It all begins innocently enough, typically as the result of a lifetime of personal achievement. An individual builds substantial wealth by running his or her own business, or through a series of smart investment decisions. Life is good and there are plenty of financial rewards to show for it.

1. October 2006
Insights for
Preferred Clients
It all begins innocently enough, typically In another scenario, the family patriarch
Managing Your as the result of a lifetime of personal or matriarch started a business years ago
Wealth With a achievement. An individual builds sub-
stantial wealth by running his or her own
and sells it. A child or grandchild through
various transfers acquired stock in a com-
Family Office business, or through a series of smart pany for which she or he received a large
investment decisions. Life is good and amount of cash. The child or grandchild
there are plenty of financial rewards to might not have much knowledge about
An effective office structure show for it. managing family wealth, even if he or
and team can help families she had experience running the family
navigate financial and business But below the surface, trouble can brew. business. They are two different and dis-
complexities. Your family’s wealth may eventually tinct disciplines.
spread out over a multitude of asset
classes, legal and accounting complexities Centralized Decision-Making
proliferate, and financial results falter. In some cases, proceeds from the sale of
What began as a small and efficiently run a family business can become spread out
household operation can eventually among several outside money managers,
devolve into something that causes the each of whom has little or no knowledge
family to feel overwhelmed. of what the other is doing. As a result,
asset allocation ratios are derived in a
“That’s when a family office can help,” haphazard manner, leading to sub-par
say Stewart Marshall and Hank Raattama, performance. By establishing a family
estate planning and tax attorneys with office, the owner can centralize the
Akerman Senterfitt in Orlando and investment decision-making process and
Miami, respectively, and members of the achieve accountability for results.
UBS Attorney Network.* “You could have
a family office that consists of one or But an in-house advisor would not neces-
more professionals, such as a business sarily have to make all of the investment
manager, accountant, secretary or invest- decisions. The family office investment
ment advisor, depending on the level of professional could carefully screen outside
sophistication required.” Estimates vary talent and ensure that the portfolio’s
widely but it is thought some 3,000 full asset allocation is consistent with the
service family offices exist today.1 family’s overall financial goals and risk tol-
erance. The investment manager would
There is no single definition of a family also be responsible for evaluating results
office, explain Marshall and Raattama, and pruning managers whose perform-
and it is something that can develop into ance fails to measure up.
a group of people handling the family
business affairs. After selling a family Similarly, a family office can help manage
business, for example, the former owner a portfolio of real estate holdings whose
may feel inundated by the responsibility success may have taken it beyond the
abc of managing millions of dollars in assets.
This is a good time to consider some
expertise of its creator. For example, what
began as a relatively straightforward pur-
degree of a family office. chase of a duplex apartment or a small
residential development eventually grows

2. October 2006
into an operation requiring full-time Marshall and Raattama. While that might knows the family. He or she can select
management. Rather than disposing of sound like a lot of money, it is important from a narrow spectrum of necessary
highly profitable properties and leaving to keep in mind the objective of a family services. The family pays only for services
money on the table, the owner could office is to hire top talent—and top actually needed and gets top talent to
hire a qualified expert to manage and talent does not come cheaply. “If your complete the job more efficiently.
operate the real estate holdings while affairs are complicated enough to require
working in close consultation with other a family office, you are going to want Thus the potential benefits of a family
family office employees, such as an attor- to hire and retain good people,” say office are considerable. If done properly,
ney and accountant. Many family offices Marshall and Raattama. “In the legal cat- families get immediate and ongoing
have a business manager to help with egory, for instance, you are not going to access to qualified specialists within each
mundane yet time-consuming matters, hire someone right out of law school.” field. These individuals, in turn, work
such as paying bills and handling admin- together to provide a synergistic solution
istrative details. The general rule of thumb is that house- to complicated financial matters.
holds should aim to keep operational
Hiring the Right People expenses below 1.5 percent of total Facilitating Succession Planning
According to Raattama and Marshall, assets each year, so fixed costs of $1.5 A family office can also be a cost-effec-
most families realize only gradually their million would require a net worth of at tive way to bring younger family mem-
financial affairs may have grown beyond least $100 million to make a family office bers into a business. “To a great extent,
their ability to handle them. “Usually, cost-effective. Raattama and Marshall the value of a family office lies in its
there is no single event that triggers the emphasize that the $1.5 million figure intangibles—things like family succession
need for a family office,” they say. Most only applies to family offices that use a and training younger family members
of the time, it simply evolves through full range of professional services. how to run the family financial affairs,”
awareness that a problem exists. say Raattama and Marshall. They note
“Somebody might start with just an in- In reality, many families that could bene- less than half of all family businesses are
house accountant and later add an indi- fit from a family office might have more passed on successfully to the second
vidual to coordinate all the investment limited needs. They may need only an generation and less than a quarter ever
aspects of the activity,” they continue. “It accountant or attorney to help them get handed down successfully to
really is an evolutionary process. In some make sense of complex financial man- successive generations.
parts of the country, accounting and law agement and legal matters. Or, they
firms offer family office services. And, might have a general family administra- Family offices can be used also in con-
some family offices have certain aspects tor to help pay bills and handle impor- junction with family charitable founda-
of their management that have become tant correspondence. In these scenarios, tions. “Philanthropy is a wonderful way
so successful they are spun off into other other services such as investment advice to bring families together,” observe
profitable investment businesses could be outsourced to qualified firms. Marshall and Raattama. “The charitable
(e.g., hedge funds).” aspect can eventually become a signifi-
Gatekeeper of the Business cant function of the family office.”
How much money is required to make a Family office specialists can also function
family office cost-effective? Once again, as gatekeepers to direct essential services According to Raattama and Marshall,
there is no single template that can be to the most qualified outside experts many overstretched individuals realize
applied to every situation. Running a full- within their discipline. “Think of it in only gradually a family office might
blown family office may include special- terms of a large corporation that has a address their concerns. “Very few peo-
ists such as an attorney, accountant, general counsel,” explain Raattama and ple just walk in and say they want to set
business manager, investment advisor Marshall. “You might ask: What’s the up a family office,” they say. “In fact,
and a general family administrator. In advantage of having an in-house general most people are not even familiar with
addition to salaries, family offices typical- counsel staff? Why would a company the family office concept. What usually
ly will incur expenses related to: renting pay an in-house general counsel especial- happens is they say, ‘Look, every year
or owning office space; employee bene- ly since in-house general counsel does I’m hiring all of these accountants,
fits (such as health insurance and retire- not perform all needed services?” It lawyers and financial advisors, and I’m
ment plans); and information technology could simply hire the occasional legal not sure anymore I have my arms
that most professionals require to do services needed. The advantage is the around this situation.’ ”
their jobs. This could cost as much as family gets someone experienced in
$1.5 million annually, according to selecting certain expertise and who
2

3. October 2006
In that case, it may be wise to hire a Raattama and Marshall note. “You’ve “People simply reach a point where the
qualified in-house specialist to serve as picked the wrong person if they spend light goes on and they realize things may
gatekeeper for all issues relating to the time—and your money—educating have gotten out of control—they do not
family's business affairs. A few years themselves on some arcane matter.” fully know what is happening anymore
later, that same individual might express with their business and financial affairs,
similar concerns about legal matters, or The advantage of retaining qualified and the results are no longer good
the performance of their investment in-house persons is they should know the enough,” Raattama and Marshall say.
portfolio, say Marshall and Raattama. “It experts to retain and when such are That is when it might be time to sit
really is an evolutionary process that typi-necessary. Even if experts charge higher down and consider whether a family
hourly rates, they should get the job
cally takes several years to play out fully.” office makes sense, they suggest. And in
done in less time. That will save money in many cases, the answer is yes. Your UBS
Managing Costs the long run. When a family office hires Financial Advisor can help you to decide
Part of that evolutionary process requires people who are experts in their field, one if a family office structure is appropriate
having a positive experience with the first should expect them to produce results for your individual situation and help you
forays into a family-office structure. If that justify their cost, assert Marshall to craft a strategy for establishing one
executed properly, there should be a sig- and Raattama. that helps to run your business and
nificant return on whatever investment is financial matters more smoothly.
made to establish a family office. Making Time for Leisure
In many cases, candidates for a family
Naturally, there are costs involved in office have reached a stage in their lives
managing family affairs, whether in the where they want to slow down and
context of a family office or through the enjoy the fruits of their labors. They may
usual network of outside assistance. want to interact with fewer outside
“Always hiring an outside generalist to people, not more. And they often want
solve investment, legal or accounting to start the process of succession by
problems could end up costing extra bringing family members into a business
money. They might have to spend too where they can be trained by in-house
much time bringing themselves up to professionals with a deep understanding
speed—both on the family situation and of the family’s finances and guiding
on the specific issues involved,” principles.
3

4. October 2006
1
“Registering With the SEC—It May Not Be Neccessary for the Family Office After All,” Kimberly Clouse, Trusts and Estates, August 2006.
* The Attorney Network is a nationwide network of independent trust and estate attorneys that can help to meet your comprehensive estate planning
needs. Attorneys that are part of the Attorney Network are independent of, and unaffiliated with, UBS Financial Services Inc. These attorneys may
refer clients to UBS Financial Services Inc. but receive no compensation from us for these referrals.
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personal circumstances.
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