Do You Need a Family Office? Key Factors to Consider

At a glance:

• The main takeaway: When your wealth and reporting needs grow more complex than what traditional tax and wealth management services can offer, you may decide to establish a family office instead.
• Impact on you: Family offices are not one-size-fits all; it’s important to choose the structure that best suits your family’s goals and your unique “complexity” threshold.
• Action steps: Schedule a consultation with Aprio’s Family Office Services team to learn whether a family office is right for your wealth planning needs.

You have spent years building your wealth to support your family, loved ones, or causes you care about. Like many high-net-worth individuals, you may already know that managing your wealth isn’t simply about asset growth — it’s about preserving your legacy, simplifying your life, freeing up time for personal passions and hobbies, and supporting strategic decisions that could positively impact future generations of your family.

At a certain point, traditional wealth management may no longer be sufficient for your needs and goals. You may be overwhelmed by the complexity of your financial picture, with multiple professional services firms managing your tax compliance, legal, and accounting needs.

This is where a family office can come into play. Family offices are effective, sophisticated vehicles that can streamline your financial life while taking your wealth and legacy to the next level. Below, we explore the various types of family offices available to you, plus key indicators that could trigger the need for a family office.

Family offices and “the complexity threshold”

Family offices typically benefit individuals or families with complex situations or wealth goals that demand a more strategic, integrated approach. You may assume that the decision to start a family office depends solely on your net worth, but the process is more nuanced than that.

While the entry point for most families is roughly $50 million+ in net worth, the real trigger for family office establishment is operational and financial intricacy. Examples include:

• A complex and vast range of financial and personal assets
• Desire for more coordinated professional oversight
• Increase in personal demands or desire for more family time
• The need to focus more closely on financial, investment, and/or tax issues
• Concerns about family unity or your legacy

For example, if you manage multiple entities — such as businesses, trusts, foundations, or real estate holdings — and you struggle with maintaining a clear financial picture of how your assets interact, then you may be the perfect candidate for a family office structure.More specific examples and triggers include the following:

• You need a consolidated financial reporting and tax strategy to support multiple legal entities.
• You own diverse assets (i.e., collectibles or artwork) that require specialized oversight and valuation.
• You’re managing and governing intergenerational wealth, with multiple branches of your family involved in financial decision-making.
• You lack centralized oversight of your wealth, making it difficult for you to coordinate advisors, track performance, or plan holistically.
• You’re experiencing administrative overload, from bill pay to philanthropic giving to estate planning.

Choosing the right family office model

Family offices are not one-size-fits all. Depending on your needs, you may choose one of three primary structures:

1. Single Family Office (SFO): This model is ideal for families with wealth needs that require full control and customization. SFOs function like a private business, employing a dedicated team — including CFOs, tax professionals, and investment managers — to serve one family exclusively. If you need privacy, control, and a tailored approach to managing complex, multigenerational wealth, an SFO is likely the best option for you.
   
2. Multi-Family Office (MFO): The MFO model serves several different families under one umbrella; it offers many of the same services that SFOs do but without the overhead. You might choose an MFO structure if you want comprehensive support without the time and effort required to build an in-house team. Furthermore, it’s important to note that there are two different types of MFOs families and individuals can choose from, based on their unique needs and circumstances:
   
   • Commercial/Institutional MFO: This type of MFO serves multiple families and provides a broad range of services and benefits — including a cost-sharing structure, diversified expertise, and unique investment opportunities. These types of MFOs are typically less customizable than other family offices.
   • Private MFO: These types of MFOs often serve a very limited number of families and are tailored specifically to their needs and objectives. Private MFOs may charge higher costs compared to commercial MFOs, due to the exclusivity and personalized nature of the services they provide. Families who participate in private MFOs receive more customized solutions and typically have more control over their investments, strategic decisions, discretion, and confidentiality.
     
3. Outsourced/Virtual Family Office (VFO): VFOs are ideal for families at the base of the net worth threshold (i.e., $30–$100 million). At this stage, your family’s wealth needs may not be complex enough for an SFO but are too elaborate for standard wealth management solutions. VFO models provide you with consolidated services — tax, accounting, estate planning, and more — under one provider, giving you a holistic, cost-effective solution without the burden of hiring and managing staff. VFOs also provide more customization, flexibility, and adaptability in their service offerings, as well as access to broad technical expertise, specialized knowledge, technology integrations, scalability, and risk management solutions.

To better contextualize these family office structures and how they work practically, consider these examples:

Example 1: The Smith Family ($1 billion net worth)

The Smith family recently sold its tech company for $1 billion. With multiple trusts, investment portfolios, and philanthropic endeavors under their purview, the family requires a dedicated team to manage their complex financial landscape. The family also wants to have full control over their strategic, financial, and investment decisions, which means MFO and VFO structures would not be good fits for their needs. By establishing an SFO, the Smiths will be able to retain full control and customization over their wealth management, while also maintaining total privacy and confidentiality.

Example 2: The Patel Family ($200 million net worth)

The Patel family’s wealth is spread across several businesses, real estate holdings, and a private foundation. The family struggles with keeping track of their financial activities and asset flow; they need a more centralized system to manage their financial house more efficiently. In this case, the Patels choose to start their family office with an MFO, which will streamline their operations and help ensure effective wealth management but with a separate team in charge of managing the administrative burden. While their asset portfolio isn’t quite at the level of an SFO, they still require a higher level of privacy and confidentiality, which is why they opt to partner with a private MFO instead of a commercial MFO.

Example 3: The Lee Family ($75 million net worth)

The Lee family has accumulated its wealth through a combination of commercial real estate investments, a successful logistics business, and a growing philanthropic foundation. While the Lees don’t meet the complexity thresholds for an SFO or MFO, their financial landscape has become increasingly complex and extends beyond the bounds of what traditional wealth management services offer.

Rather than hiring a full in-house team, the Lee family engages a VFO provider. This firm handles their tax planning, accounting and bookkeeping for their business entities, consolidated reporting, bill pay, and estate planning all under one roof. What’s more, the family will benefit from a centralized point of contact, an integrated wealth and tax strategy, and the flexibility to scale services as their needs evolve without the overhead of building their own office.

The bottom line

If you are toeing the complexity threshold and anticipate that your wealth needs will grow even more complex, you should consider starting the family office conversation now. When the complexity of your financial world starts to feel like a full-time job, it may be time to bring in a team that can help you run it like one. Schedule a consultation with Aprio’s Family Office Services team and start exploring your options today.

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