Opposed to common belief, although the term “family office” originates from the US, the concept of generic “offices”
or “gatekeepers”, “protectors of family wealth” etc. goes considerably further back, i.e. to the Crusades and the
concept of the “trust”, but also to banking families in Europe (Medicis, Rothschilds).
In fact, even during the Shang
dynasty in China (1600 B.C.) and merchants in ancient Japan, there were individuals and groups of people dedicated to
serving, protecting and preserving families and their members across several generations.
Comparing different strands of evolution and schools of thought relies heavily on different cultures, laws and
regulations, even if in recent times, there has been a certain cross-fertilization of models as well as an assimilation.
Despite of this, specialization and differences have remained to this day.
Depending on the various branches of families, jurisdictions, education, business activities etc., there are usually
several offices in various locations, taking advantage of different regulations and opportunities. This differentiation
probably becomes more apparent between more local and global families, especially also in terms of the location of the
HQ and subsidiaries (mostly centers of service excellence).
A considerable number of structures and organizations act as family offices, even if they don’t bear the denomination
“family office” or even regard themselves as acting as such, but merely as “hommes d’affaires familiales” or “chefs
d’orchestre”. Hence it is time to pose the question “why do families really need, want or have family offices, i.e.
who really needs one?”
When the extent of the overall family wealth exceeds a certain size and the number of family members, activities,
businesses, wealth classes etc. reaches a certain complexity and opaqueness, there is the call for a central coordinating
resource which has the global (consolidated) overview and control over these activities – on the business and wealth
side as much as on the human side.
To name a few of the common denominators and needs served by family offices, there are the following:
 Tailored/individual approach catering to family
needs (financial /
non-financial)
Reduction and management of complexity
Access to a wide range of (best-of-breed) experts,
services and
opportunities
Consolidated view, non-emotional controlling
and reporting of overall
global wealth
Professionally run service organization
Reduction of cost – increase in efficiency,
decrease in redundancy
“Advocatus diaboli” for families
Business learning for next generation
Training, education and succession planning
Family cohesion – “glue” by means of family
constitution, family
charter, family governance
Family values, stewardship and philanthropy
In order to understand, how different the offered service propositions (inhouse or outsourced) developed, it is
essential to understand the differences which led to the existing models in Europe and the US.
Europe – from endogenous banking to open architecture
European banking goes back to antiquity and the Crusades. Due to various religious conflicts, it was often the “solver
of needs” rather than the creator of demands. Banking activities evolved from lenders to preservers of family fortunes
and played a key role for entrepreneurs, merchants and trade. It was the Medicis, the Bardis, the Jewish bankers, Swiss
Protestant bankers, but also Scottish bankers, who played a key role in trade and politics throughout Europe.
In a generic sense, families like the Rothschilds and other families and dynasties had their “family offices”. The “old”
banking houses/families acted as entrepreneurs, i.e. they were the forebears of today’s multi-client family offices
(MFOs), as they offered their services to others, beyond their own families – for a fee. They also played a key role in
the industrial revolution and the financing of infrastructure in Europe. Some banks retained their specialization
catering to wealthy private clients, whilst others took on the financing and commercial banking role.
Hitherto, (private) banking in Europe had been considerably more heterogeneous than in the US. It has always been about
tradition, protection and preservation (wars, political unrest etc.) and especially about confidentiality, not
necessarily about transparency and performance. However, it was not until the creation of the modern portfolio theory,
that many private banks began to focus more on pure asset management and less on the overall global wealth needs. The
“industrialization” of private banking led to more in-house funds being created and actively solicited instead of finding
solutions for clients.
Like with hedge funds, it was the cognoscenti UHNWI’s (MB GROUP: Ultra-High-Net-Worth Individuals) and
families, who had their own networks of providers and access to non-mainstream opportunities. Many wealthy families and
entrepreneurs had independent structures (in-house banks, trading, forex), which, besides the banks, catered for their
own needs – acting as single family offices.
Simultaneously, the family banks and family-owned private banks acted increasingly as “families/banks for other families”,
a pre-form of MFOs, had that term been known in those days. For the landed gentry, on the other hand, stewards, estate
offices, consiglieri (MB GROUP: advisers) etc. had a long tradition, running especially the non-financial
side of families.
US – from networks of professional advisors to
professional networks of advisors and banks
In the late 19th century, some industrial families and family dynasties, due to the lack of private banks, started out
their own “private (investment) offices”, which gradually “opened up their doors” to other families. In the US, there
has always been a strong tradition of large “family trusts”.
Financial planning, homogeneity, optimization and growth as well as a more extroverted view (also in terms of charities
and philanthropy) are the main characteristics to describe wealth management in the US. Due to the Glass-Steagall Act
(banking separation act of 1933), banks could not offer comprehensive services, i.e. brokerage, investment banking and
asset management were separated from commercial banking and lending. (this separation, however, was not applicable
outside the US, which explains the swift integration once the separation was reversed by the end of the 1990s – since
US institutions had been offering all services akin to their peers, on a global scale, ex US).
Because of the banking separation in the US, families and UHNWI’s often had teams of independent advisors, financial
planners, lawyers etc. Hence, law firms, financial planners – i.e. groups of specialist advisors were utilized. Often
accountants were running the FO. As there were no banks offering comprehensive services, open architecture and
outsourcing were quite common.
The sophistication of “investment offices”, “family services” and the institutionalization of clients led to the
denomination – instividuals, as these families and UHNWI’s often have the size and sophistication of institutions but
often still have the qualities and behavior of individuals.
Philanthropy and charities have long been part of family offices and family-office services in the US. In Europe, many
centuries-old families and family businesses are only just entering the transition from family business to financial
family, i.e. family office, and learning to come to terms with the professionally run family offices. Besides the main
forms as elaborated above and virtual family offices, there are several family networks, offering peers access to
exclusive investment opportunities, “club deals”. The heterogeneity of family office models derives from that fact
that no two families and their needs are the same, and despite having a mutual set of common needs, as a result, there
is always the need for one or the other form, as families, like businesses, pass through different stages of the
life-cycle.
Finally, a clear trend is also going in the direction of certain family offices “going private” again.
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