History of the Family Office

When you hear someone mention the Rockefellers or the Carnegies, you immediately think of tremendous wealth. But do you associate them with the origins of the family office? The concept of the family office dates back to the 19th Century. Throughout history, families like these have amassed enormous fortunes by running large-scale enterprises. However, what happens once they build their empires? Who manages their extensive portfolios, including real estate holdings, investment securities, multiple residences, private investments, and operating companies?

These families quickly realized the need to manage their personal lives as efficiently and effectively as their businesses. They recognized the importance of creating a dedicated company, essentially a family business, to oversee all their wealth. They required a structure that wasn't motivated by commissions or sales but could provide impartial advice in the family's best interest, encompassing various areas such as tax and legal matters, estate planning, asset allocation, asset management, reporting, family education, bill payments, etc. By employing specialists in these areas, as they would in any business they owned, they created a source of objective and impartial information the CEO of the family business could rely on to make informed decisions affecting the family’s future.?

If you find yourself in a similar position of significant wealth, the family office concept likely resonates with you—arising almost out of necessity. However, if you believe that a family office is more than you would ever need or that it's only for the Billionaires, you may want to think again. You might think your situation isn’t that complicated at first impression, but understanding different tax planning strategies, insurance coverage, market trends, asset allocation, cash flow projections, and the like—and having overall coordination of these aspects through a family office—makes sense for individuals at all wealth levels. Everyone can use impartial advice and a team of subject matter experts in their corner, whether to address preexisting issues or to provide an extra pair of eyes before a problem arises. Wouldn’t you appreciate having a gatekeeper, genuinely working in your family's best interest and reporting directly to you as the CEO of your family business??

Unfortunately, the way investment, insurance, and banking companies are often compensated—by selling products to a broad audience—objectivity is frequently compromised, and coordination among professionals in the areas of investment, legal, tax, and insurance advice is either nonexistent or inefficient at best. The family office is the cohesive entity that brings together all aspects of a family's wealth, regardless of its complexity. When established correctly, it eliminates concerns about objectivity and ensures that those involved genuinely work in the family's best interest.

Family offices come in various forms, and associated costs can vary significantly. Single family offices, for example, require significant capital to establish and operate and thus are only feasible for select families. But there is an alternative solution, the multi-family office, which seeks to achieve economies of scale and operates using the same philosophy to benefit multiple families. These, too, come in different sizes and structures, so it's crucial to understand the differences.

Disclosures:

This information is not intended to be, and should not be considered as, impartial investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any securities. The information provided herein is for educational purposes only and should not be considered investment, tax, accounting, or legal advice. NexWealth, LLC does not provide tax advice or legal advice. Before taking any action, you should first consult with a tax or legal professional.