When is the right time for your wealthiest clients to consider opening a family office?

Ultrahigh-net-worth families have been raising the issue with increasing frequency, say industry executives, who point to generational shifts and new liquidity events as primary catalysts for the heightened interest.

"We're working with a number of families who are considering establishing a family office," says Jeff Kauffman, CEO of Northern Trust's Global Family & Private Investment Offices. Those families, he says, are asking Northern Trust a wide range of questions about the efficiencies and wisdom of creating a family office.


Kauffman says that for families with less than $100 million in liquid assets, "it doesn't make a lot of sense" to open a family office, which can entail an operating budget for a dedicated staff to handle a family's financial, legal and tax needs, including investment management and other services.

But advisors to families with $100 million to $250 million in liquid assets may suggest they begin to consider a family office, he says - and for those families with $250 million and more, "it makes a lot of sense."

Northern's Global Family division provides asset servicing, reporting, investment management and other services to about 400 families with a combined $300 billion in assets, Kauffman says.

Other executives set a slightly different bar. Advisors serving families with less than $500 million in assets should discourage clients from opening a family office unless they are willing to outsource key roles like a chief investment officer, says Robert Casey, senior managing director of research for the Family Wealth Alliance in Wheaton, Ill.

"A full-service single family office is a formidable expense," Casey says, starting with salaries for an investment manager and staff, which often can exceed $1 million.


For clients, the primary benefit of opening a family office is creating "a sophisticated professional operation that helps [wealthy families] manage complex assets," Kauffman says.

Such an operation would bring "subject matter expertise" on legal, tax, regulatory and investment issues, and the ability to perform sophisticated functions such as detailed financial reporting.

Strict privacy and tighter controls are other benefits, notes Casey, who estimates there are between 3,000 and 3,500 single-family offices in the U.S.

But there can be drawbacks, including costs, as well as risk management and compliance issues in a post-Dodd-Frank environment.

"The analogy I like to use is the private jet," Casey says. "It's not the most economical way to travel, but if you can afford it, it's pretty nice."

Charles Paikert is a senior editor at Financial Planning.

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