Managing Wealth As A Business: A Family Office – To be or not to be?

Does it make sense to corporatize the management of my wealth and that of my family, treating it in a manner comparable to how I treat my company or other businesses? In other words, should we as a family create a “family office”?

More and more business-owning families are asking this question due to the many legislative changes facing businesses in recent years. The answer to this question is not as simple as it appears. It requires an in-depth analysis of the reality and circumstances of each case—especially if the intention is to do things well with a realistic perspective of growing family wealth over ensuing generations.

As we know, each family enterprise has its own unique circumstances and requires a personalised approach. There are a variety of reasons for creating a family office:

  • having a platform of services for the family,
  • enhancing family cohesion among generations,
  • stimulating the entrepreneurial spirit of the youngest family members,
  • or structuring the family protocol, among many others.

For these reasons, an important preliminary step is to clarify the objectives for the family office, given that these objectives will determine its functions whilst aligning family member interests going forward.

The creation of a family office is a strategic decision that requires the establishment of clear objectives with a strategic plan that reflects the reality of the family from all angles. Only with a firm commitment from all family members, who consider as intangible the alignment of interests, greater family trust, greater professionalisation, and an improvement of familial relationships, will the desired result be obtained.

The strategic family plan, if done well, must be constructed from a 360-degree perspective and inevitably lead to a diversified investment portfolio (real estate, business, private equity, and financial), with a global and strategic asset allocation.

Let us not forget that, while there are those that think differently, the decision to invest is not a simple one. Before investing, the family must have a long term plan that effectively distributes money according to the interests, needs, and values of the family. There are no two “family offices” that invest the same way for the mere fact that no two families are alike.

A strategic family plan is nothing more than the task of defining the current state of the business-owning family, a task where medium-and long-term objectives are established as well as constructing the process for achieving them. In every strategic family plan a strategic global portfolio for family investments must be constructed. There are profitability objectives and risk metrics that allow for monitoring and managing the investment plan, making wealth work in accordance with the desires and interests of the family.

These 10 questions that serve as a guide for those families that want to begin this process:
  1. Where are we?
  2. Where are we going?
  3. With whom are we going?
  4. What function/role does each family member perform?
  5. What needs must be met?
  6. What present and future wealth do we have?
  7. How does this wealth need to operate in order to meet the needs of the family?
  8. In what environment and situations will we manage the wealth?
  9. How do we maximise the growth potential of the management of this wealth?
  10. How do we submit this wealth to a process of risk management to allow for rational strategic decision making over time?