The Family Office would appear to be somewhat in vogue. So much so, in fact, that it is virtually impossible to read a financial journal wit...

The Family Office would appear to be somewhat in vogue. So much so, in fact, that it is virtually impossible to read a financial journal without coming across an article or being offered a seminar or conference on the subject. Surprising, perhaps, given that this is hardly a new phenomena – there are reportedly up to 3000 such operations in the US alone.

The simple, logical explanation for all this extra attention is the vast increase in the number of very wealthy families across the globe. This in turn has increased if not the demand then at least the market for such services. Bringing together their financial affairs, where the long-term objective is understood and the family interests are central to any decisions, has obvious benefits in terms of coordinating investment strategies, wealth transfer and succession planning, as well as private philanthropy and tax planning.

What is perhaps a more recent trend is greater internationalisation. Many ultra-wealthy families now conduct business across several different countries, so their assets may be dispersed around the world and among several generations. As a result, the family office of this millennium may increasingly be structured more along the lines of a multinational corporation than ever before.
Nevertheless the principles remain the same.

It requires an integrated strategy for the entire family wealth, put in place by a dedicated team of professionals focused on achieving the family’s goals in complete confidence. This ensures continuity from generation to generation on issues of family heritage, the family trusts, family values, or family philanthropy, and not least the ability to act across all jurisdictions.

The question now, is who is best placed to provide these services. For many years fiduciary companies, either as independent businesses or a division of a larger financial institution, have been offering a full range of "family office" services to their clients. With the vast increase in the number of very wealthy families wishing to avail themselves of these types of service the demand has grown for them to have their own, separate fiduciary operations.

This particular demand is either being fuelled by a desire for greater control over their assets, or simple economics. It is often perceived to be cheaper to employ your own people to provide the service rather than pay professionals working for someone else. That may be open to debate, but clearly there is a challenge to third party providers - be they an independent or a major financial institution - to demonstrate they can add value to such a relationship.

At one end of the scale there will always be certain, perhaps mega wealthy families who tend to have their family office, and even their investment operations, manned by their own people. On the other hand, there will be those that are hosted or managed by an independent fiduciary company or financial institution, enabling a family to exercise a greater degree of control than would otherwise be possible.

Where perhaps a threat might be perceived is where institutions may not have the resources or capability to host the family office itself. Obviously here there is a risk, in terms of retaining the relationship.

Unless the family expresses a clear preference as to who should provide such services as banking and investment management, that choice will be heavily influenced by the fiduciary company concerned. A third party will almost certainly have their own preference as to who should supply financial services to the family.

Notwithstanding any overriding conflict issues, providers do face a potential loss of business that might otherwise have been retained had they been able to provide the hosting services themselves. This is somewhat compounded by the fact that many of the large financial institutions have been divesting themselves of their fiduciary operations. Perhaps the increased market for family offices will be enough to reverse this trend, and we may actually begin to see many institutions looking to re-establish bespoke managed fiduciary operations to target this growth area.

The fact remains, however, that good client relationships are based on trust and strengthened by good service. In every case that means acting in the best interests of clients by offering impartial expertise and objective advice at all times. Remembering this fundamental principle increases the chance that a client will remain loyal, whoever they chose to provide family office services.

Given the growth in this area, trust and loyalty provide the greatest protection.