Generally speaking, family offices are established by families with complex and varying interests to manage investments and provide other services to family members, most commonly associated with business holdings. Family offices come in various shapes and sizes, each with distinct roles and objectives. In some cases, a family office may simply provide investment management and administration resources to a group of family members who have common business interests or who have come into liquidity following exit from a business. In other cases, a family office may serve broader functions to support the family, including managing finances, insurance, tax and estate planning, charitable giving, asset management, financial education, and succession planning. Sometimes, the family office will invest wealth accumulated by the family in other businesses.

Depending on its functions, a family office may require the coordinated services of professional advisers in areas such as tax, investments, insurance, estate planning, and legal. Some family offices require the assistance of M&A advisers, venture capital, and private equity firms. This team of advisors may need to meet regularly with family members and with each other to facilitate collaboration that addresses the diverse interests and needs of the family.

Examples of family offices

Traditional family office/single-family office: A traditional family office, also known as a single-family office, is an entity established to help manage a family’s wealth and support its family members. The family office typically employs an administrative staff, as well as its own professionals who provide services to protect and grow the family’s assets. The staff may include a financial advisor, tax specialist, estate planner, accountant, and other professionals. The overarching objective is to provide coordinated advice that serves the family’s financial interests. Given the high costs to establish and administer a full-service single-family office, these typically only make sense for families with substantial wealth and complex financial needs.

Multifamily offices: A multi-family office manages the wealth of multiple families. It offers similar services to those of a traditional family office and may also have professionals on staff to provide wealth-related solutions tailored to each family. Beyond investment management, these services may include bill paying, asset management, philanthropic advice, wealth planning, and education, among others. These offices can be less expensive than traditional family offices because they serve more than one family, and costs are shared. A Board often oversees these offices, made up of members of each of the families, so a single family may have less control over these providers.

Outsourced family offices:  An outsourced family office is a network of professional service providers who collaborate on behalf of a mutual client to provide services such as philanthropic planning and family wealth education. Often, a single professional plays a lead role in coordinating the communication and work. The collaboration and authority to consult with each other differentiates advisors serving as an outsourced family office from other professionals providing similar services. An outsourced family office typically has a lower cost entry point than a traditional family office, but the family has less control over the team providing the services.

Regulatory Considerations

Some family offices that serve multiple families are subject to federal and state broker-dealer laws as well as certain laws applicable to investment advisers. Changes to the Investment Advisers Act in 2011 exclude only certain “family offices” from regulation under the Investment Advisers Act. That law defines “family office” as a company, including its directors, officers, managers, and employees, that (1) provides investment advice only to family clients; (2) is wholly owned by family clients and exclusively controlled by family members or certain family entities; and (3) does not hold itself out to the public as an investment adviser.  Family clients generally include certain current and former family members, key employees of the family office, charities funded exclusively by family clients, estates and trusts created for family members or key employees, and entities wholly owned and controlled by family members.

Family offices can lose qualification under the above exemption if they establish or modify an investment advisor function that advises a broader array of clients. Even single-family offices may be deemed investment advisers for purposes of specific provisions of the Investment Advisers Act, so an understanding of those restrictions is important if the family office wants to avoid becoming subject to burdensome regulations.

The Corporate Transparency Act (CTA), which took effect on January 1, 2024, requires beneficial ownership reporting for entities, including family offices formed as corporations or limited liability companies (LLCs). While the enforcement of the CTA is currently in flux, family offices should be aware that if the CTA is enforced against domestic entities they may be considered “reporting companies,” subjecting family offices and their beneficial owners to reporting requirements.

When should a family office be considered?

A need for the coordinated services of a family office commonly arises when a family business is sold or recapitalized such that the business can no longer provide key functions that support the family. Consider the following example: Acme Enterprises, a multi-generational, family-owned company, historically provides current and former owners with health insurance, bookkeeping, and management services related to real estate and other personal property owned separately by the family and access to Acme’s investment advisors. The owners of Acme decide to sell a controlling interest in the company to a private equity firm to facilitate growth into new markets. Not surprisingly, the buyer asks Acme to divest the services and benefits that have historically been provided to family members. Now, with more liquid assets, the family may decide to establish a family office to provide bookkeeping, asset management, and other functions traditionally provided by Acme, in addition to coordinated wealth management and estate planning services and use the family office to pursue investments that align with the family’s business and personal goals. The Acme family members may benefit by planning the transition of these functions to a family office well in advance of their sale transaction to ensure proper compliance and minimize disruption in services relied upon by family members.

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice for your situation, you should contact an attorney.