
The Virtual, Administrative, and Compliance Family Office 38
The Philanthropic Family Office 39
The Direct Investment and Investment Offices 39
The Family Business-Focused Family Office 40
The Multigenerational-Focused Family Office 41
Mathile Case Study 42
Background: Inception 42
Evolution of the Family Office: Strategic Planning Cycles 43
A Multigenerational Perspective 44
Alignment, Urgency, and Action 45
Discovery and Steps 47
Involving Outside Experts 48
Conclusion and Final Thoughts 49
Notes 50
Chapter 3 Comparing Family Office Solutions: Multi- and Single-Family Offices 53
Kirby Rosplock, PhD
Trends in the Family Office Landscape 54
Determining Family Wealth Management Needs 58
Why the Single-Family Office Solution? 59
Why the Multi-Family Office Solution? 65
Questions to Ask During the Evaluation Process 68
Pathways to Selecting a Multi-Family Office 74
Godspeed Case Study 75
Introduction 75
Background of the Family and Family Office 75
A Trigger and Decision for a New Direction 76
Journey to Find What Is Next 76
Decision-Making Process 77
Final Cut 78
Key Insights and Outcomes 80
Conclusion and Final Thoughts 81
Notes 82
Chapter 4 Family Values, Mission, and Vision and the Family Office 83
Kirby Rosplock, PhD
Introduction to Values 83
The Process of Exploring Values 85
Values Statement 86
Mission Statement 87
Values, Mission, and the Family Office 88
The Importance of Vision 89
Elements for Successful Family Office Visioning 92
Building Your Family Office Vision 94
Pitcairn Family Case Study 95
Five Steps to Creating a Family Vision 98
Step 1: Clarifying the Process and Expectations 99
Step 2: Vision Retreat Pre-Planning 99
Step 3: Staging a Vision Retreat 100
Step 4: Timing for a Vision Retreat 100
Step 5: Aligning Vision and the Strategic Plan 100
Conclusion and Final Thoughts 101
Notes 102
Chapter 5 Establishing and Structuring of Family Offices 103
Ivan A. Sacks, Esq., Partner, Withers Bergman LLP
William J. Kambas, Esq., Partner, Withers Bergman LLP
Question 1: What Legal Form Should the Family Office Take? 105
Choice of Entity 107
Deciding Between an LLC and a C Corporation 107
Case in Point 113
Question 2: Who Should Pay for Establishing and Operating the Family Office? 114
Question 3: Who Should Own the Family Office and How? 116
Legal Ownership 117
Beneficial Ownership 117
Models of Ownership 117
Question 4: Who Should Manage the Family Office and How? 119
Structuring the Legal Formalities 120
Structuring the Scope of Services 122
Family Philanthropy, Legacy, and Social Capital 125
Managing Regulatory and Estate Planning Concerns 125
Question 5: How Are Family Offices Structured to Optimize Tax Efficiency? 126
Tax Deductibility of Services Provided by the Family Office 129
State and Local Tax 131
Question 6: Can a Family Office Be Structured to Manage Risk? 132
Case in Point 132
Risk Management Through Architecture 133
People-Oriented Risk Management 133
Balance Sheet, Cash Flow, and Economic Risk Management 133
Question 7: What Is the Process of Establishing and Structuring a Family Office? 134
Conclusion and Final Thoughts 136
Notes 137
Chapter 6 Strategic Planning for the Family Office 139
Kirby Rosplock, PhD
Creating a Family Office Strategic Plan 140
Discovery 141
The Family Capital Review 142
The Family Background 143
The Advisor Network Review 145
The Estate Plan Review 145
Mapping and Summarizing Legal Entities 146
Family Office Stress Tests 147
Risk and Insurance Management Considerations 150
Family Office Risk Assessment and Insurance Planning 151
Family Member Risk and Insurance Planning 154
Overview of Capital Sufficiency Analysis 155
Simple vs. Sophisticated Approach 156
Using Capital Sufficiency in the Family Office 156
Case in Point: Doryman Family 157
Key Takeaways 164
Conclusion and Final Thoughts 165
Notes 166
Chapter 7 Legal and Compliance Standards and Practices for Family Offices 167
David S. Guin, Esq., Partner and US Commercial Practice Group Leader, Withers Bergman LLP
Regulations Affecting Family Offices: Dodd-Frank Act 167
Case in Point 169
The Single-Family Office Exemption 170
Case in Point 174
Clients of the Family Office May Need to Report Beneficial Ownership of Securities of Publicly Reporting Companies 175
How to Report Beneficial Ownership 176
Ownership of Securities in the Ordinary Course of Business 176
Passive Ownership of Less than 20 Percent of a Class of Securities 176
Other Acquisitions 177
Clients of the Family Office May Need to Report Beneficial Ownership as Insiders of Publicly Reporting Companies 177
Reporting Insider Status on Form 3, Form 4, or Form 5 178
How Do I Determine Beneficial Ownership in a Multi-Tiered Family Holding Structure? 179
Are You an Institutional Investment Manager? (The Answer May Surprise You.) 180
What Is an Institutional Investment Manager? 181
Reporting on Form 13F 181
Determining If the $100 Million Threshold Has Been Met 183
Confidential Treatment 184
Are You a Large Trader? 184
The SEC Gets Personal About Insider Trading 186
Compliance Policies 188
What Are the Components of a Good Compliance Policy? 189
Document Retention Policies 190
What Are the Components of a Good Document Retention Policy? 192
The Compliance Function: In-House Versus Outsourced 192
Special Issues for Family Offices When Considering Regulatory Requirements 193
Conclusion and Final Thoughts 194
Notes 194
Chapter 8 Investment Management and the Family Office 197
Kirby Rosplock, PhD
Family Office Investment Management 198
Concentration 199
Measuring Success 200
Lifestyle and Legacy 201
Time Horizon 203
Hurdles to Growing Wealth 205
Family Office Investing: Paradigm Shift 206
Passive Versus Active Asset Management 208
A Practical Approach to Asset Allocation 209
The Investment Process in a Family Office 210
Investment Review 210
Investment Governance 211
Investment Objectives 214
The Investment Policy Statement 214
Investment Committee 217
Why Would a Family Establish an Investment Committee (IC)? 218
How Does a Family Establish an Investment Committee? 218
How Does an Investment Committee Usually Operate? 218
Strategic and Tactical Asset Allocation, Manager Selection, and Investment Monitoring 221
CIO Function: In-House Versus Outsourced 223
Conclusion and Final Thoughts 227
Notes 228
Chapter 9 Family Office Operations and Information Technology 231
John Rosplock, COO and CFO, Tamarind Partners, Inc.
Robert Kaufold, President and Chief Risk Officer, Cauldera LLC
Family Needs Drive Family Office Systems 232
Family Office Operations 233
Accounting 233
Reporting 233
Financial Reporting 235
Data and Decision Archiving 236
Family Office Management 238
Security 239
Other Technology 239
Assessing Operational Complexity 240
Simple to Complex Systems 242
Complex System Technology 244
Operations Lens to Insourcing Versus Outsourcing 247
Technology Considerations: Buy or Build 249
New Technology Due Diligence and Onboarding 250
Keys to Success 254
Conclusion and Final Thoughts 255
Notes 256
Chapter 10 Family Office Talent, Compensation, and Recruitment 257
Kirby Rosplock, PhD
Introduction 258
Family Office Staffing 259
Single-Family Office Organizational Chart 261
Gender and Family Office Executives 267
Recruiting Family Office Talent 268
Finding a Good Chemistry and Culture Fit 269
Background Checks 271
Compensation 272
Methods for Determining Annual Incentives 274
Managing Family Office Talent 276
Role Clarity and Job Description 276
Reporting Hierarchy and Authority 276
Performance Management 277
Communication and Trust 278
Recruiting Internationally 278
Case Study: Setting Up the Office 279
Family or Non-Family at the Helm 280
Family Member Compensation 281
Conclusion and Final Thoughts 282
Notes 282
Chapter 11 Governance Issues for the Family Office 285
Barbara Hauser, JD, Independent Family Advisor
Kirby Rosplock, PhD
Governance Issues for the Family Office Itself 286
Benefits of a Good Board 286
Importance of Independent Directors 288
Interim Stage of Advisory Board 289
Accountability to the Family 289
Participation in Long-Term Strategy 289
Next Generation Issues to Address 290
Succession Planning for the Family Office and Its Executives 290
Governance for the Family Itself 293
Analysis of Existing Decision-Making Process 295
Hallmarks of Good Governance: Transparency, Accountability, and Participation 296
Benefits of the Family Creating Its Own Governance Process and Structure 297
How to Create the Family Governance 298
Family Councils 299
Family Constitutions 300
Kettering Family Governance Case Study 302
Conclusion and Final Thoughts 308
Notes 309
Chapter 12 Family Education and the Family Office 311
Kirby Rosplock, PhD
Stewardship of Wealth 313
Psychology of Wealth and Child Development 314
Elsa’s Story 316
Overcoming Communication Challenges 317
Case Study: Waithram Family 319
Clear Expectations and the Power of Inherited Wealth 322
Inspiring Entrepreneurship and the Next Generation 325
Case Study: Jennifer’s Story 326
The Power, Influence, and Inspiration of Mentors 327
Creating a Family Education Plan 329
Conclusion and Final Thoughts 332
Notes 333
Chapter 13 Family Entrepreneurship and the Family Bank 335
Warner King Babcock
Kirby Rosplock, PhD
What Is a Family Bank? 335
Two Mindsets to Your Family Bank 338
Establishing and Funding a Family Bank? 339
Five Principles for Family Banks 340
Democratize 340
Harmonize 340
Customize 341
Flexibilize 342
Professionalize 342
Mini-Case Study: Intra-Family Financing of New Family Businesses 343
Organizing a Family Bank 344
Entity Choice 345
Evolution of Family Banks: From Simple to Complex 346
Mini-Case Study: A Family Bank Designed to Develop the Next Generation 349
Good Governance: Family Bank Boards, Committees, and Trustees 350
Mini-Case Study: Family Bank Without Good Governance 351
Limitations of Trusts 352
The Role of the Family Office 353
The Role of Outside Experts 354
Tax and Legal Considerations of Family Banks 355
The Anderson Family Case Study 355
Conclusion and Final Thoughts 358
Notes 359
Chapter 14 Legacy, Philanthropy, and Impact Investing 361
Kirby Rosplock, PhD
Introduction to Legacy 362
A Generational Lens to Legacy 362
Defining Legacy 364
Financial Legacy 365
Social Legacy 366
Philanthropic Legacy 367
Philanthropy, Impact, and Sustainable Investing 368
Opportunities and Challenges of Philanthropy, Impact, and Sustainable Investing 371
Family Philanthropy and Foundations 373
The Root Family Legacy and Evolving Their Philanthropy 374
The Family Office Supporting Family Philanthropy 377
Cordes Family Case Study 378
Conclusion and Final Thoughts 385
Notes 386
Chapter 15 Private Trust Companies: Creating the Ideal Trustee 389
Miles Padgett, Partner, Kozusko Harris Duncan
Don Kozusko, Partner, Kozusko Harris Duncan
The Broader View 389
What Is a Private Trust Company? 389
What Are the Differences Between a Private Trust Company and a Commercial Trust Company? 390
Why Do Families Consider Creating a PTC? 392
What Are the Key Considerations to Be Addressed Prior to Pursuing a PTC? 392
Steps to Creating a PTC 398
Choice of Regulatory Regime 398
Geographical Convenience 400
Substantive Trust Laws 401
Trust Company Laws 402
Public Policy Environment 404
Trust and Trust Company Taxes 405
Achieving Success in a PTC: Setting Priorities 405
Fostering Beneficiary Development Should Be the Primary Objective of the PTC 406
Principles and Practices for a Successful Private Trust Company 408
The Parable Family 409
Conclusion and Final Thoughts 415
Notes 416
Appendix A: Family Office Complexity Assessment 419
Appendix B: Family Office Technology Segments 423
About the Author 425
About the Contributors 427
Index 431
