Are You Considering Starting a Family Office? If so, learn more about the key consideration to make when launching.

Managing the financial, investment, accounting, reporting, and giving needs of a high-net-worth family can be a challenging task. Not only are there compliance issues to manage, but time must also be spent on ensuring investment activities facilitate wealth growth and protection. The expertise necessary to properly achieve these objectives means families often have several advisors working independently. Unfortunately, this often results in a lack of oversight leaving many without the necessary structure to guide efforts. For this reason, many consider starting a family office to provide the streamlined, coordinated guidance and oversight needed. For those unfamiliar with family offices, there are several important start-up issues to consider. To help clients, prospects and others, Selden Fox has provided a summary of the key considerations below.

Why is the family office being created?

This is an important question to answer prior to considering the creation of a family office. The answer to this question will serve as a mission statement and can direct the activities of the office from the start. For some, the purpose may be risk management, while others may simply want a single point to access and manage family investments, taxes, and other wealth drivers. Whatever the reason, it is important to be clear about the purpose upfront, so both the service provider and individual family members, start out on the same page.

Who should be involved?

For some this is an easy question because the office is designed to serve the needs of the initiating members and their children. However, the question becomes more complicated and sensitive when evaluating the long-term nature of the family office. It is important to manage the expectations of other family members such as spouses, adopted children, stepchildren, and others as early in the process as possible. Establishing clear guidelines about participation will make it easier to navigate certain issues as they arise.

What is the governance process?

In the early days of a new family office many rely on informal practices. Typically, decisions are made when issues or challenges arise, and meetings often occur in an informal setting. However, as the office grows so does the need for documented and written governance policies. Items such as bylaws, shareholder agreements, and succession plans are essential to a healthy family office. These policies make operations clear and limit the potential for family conflict which can arise when operating with an informal policy.

What services will be needed?

For most Chicago family offices, the services needed can be categorized as administrative support, financial management, strategic planning, and advisory services. To start, most family members will require information and ongoing reporting on family investments, a review of trusts and estate plans, and assistance with day-to-day issues such as bookkeeping and bill pay. Other needs may include business and individual tax planning/compliance, philanthropic planning, investment management, insurance reviews, and coordination with third party advisors. It is important to note that over time it is likely that service needs will change and evolve.

Where should office be located?

Location and structure decisions are ones that are made hand in hand. The best approach is to first consider the location for the office—assuming a physical office is necessary. Some families elect to establish operations in Chicago since it is where most family members live and work. Others elect to establish out of state or even offshore depending on objectives. When making location and entity structure decisions it is important to assess access to needed professional services (CPAs, investment advisors, etc.), state and local tax laws, access to skilled staff, political stability, and legal structure.

Contact Us

There are several important decisions to make when starting a family office. For this reason, it is important to consult with a qualified advisor that can review your situation and determine the best way forward. If you have questions about the information outlined above or need assistance with another family office issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forwards to speaking with you soon.

Daniel DiMario

Dan DiMario's practice covers the preparation and review of business, fiduciary and individual tax returns, including returns for family offices and high-net-worth individuals. He regularly communicates with clients on changes in federal, state and local income tax laws and compliance issues, and details how these changes will impact clients’ income tax liability.