Understanding Family Office

Over the years, Family Office Services have adapted to cater to the needs of wealthy families in search of expert financial planning advice. Here are some commonly asked questions to help you understand the Family Office better:

What is a Family Office?

Family Office is a private wealth management advisory service offered to ultra-high net worth investors to centralize focus and control over family finances, legal, tax and administration issues. It is an outsourced solution to manage the financial and investment affairs of affluent individuals or families. It works to provide the best solution for building, preserving and transferring family wealth.

How did the concept of Family Office evolve?

The early Family Offices can be traced to Europe, while the first North American Family Office was created in the early 19th century by wealthy merchants along the eastern coast of the United States. Faced with the increasingly intensive process of wealth management, these merchants started hiring advisors with the time and expertise they needed to protect family interests.

Why use a Family Office?

Family Office is most commonly utilized because assets have grown in size and complexity, demanding full-time professional management. The world's most affluent families established the Family Office to ensure their wealth is well preserved for their future generations.

Today, Family Office Services encompass other strategic decisions affecting family members. A family may wish to create a formal distinction between family wealth and the assets of the family business to ensure the following:

• Financial risk diversification as a primary motivation
• Improving transparency and corporate governance of the family business

What are the benefits of a Family Office?

• One central source for information on, advice about or oversight of all of the family's financial matters i.e. integrated financial services
• Pooled purchasing power across a family group, resulting in better service for a better price than individual family members could attain on their own
• A dedicated team of professionals who are focused on client goals in a completely confidential manner
• Continuity from generation to generation
• Access to professional advisors who can educate family members about their responsibilities of ownership and participative governance
• Managing substantial liquid assets generated through the sale of a business
• Obtaining customized credit
• Managing multi-generational needs, especially educating children and grandchildren to be responsible stewards of wealth
• Serving beneficiaries with diverse requirements and interests
• Gaining access to alternative investments, such as private equity, hedge funds and real estate
• Providing estate and financial planning and other concierge services

What are the responsibilities of a Family Office?

Family Office is a vehicle for wealthy entrepreneurs to manage their wealth independently and professionally from their businesses. What Family Office seeks to achieve is peace of mind and concentration of efforts for managing wealth.

The scope of the Family Office is significantly broader than a pure investment advisory company. The objective is not only return maximization but also preserving the wealth management legacy. With Family Office, you are offered not only portfolio management but also value-creation and support across various other important functions:

Understand Family Context

• Financial Planning for the Family
• Understanding Family Governance/Objectives
• Evaluating and Consolidating Current Service Providers

Financial Risk-Return Management

• Risk Management
• Return Management

Co-ordinated Tax, Trust and Estate Planning

• Offering Tax-Optimizing Investment Solutions
• Routine Financial Matters
• Estate Planning Services

Legal Services

Family Governance

• Referral for Philanthropy

Administrative Convenience

• Document Management
• Performance Monitoring and Analytics
• Accounting and Reporting
• Concierge Services

Banking and Credit

How to Evaluate a Family Office Provider?

The selection of Family Office Services must be done with caution keeping a few important points in mind:

• Trust

  Build Trust with your Financial Advisor either through a long association or with confidence in the ability of the office to service your needs. Trust can also be gauged from their ability to listen and understand your unique situation. They are then enabled to offer solutions and insights designed especially for you.

• Strategic Advisory Tools

  Discuss your needs with the Family Office Professional and observe whether they have or can develop a process for solving issues of importance to you.

• Quality of Research

  Check the manpower they are ready to dedicate to Family Office research, which will distinguish them from their peers. The Family Office Industry is moving towards an ‘Open Architecture’ platform where the Family Office is only advisory in nature and not a product seller. This ensures independent advice and you are protected from owning products which are not in line with your asset allocation goals.

• Leveraging Expertise

  The experience and the expertise that is inbuilt in the institution should be leveraged. One such example is the ability to co-invest or get exclusive access to deals.

What about your existing advisors?

Your existing advisors will become valued contributors to your Family Office. Rather than trying to replace your existing advisors, the Family Office must focus its energy on complimenting the advice they provide by ensuring it fits in the ‘big picture’ of your family's long-term financial goals.

How does it work?

A Family Office delivers value in the form of highly personal services from highly qualified professionals. The basic process for a Family Office involves:

• Meeting your family to understand your goals, aspirations and financial situation
• Providing in depth projections for future requirements
• Establishing a comprehensive plan to reach goals set
• Highlighting action items required to implement your plan
• Implement, review and update on a regular pre-determined basis

What are the must haves of a Family Office?

• Professional Service

  Ensure that they exhibit a caring culture and render services of high standards. This will reflect upon the nature of relationship you can expect with them as family wealth advisors.

• Discretion

  Engage highly discreet Family Office professionals and personnel that maintain client confidentiality at all times.

• Comprehensive Services

  Ensure it is a full service Family Office that fulfills all of the needs of the family and not only those activities that have the highest profit margins.

Disclaimer: Please note the content above is a general concept of Family Office and not specific to Family Office Services provided by Kotak