High-Net-Worth Family Office Basics
Why It Matters
At certain wealth levels, standard financial advice breaks down. A family with $25 million+ in investable assets faces challenges that typical advisors don't address: multi-generational planning, complex tax structures, concentrated stock positions, and coordination across multiple entities and jurisdictions.
Family offices emerged to solve this problem—dedicated teams (or shared services) that manage wealth holistically rather than product-by-product.
The practical question isn't whether family offices are useful. It's whether your family's complexity and scale justify the cost.
Definition and Key Concepts
A family office is a private organization that manages investments, taxes, estate planning, and lifestyle services for one or more affluent families.
Two primary structures:
| Type | Definition | Typical Threshold | Annual Cost |
|---|---|---|---|
| Single-family office (SFO) | Dedicated staff serving one family | $150M+ in assets | $1-3 million/year |
| Multi-family office (MFO) | Shared infrastructure serving multiple families | $10-50M+ | 0.5-1.0% of AUM |
The durable lesson: A family office isn't a product you buy—it's an organizational structure. The question is whether building or joining one delivers better outcomes than assembling advisors à la carte.
Core Family Office Services
Investment Management
Family offices typically manage assets with a longer time horizon and broader mandate than retail advisors:
| Capability | Retail Advisor | Family Office |
|---|---|---|
| Asset classes | Public stocks, bonds, mutual funds | Plus private equity, venture, real estate, direct deals |
| Time horizon | 10-20 years | Multi-generational (50+ years) |
| Liquidity needs | High | Can accept illiquidity for premium |
| Access | Retail funds, some alternatives | Institutional share classes, direct co-investments |
Example access advantage: A family office investing $5 million in a private equity fund may access the institutional share class with a 1.0% management fee, versus the 1.5-2.0% charged to smaller investors. On a 10-year investment, that's $250,000-$500,000 in fee savings.
Tax Planning and Compliance
Wealthy families face tax complexity that compounds annually:
| Challenge | Family Office Role |
|---|---|
| Multi-state/multi-country filings | Coordinate preparers, ensure consistency |
| Estimated payments | Model cash needs quarterly, avoid penalties |
| Entity structuring | Maintain LLCs, trusts, holding companies |
| Audit defense | Centralized documentation, professional representation |
The coordination value: A typical high-net-worth family might work with a CPA, estate attorney, investment advisor, and insurance specialist—none of whom talk to each other. Family offices provide the connective tissue that prevents gaps and conflicts.
Estate and Succession Planning
Wealth transfer is the core reason many family offices exist:
| Planning Element | What It Involves |
|---|---|
| Trusts and gifting | Dynasty trusts, GRATs, charitable vehicles |
| Business succession | Buy-sell agreements, key person planning |
| Family governance | Constitutions, councils, next-gen education |
| Documentation | Wills, powers of attorney, healthcare directives |
The stakes: Without coordination, estate plans drafted by different attorneys at different times often conflict. Family offices maintain a master plan that all advisors work from.
Lifestyle and Concierge Services
Full-service family offices often handle:
- Property management (multiple homes)
- Staff management (household employees, security)
- Travel and logistics
- Bill pay and cash management
- Family security and privacy protection
The point is: These services aren't investments—they're time arbitrage. Families with complex lives often find that hiring a chief-of-staff for household operations frees them to focus on higher-value activities.
Single-Family vs. Multi-Family: The Decision Framework
When a Single-Family Office Makes Sense
Threshold: Generally $150 million+ in investable assets
Reasons to build your own:
- Privacy: Full control over information, no shared infrastructure
- Customization: Services built exactly for your family's needs
- Direct investment capability: Staff to source, diligence, and manage direct deals
- Family employment: Positions for family members in operations
Costs:
- Executive director: $300,000-$600,000/year
- Investment team: $200,000-$500,000/year per professional
- Operations staff: $100,000-$200,000/year
- Technology and infrastructure: $100,000-$300,000/year
- Total: $1-3 million annually (before investment costs)
The math: At $150 million in assets, a $1.5 million family office costs 1.0% of AUM—comparable to a multi-family office or wealth manager, but with dedicated resources.
When a Multi-Family Office Makes Sense
Threshold: Generally $10-50 million in investable assets
Reasons to join a shared platform:
- Economies of scale: Access to institutional resources at lower cost
- Investment access: Pooled buying power for alternatives
- Established infrastructure: Technology, compliance, reporting already built
- Flexibility: Exit more easily than dissolving a single-family office
Typical fee structure:
- 0.50-1.00% of AUM for comprehensive services
- Often declining rates above $25 million
Example: A family with $20 million pays 0.75% = $150,000/year for investment management, tax coordination, estate planning oversight, and reporting.
Worked Example: The Evaluation Process
Situation: The Martinez family sold their manufacturing business for $45 million (after taxes). They currently work with:
- Wealth manager (0.80% of AUM = $360,000/year)
- CPA firm ($25,000/year)
- Estate attorney (billed hourly, ~$15,000/year)
- Insurance broker (commissions embedded in policies)
Current total identifiable cost: ~$400,000/year
Multi-family office proposal:
| Service | Current | MFO Proposal |
|---|---|---|
| Investment management | 0.80% | 0.60% (declining) |
| Tax coordination | Separate | Included |
| Estate oversight | Separate | Included |
| Consolidated reporting | None | Included |
| Private investment access | Limited | Yes |
| Total fee | ~$400,000 | $315,000 (0.70%) |
The value proposition isn't just cost savings. It's:
- Coordination: One team ensuring tax-efficient rebalancing, estate plan alignment, and insurance review
- Access: Ability to invest $2-5 million in private equity and venture funds
- Reduced burden: Single relationship vs. managing four advisors
Decision factors:
- Does the family want a long-term relationship or flexibility to change?
- Is private investment access important to their strategy?
- How much time does the family want to spend on financial coordination?
Common Mistakes (And How to Avoid Them)
Mistake #1: Building Too Early
The error: Creating a single-family office at $50 million because it feels prestigious.
The cost: $1.5 million annual overhead on a $50 million asset base = 3.0% drag before any investment fees. You'd need exceptional performance just to break even with a simple index portfolio.
The rule: Single-family offices rarely make economic sense below $150 million. Join a multi-family office or use a coordinated advisor model instead.
Mistake #2: Ignoring Governance
The error: Building infrastructure without addressing family dynamics.
The consequence: The family office becomes a source of conflict rather than coordination. Siblings disagree on investment strategy; next generation feels excluded; transparency creates resentment over spending differences.
The fix: Establish governance before operations. Who makes decisions? How are disagreements resolved? What information is shared with whom?
Mistake #3: Hiring Advisor as Installer
The error: Asking your investment manager to build your family office.
The conflict: They may design a structure that maximizes their role rather than your outcomes. Family offices should be principal-aligned, not vendor-aligned.
The fix: Hire an independent consultant to design the structure, then select service providers to fill defined roles.
The Family Office Decision Checklist
Consider a multi-family office if:
- Investable assets: $10-50 million
- Complex tax situation (multiple states, entities, or income sources)
- Interest in private investments but not enough scale for direct access
- Want coordination without building infrastructure
- Value flexibility to change arrangements
Consider a single-family office if:
- Investable assets: $150 million+
- Privacy is paramount
- Want to employ family members in operations
- Active in direct investments (real estate, operating companies)
- Multi-generational planning is the primary focus
The durable lesson: A family office is an organizational choice, not a status symbol. The right structure is the one that delivers coordination, access, and peace of mind at a cost that makes sense for your family's scale.
Start with your needs. Then design the structure to meet them.