FOA White Paper Creating A Single Family Office

www.familyofficeassociation.org | 203 570 2898

Creating a Single Family Office for Wealth Creation and Family Legacy Sustainability

The Benefits of Creating a Private Company of Dedicated Professionals Exclusively Devoted to the Investment, Legacy and Personal Needs of One Family

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A White Paper by Angelo J. Robles, Founder & CEO, Family Office Association

© Copyright 2009 All Rights Reserved. Family Office Association

I. Introduction …………………………………………………………………………3-5 Definition TheSFOMarket

II. When to Consider an SFO …………………………………………………………………………6-9 Market Considerations WheretoBegin

III. Critical Planning Steps ………………………………………………………………………10-13

Mission Statement Business Plan SFO Pro Forma Employee Hiring Plan and Manual SFOAdvisoryCommittee Contingency Plan Review Process Final Presentation Fine Tuning the Final SFO Plan

IV. Infrastructure of an SFO ………………………………………………………………………14-16

Business Entities Registered Investment Advisory (RIA) Private Family Trust Company Insurance Risk Captive Insurance Company Office Location

V. Technology in an SFO ………………………………………………………………………17-20

CustodyofAssets Account Aggregation Custom Reporting of Assets Cost for Account Aggregation and Reporting Technology Customized Technology Solutions Emerging Solutions Risk Metrics and Analytics Hardware and Software Family Communication FamilyHistory

VI. SFO Personnel ………………………………………………………………………21-32

SFO Recruiters Compensation Specialists Hiring the Team Chief Executive Officer Chief Investment Officer Chief Financial Officer Chief Legal Officer Director of Philanthropy Director of Information Technology Family Office Manager Executive Assistants Bookkeeper Family Art Director Family Security Director

VII. SFO Trends ………………………………………………………………………33-34

VIII. Examples of an SFO ………………………………………………………………………35-38

Entrepreneur – Aggressive Growth Strategy Family – Legacy Sustainability New York Financier – Long-Term Investment Strategy Silicon Valley Executive – Lifestyle Management Brazilian Entrepreneurs – Expanding Global Interests

IX. Conclusion ………………………………………………………………………39-40

About Family Office Association ………………………………………………………………………41-42

Table Of Contents




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www.familyofficeassociation.org | 203 570 2898© Copyright 2009 All Rights Reserved. Family Office Association

I. Introduction


I Introduction

DefinitionA single family office (SFO) is a private company of dedicated professionals exclusively devoted to the investment, legacy and personal needs of one wealthy family. The concept of an SFO can be traced back to the Roman major domus (head of the house) and the Medieval major-domo (chief steward)*, but the modern SFO originated in the 19th century for the benefit of families of significant wealth created during the American industrial age.

Interest in SFOs has grown over the last decade as worldwide wealth has expanded exponentially due to entrepreneurialism, access to capital, market globalization, and technology. Recent global economic turmoil, coupled with banking failures and investment fraud, has motivated many families of significant wealth to take total control of their personal and financial affairs and preserve their family legacy.

An effective SFO provides a family of significant wealth (i.e. $30,000,000+) with the ultimate in:

Control of investment, business and personal servicesPrivacyCustomization of services and benefitsCoordination and effective management of outsourced providers Purchasing leverage and cost savingsDedicated focus on needs and requirements ofthefamilyIntegrating investments, philanthropic causes and passion interests successfully

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Family unity and legacy sustainabilityVision and value development

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Although a private company of dedicated professionals exclusively devoted to the investment, legacy and personal needs of one family is the classic definition of an SFO, the services the family desires as provided by their own SFO vary widely.

An SFO almost always acts as a private investment office for the family. In addition, a variety of services can be provided to the family from their SFO including:

Private Investment Allocation & Implementation Investment Due Diligence Custom Aggregation & Reporting of Assets Accounting Services (business & personal) Trust & Estates PlanningAsset Protection Risk Mitigation Family Banking and Private Trust Formation Managing Family Business Enterprises Identify and Filter Business OpportunitiesFamily Philanthropy and FoundationsFamily Mission and Governance Preserving Family Legacy and Values FamilyRetreatsResidence Management & Staffing

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*WHARTON GLOBAL FAMILY ALLIANCE: Single Family Offices: Private Wealth Management in the Family Context. By Raphael Amit the Wharton School University of Pennsylvania



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Managing Passion Investments (i.e. art, collectibles, sports, etc.) Family Medical Management Family Lifestyle (i.e. concierge, travel, aviation, leisure, etc.)

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A great benefit for a family of significant wealth is the customization of their own SFO. No two SFOs are alike. Other topics and services which families often consider from an SFO include:

Engaging Younger Generations in Entrepreneurialism Socially Responsible Investment and Business Opportunities Family Connectivity and SFO Management through TechnologyIntegrated Investment Approach (business, passion, philanthropic)

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The SFO MarketAccording to the 2008 Capgemini Merrill Lynch World Wealth Report, there are 103,000 ultra high net worth individuals worldwide, defined as having at least $30,000,000 in financial assets, excluding collectibles, consumables, consumer durables and primary residences.

Currently, there are approximately 1,000 single family offices in the world.** There are many reasons for the modest number of SFOs, including the lack of awareness and education on all the benefits of an SFO, perception of costs, set up and management complexities, challenges in hiring talented employees, and the lack of professional guidance.

The majority of wealthy families currently have

fragmented and frequently uncoordinated relationships with multiple private banks, wealth managers, and other providers of services for their business and personal needs. Now, more than ever, wealthy families need to coordinate these relationships, centralize their investments and manage their family affairs more efficiently and effectively to build their wealth and sustain their legacy for generations. An SFO for a family of significant wealth offers benefits that are too hard to ignore.

Some families mention the cost of an SFO as a deterrent. Through education and professional help, families can learn how to determine benchmarks and create an SFO that delivers a measureable ROI to ensure they receive value in return.

With the globalization of investments, technology advancements, and the speed of market changes, a family of wealth not weighing their options and considering an SFO, or dismissing such solely on cost, can be detrimental to a family’s investment portfolio and sustainability.

Technology and outsourcing has significantly reduced both the costs and minimum net worth for a family of significant wealth to consider an SFO.

**WHARTON GLOBAL FAMILY ALLIANCE: Single Family Offices: Private Wealth Management in the Family Context. By Raphael Amit the Wharton School University of Pennsylvania



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II. When to Consider an SFO

II. When to Consider an SFO

Frequently, the question “when to consider an SFO,” focuses only on net worth. Making a deci-sion based solely on whether a family has a certain net worth is not looking at the full picture of the benefits that can be realized from establishing an SFO. There are many benefits and value for a fam-ily with net worth of $30 million+ to start an SFO, including:

Creating a team of internal dedicated pro-fessionals advancing family investment and business opportunities through proactive research and sourcing to expand upon the family’s net worth in any market conditionTotal control and privacy of the family’s personal and business affairs, buffering the family from undesired solicitations Internal due diligence and safeguards (re-views, audits, etc.) to avoid ponzi schemes, frauds and downward market conditionsCrystallizing family values and developing a mission statement and plan that guides and encourages generations to follow the family vision Building a sustainable family legacy through a unifying entity (the SFO) Philanthropic giving coordinated within the complete family investment, tax and estate plan, promoting family values and reputa-tion worldwideCoordinated family effort educating young-er family members on the family’s mission, financial resources, business enterprises and opportunities to improve wealth and reputation

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Passion investment opportunities synchro-nized in a coordinated effort with all assets owned by the familyEffective and fully integrated coordination of the family’s investment, estate, tax, business, philanthropic and personal af-fairs

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In section VIII “Examples of an SFO,” illustrations are given of various SFO structures highlighting the customization created by families and the val-ue received from those entities.

An effective SFO synchronizes the efforts of tal-ented professionals exclusively focused on the desires of one family, offering much more than a private investment office. An SFO coordinates and fosters family legacy and wealth sustainability, philanthropic initiatives and personal passions.

A family would have a very difficult time establish-ing an SFO on their own due to the multiple con-siderations, tax implications, hiring, technology sourcing, and other actions required. The family needs a team of experts organized and coordinat-ed by a family office expert to help them formu-late and execute a plan that covers a holistic view of the family and future generations, with bench-marks and measurable goals in place to ensure success.

Market Conditions The current global economic conditions are unprec-edented, and families of significant wealth desire to stabilize their investments from further disas-trous declines and secure their legacy for genera-tions. This coupled with ponzi schemes and the fear that similar frauds exist that have not been



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uncovered, are leaving families of significant wealth seeking new solutions.

An SFO provides the ultimate option for a family desiring to take control of their finances and family legacy. NO other option allows for such total con-trol, privacy and customization. The SFO provides the family with internal entities with a sole focus on THEIR best interests.

A proactive SFO increases the likelihood of family financial and legacy success and allows the family to adapt faster and effectively to global changes and opportunities, market downturns, and the best investment strategies.

Every family of significant wealth should consider

an SFO due to the complexities of life, the mag-nitude of global business opportunities, control of personal and business affairs, as well shaping and guiding the family’s values and legacy for genera-tions to follow.

Where to BeginBecause of the time and focus needed to set up an SFO, families should seek the advice of experts, including organizations, consultants or service pro-viders that are solely focused on the task at hand. Private bankers, legal, accounting, and other ser-vice providers for families of wealth may be able to provide some guidance, but these companies are focused on their business, not the creation of SFOs. Many professionals lack enough knowledge to guide families in the establishment and man-agement of an SFO.

In considering starting an SFO, the family should retain a knowledgeable expert who can objectively compare all options and prepare a feasibility study. A family office consultant is one such professional.

If progressing with an SFO (after the feasibility study) the family office consultant develops a fam-ily mission statement, business plan, assists in or-ganizing the SFO advisory committee (sometimes multiple advisory committees for different areas covered by the SFO) and the SFO infrastructure.

A family office consultant is not afraid to challenge the family to fully understand the dedication



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A proactive SFO increases the likelihood of family financial and legacy success and allows the family to adapt faster and

effectively to global changes and opportunities...

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(especially early on) in organizing and running an SFO. Does the family want to organize and man-age this business entity? In reality, it is like run-ning a business, only the business is focused on the family it serves. An SFO still needs to be run like a business with a mission statement, business plan, performance benchmarks, governance, bud-gets and an advisory committee. The family will need to hire and fire employees - are they up to that?

An SFO clearly defines and focuses its capabili-ties on that one family, protecting wealth, procur-ing wealth creation opportunities and advancing the family legacy. An SFO that navigates through the current financial crisis and protects the family from mismanagement and fraud is easily worth its costs.



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III. Critical Planning Steps

III. Critical Planning Steps

Below are critical planning actions and documents that are absolutely necessary when deciding to move forward with an SFO to ensure success and a positive return on investment.

Mission StatementThe family, in conjunction with the family office consultant, first develops the family mission state-ment. The mission organizes the family vision around the family’s desires, values and expecta-tions, not simply for the current generation, but those that follow. Without a family mission state-ment, a family often deviates off course and their wealth and legacy may suffer. In developing the family mission statement, the family frequently improves internal communication. A family mission statement provides for a stewardship of timeless family values, objectives and passions. In times of challenge it reminds, motivates and unites the family of a sense of purpose.

Business PlanThe family office consultant, in close collaboration with the family leaders, needs to develop the fam-ily business plan. Although the family leaders are paramount to helping to shape the SFO, the fam-ily office consultant should talk with many family members from multiple generations (if applicable) to get all input needed to complete the business plan.

The family business plan needs to breakdown each area of interest that the SFO will address and pro-vide a framework in coordinating an action plan to bring it all together. There needs to be a process (a hierarchy as well as a system for all to follow),

including outlining measurable benchmarks the SFO needs to accomplish, a short-term and long-term timeline, employee qualification and perfor-mance goals, an employee hiring and firing policy and employee manual.

The family business plan outlines and coordinates all aspects of the services provided within the SFO (i.e. wealth management, estate planning, philan-thropic, passion investments, personal services, etc.). The plan focuses on a process for each ser-vice rendered, describing in detail the services to be provided, employee talent required, projected costs and measurable benchmarks to gage the ef-fectiveness of the services rendered and employ-ees responsible for these services.

An example of a benchmark for a wealth manage-ment function could be setting expectations for investment returns of 3% above a measurable in-flation index (i.e. CPI, etc.), with a specified di-versified asset allocation - mix of cash, bonds and equities. The portfolio is reviewed quarterly by the family and SFO advisory committee and/or specif-ic investment committee against a total standard deviation of measurable investments not to ex-ceed a negative 15%. In addition, no one money manager manages more then 5% of total family assets.

SFO Pro FormaAs with any new enterprise, in addition to a strong mission statement and business plan, a newly created SFO requires a pro forma with detailed estimated costs of every area, including admin-istrative, infrastructure, employees, outsourced services, etc. The pro forma should be used to es-tablish many goals and benchmarks for the SFO



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is properly managed and achieves a positive re-turn on costs.

Employee Hiring and Manual The employee positions within an SFO (i.e. CEO, CIO, CFO, etc.), need to be identified in the family business plan, including the qualifications of each desired position, job descriptions and responsi-bilities. Sourcing qualified employees can occur through existing family relationships and profes-sional SFO recruiters. All candidates should have a complete background check and the family should develop a process for reviewing each hire (i.e. family leader and advisory committee all agree on a candidate of hire).

An employee manual describing expectations,

family privacy policy and SFO guidelines and ben-efits should be developed to assist in providing an organized and professional environment. The em-ployee manual should also include vacation and sick time, dress, employee leave, and other poli-cies important to the family.

SFO Advisory CommitteeThe family, in collaboration with the family office

consultant, should organize an advisory commit-tee. Initially this may consist of only family mem-bers, however, the committee can include inde-pendent, unbiased professionals that add needed specific expert insight. In larger SFOs or estab-lished smaller SFOs, multiple advisory committees are created to focus on various single family of-fice functions (i.e. financial, trust & estate, philan-thropic, etc.).

Contingency PlanThe family needs to develop a contingency plan in the event of a natural disaster, theft or technology breach. At the most basic level, this includes a back up of all contact information, calendar man-agement and important investment and business accounts and reports. A more comprehensive

plan allows for emergency office space and reor-ganizing hardware and software capabilities within daysorhoursofdisaster.

Review ProcessThe family office consultant needs to commit the family to periodic reviews of all activity within the SFO. Initially, the consultant will help to establish goals and benchmarks and review each against



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In larger SFOs or established smaller SFOs, multiple ad-visory committees are created to focus on various single

family office functions

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results to measure success.

All areas should be reviewed, including the family’s mission statement, business plan, pro forma, con-tingency plan, advisory committees, employees, infrastructure, and technology. Reviews should occur at least every year, however, quarterly re-views should be considered (especially in a newly established SFO), to adjust goals, strategies, and plans as needed.

Final PresentationThe family office consultant helps the family crys-tallize their vision and desires, and organize the blueprint for the SFO. The family needs to be ac-tively engaged in this process and provide the information to be correlated by the family office consultant into a presentation for final approval by thefamilyleaders.

Fine Tuning the Final SFO PlanNot uncommonly after the final presentation, the mission statement, business plan, pro forma, em-ployee hiring plan and manual, and other process-es and documents are fine tuned. This fine tuning takes into account further reflection and feedback from all parties on the direction of the SFO, includ-ing what will be performed in-house, what will be outsourced and cost considerations.



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IV. Infrastructure of the SFO

IV. Infrastructure of the SFO

It is at this stage that the family along with the family office consultant, engages legal council ex-perienced in SFOs to organize the business entity (or entities, see below) of the SFO. Legal council also assists as needed with advisory committee documents, employee confidentiality, non-disclo-sure agreements and other guidance and docu-ments.

Business EntitiesCoordinated legal and tax counsel, along with a family office consultant, frequently advise to or-ganize multiple business entities (usually LLCs), which make up the SFO. One business entity may be the core SFO that manages the family money, another for real estate, another for personal af-fairs and a separate entity for the family philan-thropic foundation.

One reason is to segregate the legal liability to each specific entity. Another viable reason may include the ability to clarify and obtain tax deduc-tions for some of the expenses within these busi-ness entities.

Certain expenses within legitimate business en-tities may be tax deductible, including start up costs, employee salaries, hardware and software. This effectively reduces the “net cost” of the SFO. If all family services are under one business en-tity, including services for personal family affairs, this may cloud the tax issue. Separation of busi-ness entities and appropriate internal structure of such by legal and accounting council experienced in SFO infrastructure can assist in helping the fam-ily take the appropriate deductions.

Situs (location) of the SFO entities (particularly the private investment company) should also be a consideration of the family and its legal, tax and family office consultant. Most common location is the family’s primary state of residence (if in the U.S.). However, depending on family desires and needs, more favorable tax havens and/or active and vibrant financial centers may be a better op-tion. The location can also be important in recruit-ing talented employees for the SFO.

Registered Investment Advisory (RIA) It is highly recommended that experienced legal council also advise on whether the SFO should or is required to register as a registered investment advisor (RIA). If only internally managing money for the family, this is rarely required; however, it is best to have legal council review.

Private Family Trust CompanyA private family trust company is worthy of con-sideration by a family of significant wealth in con-junction with an SFO (or in place of the money management SFO entity).

A Private Family Trust Company is a formal fam-ily trust company created by the family leaders to provide maximum privacy and control of family trust and trustee engagements.

Few U.S. states allow for a private family trustcompany organized outside of the family’s domi-cile. South Dakota is one of the states that does allow non-domiciled family formation of a private family trust company and has highly favorable pri-vacy laws and asset protection clauses (of trust assets), making this state a popular choice for U.S. citizens.



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Highly private family trust services Reduce liability of family members acting as trustees. Such trust entities commonly al-low for directors & officers (D&O) and other insurance solutions to such family fiduciary risks (acting as trustee of family trusts) Depending on private family trust company situs and the situs’s rule against perpetu-ity, continuity of family trust administration over multiple future generationsReduce likelihood of needing to register in-vestment management function of an SFO (as a registered investment advisory “RIA”) by organizing investment management through the private family trust company Improve ability to maximize tax deductions of expenses related to managing the family money Formally provide fiduciary services directly tothefamilyasopposedtosimplysupport-ing the family’s trustees

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The process and costs of organizing a private fam-ily trust company have come down, making this opportunity even more attractive. The benefits of a private family trust company include:

There are multiple oversight and other obligations and decisions within the private family trust com-pany. A family office consultant, in coordination with legal and expert trust council, should present the opportunity to the family, who ultimately need to make the decision whether establishing a pri-vate family trust company is right for them.

Insurance RiskThe family office consultant needs to address in-surance risk. Many SFOs, as well as family busi-ness and personal assets, are underinsured.

This represents significant risk to the family. An SFO is a business entity like any other. There needs to be an insurance valuation and implementation of applicable coverage, including:

Business property Personal propertyLiabilityExcess liabilityEmployment practice liability Error & Omissions (E&O)Directors and Officers (D&O) Workers compensation

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Captive Insurance CompanyA Captive Insurance Company is a multi-faceted family company utilized for many purposes, includ-ing insurance risk management (specifically for difficult to insure risks), income tax, asset protec-tion and estate-planning purposes that warrants consideration by the family. A family formed cap-tive insurer is a very powerful vehicle that is high-ly underutilized by families of significant wealth. A detailed discussion is beyond the scope of this white paper, however, this strategy is worthy of follow up discussion with the family office consul-tant and appropriate legal council to determine if itisrightforthefamily.

Office LocationThe SFO for the family’s enterprise(s) should be at a formal business location, separate from the personal residences and usually separate from the family business locations (other businesses owned by the family).

Earlier in this chapter we discussed SFO domicile considerations for various SFO entities that factor in family needs, tax haven considerations and vi-brant financial centers.



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V. Technology

V. Technology

Integrated with the infrastructure decisions for an SFO is the supporting technology. State of the art technology is essential for an impactful and well managed SFO. This is an area where many SFOs fail to maximize technology capabilities. Technol-ogy within an SFO needs to address:

Account aggregationCustomized accounting and reporting of all SFO investments and costsRisk metrics/analyticsOffice managementFamily connectivity and communication Security of informationFamily history (photos, videos, documents, etc.)

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A family office consultant should be able to sup-port this initiative by helping to identify and build out technology within the SFO, along with other decision makers including the family and the SFO Chief Executive Officer (CEO) and Chief Invest-ment Officer (CIO).

It is preferable to work with the CEO and CIO to build out the technology infrastructure of the fam-ily SFO, particularly as it pertains to account ag-gregation, investment reporting and risk metric/analytics solutions.

This does not mean that the CEO and CIO recom-mendations are the only decision makers the fam-ily should rely upon regarding technology. Multiple sources and products should be explored to obtain optimum solutions and favorable pricing.

Custody of AssetsThe family’s liquid assets are often held in cus-tody by financial institutions of choice. The largest custodians of assets (many of the world’s largest financial companies) have significant global plat-forms which allow almost all imaginable cash in-struments, bonds and equities to be traded and held in custody.

Some custodians, depending on the value of as-sets under custody with them (substantial assets) as well as the family’s total services utilized with them, can aggregate and comprehensively report on assets held both inside AND outside of their platform (other custodians, hedge funds, illiquid investments, etc.).

A potentially significant expense from a technolo-gy perspective is the ability to aggregate all assets and then report on those assets in an organized format. Leveraging relationships with financial in-stitutions that provide needed custody services and may also provide aggregation and reporting on all assets may result in a savings, however, this also affords less privacy from a family’s perspec-tive. A family office consultant can add great val-ue in choosing and negotiating with custodians to provide total aggregation and reporting solutions ofallfamilyassets.

Account AggregationAccount aggregation means that all investment accounts, no matter where held in custody, includ-ing illiquid investments, are sourced and organized in a central technology based account aggregation solution. A challenge can be in the reconciliation of these assets, verifying data and checking for errors.



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Customized Reporting of AssetsCustomized reporting of assets, pulled from the in-formation provided through account aggregation, should include considerations on how the family wants to access the data, the frequency, and the reporting structure to view their total assets. Re-porting requirements may include cost basis, cur-rent value, currency conversions (if applicable), assets in trusts & partnerships, and other custom-ized needs.

Costs for Account Aggregation and Reporting Technology A small to mid size SFO can expect to pay $75,000 - $135,000 per year for comprehensive account aggregation and comprehensive reporting. Larger SFOs can expect to pay $150,000 - $200,000+

for such services. These figures do not include account aggregation and reporting technology start up costs which can range from $50,000 - $100,000.

The costs of technology solutions for account ag-gregation and custom reporting is a reason why obtaining such services through custodial relation-ships (discussed earlier) can be valuable and

a significant cost savings.

Customized Technology SolutionsAnother option is for the SFO to build there own in-house custom account aggregation and report-ing platform. This will require an outsourced in-formation technology (IT) firm experienced in de-signing such software. Costs can vary significantly, however, it provides maximum privacy of the fam-ily assets and total customization to satisfy all re-quirements.

With a custom account aggregation and reporting solution, the software takes account feeds from all the family’s custodians, investment advisors, hedge fund managers, etc., and aggregates all this data to produce the custom reports. This will

require internal SFO personnel that have the time and the ability to manage this process.

Emerging SolutionsTechnology start ups are currently introducing low-er cost solutions for account aggregation and cus-tom reporting. These solutions are not as robust as the offerings from the more traditional firms, however, depending on assets, titling of assets,



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Another option is for the SFO to build there own in-house custom account aggregation

and reporting platform.

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custodians and desires, particularly for smaller SFOs, these solutions may cost less and are ad-equate for the family’s needs.

Risk Metrics and AnalyticsRisk metrics and analytics is another area that should be considered when developing the tech-nology infrastructure. Certain custodians have ba-sic programs and tools, which may be included in their offerings to SFOs. More comprehensive pro-grams identifying measurable risk factors within the portfolio and illustrating multiple “what if” sce-narios and possible solutions are available through technology service providers.

A small to mid size SFO can expect to pay $60,000 - $120,000 per year for comprehensive risk metrics and analytics solutions. Larger SFOs can expect to pay $150,000 - $200,000+ for such services.

A family office consultant can also assist in sourc-ing qualified outsourced professionals with an ex-pertise in risk metrics and analytics specifically to SFOs. In addition to advising on technical solu-tions, these professionals have the internal prod-ucts and experience to provide significant value to the SFO as an outsourced consultant.

Families should consider all of these areas as they develop their technology infrastructure as they are highly valuable and provide a great custom-ized service to the family. The SFO personnel must understand how to utilize and maximize all the benefits these solutions provide. Ongoing training of the SFO personnel and desire to maximize the capabilities of these solutions by the team is critical.

Hardware and SoftwareThe family office consultant should recommend the best hardware and software solutions based on the specific needs of the family and the infra-structure of the SFO.

A secure document storage system is highly im-portant to SFOs, as well as back up systems and secure calendar management and family commu-nication devices.

Security is critical for the family’s private infor-mation and communication. A technology expert or outsourced IT company should be contracted to advise, implement and coordinate the desired choices and solutions.

Family Communication Secured intra-net sites, telecommunication solu-tions, and connectivity strategies should be imple-mented to facilitate family business and personal communication. Customized IT solutions can fos-ter family connections and enhance communica-tion with service providers around the world, thus improving the timeliness and effectiveness of de-cisions and actions.

Family HistoryA great asset to any family is their ability to record and share their history, including important docu-ments, photos, videos, etc., for current and future generations. Technology offers the family various options to record and secure their history, includ-ing professionally produced DVDs, secure servers, web sites, and other mediums that are secure, but easily accessible by family members.



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VI. SFO Personnel

VI. SFO Personnel

With the mission statement, business plan, and all the other pieces in place, the family and their fam-ily office consultant (and other advisors) are now ready to source and hire the SFO team.

Commonly, as noted in prior sections, the SFO key personnel are involved in the process of the infra-structure and technological solutions. It is recom-mended that the family hires key personnel before finalizing the SFO infrastructure and determining the technology solutions needed.

With any position, there needs to be a process for hiring and a due diligence investigation conducted for all potential hires. More than simply a credit and criminal check, a comprehensive report com-piled by a professional investigative firm with a focus on comprehensive background checks is a must.

A family office consultant solely focused on SFOs can help with sourcing appropriate and experi-enced staff as well as developing the process of qualifying and interviewing candidates.

The family office consultant may be aware of available candidates and the family’s inner circle of business relationships could be a good source aswell.

SFO RecruitersThe family office consultant should have multiple and completely independent high-level relation-ships with recruiters who specialize in SFOs (there are very few recruiters that specialize in SFO place-ment). No compensation is necessary to the family office consultant in introducing any relationships

tothefamily.

There are some SFO positions that are specific to the personal needs of the family, which can be placed through other recruiters specializing in the high end services area, including luxury hotel and travel.

The key positions soon to be outlined require ex-perienced professionals who are not only talented, but a good fit for the family. The executives hired for the SFO is highly personal and customized by everyfamily.

Compensation SpecialistThe family office consultant should engage a com-pensation specialist experienced in SFOs to assist in designing a compensation and benefits plan to attract, retain and motivate the most quali-fied candidates. More than simply base salary ranges, a compensation specialist artfully designs a compensation package that may include short and long-term incentive bonuses, carried interest opportunities, co-investment opportunities, quali-fied retirement plan offerings, insurance, deferred compensation (409A) and phantom stock “golden handcuff” strategies. The right mix encourages long-term employment and productive relation-ships.

Hiring the TeamThe most common SFO positions are outlined be-low. It is recommended to hire slowly to ensure the right personnel and cost control. A family should hire ONLY the employees that are absolutely re-quired initially and outsource the other services needed. Over time, additional employees can be hired to replace outsourced services in a phased approach where the benefits outweigh the costs.



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Chief Executive OfficerThe Chief Executive Officer (CEO) is a business savvy, highly diversified and connected profes-sional who spearheads the SFO. This can be an actively engaged and suitably knowledgeable fam-ily member. In new or small SFOs, that is most commonly the choice. In mid size or larger SFOs, a professional outside the family is more common.

Job Responsibilities Usually, the CEO is an experienced business pro-fessional and leader (whether family or non-fam-ily member CEO). They should have expertise in financial, accounting and other technical areas, however, they do not have to be true experts in every aspect of the SFO.

There are times when a very strong accounting, financial, or legal background is preferable to busi-ness and leadership savvy. There is no set formula and the SFO and its personnel are customized per a family’s specific needs.

The CEO needs to be engaged in all aspects of the SFO, yet understand they must delegate and trust the talent in the SFO to perform their specific functions (with oversight and accountability). The CEO needs to communicate on an on-going basis with the family and focus all their efforts on the SFO fulfilling its mission to serve the family. This position answers directly to the key family leaders and SFO advisory committees.

Although the CEO must be a fit for the family and follow the protocol of the assignment, the ability to engage multiple family members and generations is critical. The abilities of the younger generations will determine the long-term success of the family and the SFO. A CEO that encourages and fosters

involvement and education of critical business ar-easisagreatasset.

In larger, more established and geographically di-versified families, the ability of the CEO to under-stand family dynamics and communicate solutions facilitating family unity is critical.

A CEO should embrace modern technology as a family communication and business management tool to advance the success of the SFO in servicing thefamily.

Depending on family desires and the expectations from this position, a well connected business-sav-vy CEO can create opportunities to expand family wealth by sourcing business, real estate, passion and other investment opportunities for the family.

Additionally, some families desire to seed fund and develop partnership interests with young and talented traders (i.e. hedge fund, private equity, etc.), as well as invest in emerging growth com-panies. A proactive CEO can help with researching and sourcing valuable opportunities.

It takes a talented professional with diverse skills (business, technical, communication, human re-sources) and a deep rolodex of very high quality connections to succeed in this extremely impor-tant leadership position.

The CEO needs to carry out the mission and coor-dinate effectively all aspects of the SFO in a syn-chronized effort in fulfilling the family’s mission and vision. This is why leadership, business savvy and communication are a constant theme in the description and responsibilities of this role. Using a sports analogy, the family is the sports franchise



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“owner” and the CEO is the “coach” who needs to maximize and coordinate the efforts of all the “players” (i.e. employees).

CEO Salary Ranges and CompensationThe CEO in a small SFO commands $250,000 - $400,000 and in a larger SFO (or small SFOs with extensive requirements and/or family members that see the value in a great candidate) can cost anywhere from $400,000 - $2,000,000 (inclusive of base salary and bonuses).

The CEO and CIO positions are sometimes offered co-investment opportunities by the family. This can be attractive to certain professionals (and can make up for a smaller salary and bonus structure) and is most applicable with a family who is

actively engaged in direct real estate, private eq-uity and venture capital opportunities.

This is not a position where families should skimp. If the family does not offer pay commensurate with the importance of the position, they may have a hard time competing for top talent and the return from the SFO may not meet expectations.

CHIEF INVESTMENT OFFICERThe second position filled in a SFO after the CEO is the Chief Investment Officer (CIO).

Job Responsibilities The CIO, under the direction of the family leaders, investment advisory committee and CEO (some-times this is a joint CEO/CIO position), initiates and coordinates the primary investing decisions in fulfilling the family investment objectives. Such families are already significantly wealthy (at this stage it is a matter of degree), therefore, the CIOs primary obligation is to maintain and expand the family’s wealth. Some families take a more ag-gressive investment approach, however, the ma-jority of families DO NOT want to lose their wealth through risky investments.

The challenge to a family in remaining significantly wealthy is much more than smart investment de-cisions. The effects of income, capital gains and estate taxes play a significant role, which involves tax, trust and estates issues. So does business and entrepreneurial pursuits, particularly in the generations to follow. The CIO plays an integral role in assisting the family by fulfilling investment objectives as laid out by the family, and



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The challenge to a family in remaining significantly wealthy is much more than

smart investment decisions.

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coordinating efforts with other in-house and out-sourced financial professionals to minimize risk and maximize returns.

The CIO needs to be able to create, implement and coordinate a comprehensive family financial strategy, including an accompanying Investment Policy Statement (IPS). The CIO commonly needs to develop multiple family financial strategies and IPSs for various intra-family fractions (if applica-ble) as well as assets titled within trusts and part-nerships.

The CIO coordinates family financial objectives and outlines investment parameters and bench-marks. As with almost all activities of the CIO, the family financial plan and IPS needs to be approved by the family leaders, investment advisory com-mittee and CEO.

Paramount to all this is the ability for the CIO to organize and implement an asset allocation strat-egy built around the principles and benchmarks as indicated and agreed upon by all the decision makers in the IPS. A comprehensive plan on asset allocation and the method, tactical or strategic as-set allocation, is a critical responsibility of the CIO, but beyond the scope of this white paper.

Our terminology “family” is singular, however if an SFO is serving multiple intra-family fractions (vari-ous siblings and relatives within the same fam-ily), then multiple and segregated family financial strategies, IPSs and asset allocation strategies need to be maintained and monitored.

A traditional challenge for families and their con-sultants sourcing and vetting a CIO, was the lim-ited availability of qualified individuals who

possess the diverse talents required by families of significant wealth. The current global financial cri-sis has left many qualified candidates out of work, or desiring the favorable environment working di-rectly for a family. This is an optimum time to cre-ate an SFO given the qualified talent available to fill the financial leadership positions.

In addition, the CIO needs to be able to work with the staff and outsourced financial service provid-ers and communicate effectively with the CEO and family. The CIO should be able to seamlessly uti-lize the available account aggregation, reporting and risk metrics/analytics capabilities of the SFO in customizing the services and data to the desires ofthefamily.

We have yet to discuss actual investment deci-sions in carrying out the coordinated family fi-nancial plan, IPS and asset allocation strategy. A question that needs to be answered by families is whether they want the CIO to choose the underly-ing investments.

Broadly, the asset classes that make up an asset allocation strategy include cash, bonds, equities, alternatives (technically, alternatives are one of the three prior asset classes, however allow for various shorting, leverage and other strategies, by a talented manager) and derivatives.

Although there are exceptions, it is usually recom-mended that the CIO does not actually choose the underlying individual investments that make up the allocation in each particular assets class. How-ever, the CIO researches and identifies the best money managers around the world to implement the applicable allocation towards each specific as-set class.



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Very large SFOs may elect to employ an invest-ment research team and hire internal experts in each asset class in designing a truly custom port-folio for the family, all coordinated and managed by the CIO.

The CIO needs to be first and foremost excellent at planning, organizing, sourcing (money manag-ers and business opportunities), monitoring, vali-dating and reporting on all investment activities.

Once the investment plan is in place, including the family financial plan, IPS and asset allocation strategy with approval from the family leaders, CEO and advisory committee, the CIO needs to source best in class money managers who carry out the actual investing of their given allocation. Again, the choices on money managers should be presented and approved by the family leaders, in-vestment advisory committee and CEO.

The CIO needs to be able to source, select, diver-sify and monitor the money managers who carry out the actual investing of various aspects of the portfolio, including cash management, bonds, eq-uities, alternatives and derivatives. Consideration should be given to highly competent outsourced consulting firms specializing in alternative and other illiquid investments, which can maximize re-turns for the family on these specialized invest-ments.

Because of the major financial losses from invest-ment scandals and ponzi schemes and the troubled global banking system, diversification of invest-ments and the thorough research and monitoring of those individuals, companies and institutions in-vesting a family’s money, are so imperative.

These issues and parameters need to be addressed in the IPS. There needs to be diversity among mul-tiple money managers executing the investments for each applicable allocation. This diversification and allocation to multiple money managers re-quires more management work from the CIO, but it is a critical strategy for successful SFOs.

For example, the strategy could be the equity por-tion of the portfolio, agreed to in the IPS and as-set allocation strategy, will be 30% of the overall portfolio (ignoring for now the actual breakdown of growth, value, domestic, foreign, etc.), and the selected money managers will manage no more than 5% of the amount allocated towards equi-ties.

Besides diversity of well chosen money managers, experienced and proven in their given specialty, further risk management efforts need to be taken beyond performing basic due diligence. The fol-lowing key questions need to be asked about the money managers before selection is finalized:

Who is the money manager’s clearing firm? Who is their legal and accounting council? If an alternative investment manager is used, who is their prime broker?

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The CIO or other trusted SFO employees need to verify all information provided to ensure accuracy and validity.

Risk metric/analytic programs and services at the SFOs disposal were reviewed earlier, which per-form mathematical evaluations as well as monitor potential portfolio risk. A risk management consul-tant can provide excellent value to the SFO and



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assist the CIO in managing investment risk.

Additionally, an investigative background check on the money management firm and its principals and selected money managers is highly suggest-ed. More than simply a quick online check, a more detailed background report should be done. The family office consultant and/or the CIO should be able to source reputable investigative firms to per-form this important task.

Families of significant wealth and their SFO lead-ers, including the CIO, need to be more cautious than ever before with their selection of individu-als and companies managing the family’s money. Working with selected legal firms who specialize in comprehensive investment due diligence is highly recommended (your family office consultant should source such relationships) to review your portfo-lio, and in particular, alternative investments. The $50,000 - $200,000 in legal consulting fees is well worth avoiding costly investment mistakes.

In addition to the basic due diligence and back-ground checks, the legal firm can evaluate alter-native investment contractual provisions, provide advice on alternative investment offshore gover-nance, source for silent partners and review crimi-nal and regulatory concerns.

Many families and their SFO leaders may not re-alize that such legal firms, highly experienced in alternative investments and BUY SIDE represen-tation (representing the purchaser of such invest-ments), can sometimes negotiate special con-tractual terms, including lower fees and improved liquidity of that family’s assets within the fund. Not only is this a critical step for reducing risk, but could result in cost savings in the long run.

The CIO also needs to organize, coordinate and monitor the money managers in a tax sensitive manner. In addition to providing data to make smart decisions, various tax overlay software pro-grams and analytics can assist in monitoring many aspects, including an overlap in actual holdings among the various money managers, tax basis of holdings, capital gains exposures, and more. This should be coordinated with the SFOs in-house or outsourced tax professionals.

CIO Salary Ranges and Compensation As with the CEO position, the CIO position is sim-ilar in cost. Salary can range from $250,000 to several million, depending on responsibilities re-quired such as amount of assets to invest, type of assets, and family needs as well as the CIO’s experience.

The CIO (as noted earlier with the CEO position) can also be offered co-investment opportunities by the family, which again can be attractive to obtain qualified professionals.

Special ConsiderationsWith the growing interest in socially responsible and “green” investing, families expressing great interest in this area can attract a like-minded CIO by allowing that CIO the opportunity to coordinate the family’s financial affairs around these core principles.

There are no set formulas. In some SFOs, there is no CEO and an advisory committee of family lead-ers is formed. In this case, the CIO would assume the leadership role (as an employee) within the SFO, with an SFO manager running more of the day-to-day operations. Conversely, there may be a CEO, no CIO position, and the family



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advisory committee would make the investment decisions. In another case, the family may fully outsource this function to an individual or organi-zation.

CHIEF FINANCIAL OFFICERMany families of vast wealth in organizing and building out their SFO see great value in hiring a Chief Financial Officer (CFO). For a family with substantial business interests and/or significant personal, trust and partnership accounting re-quirements, the CFO is a highly desired profes-sional.

Traditionally, the candidate would have a strong combination of business and personal accounting background, preferably from the big four as well as CFO experience in a successful private com-pany.

It is not uncommon in scenarios where the family has multiple business interests for the SFO CEO, to be a CFO by training, with a very strong ac-counting background, and that accounting func-tion remains core to their CEO duties. The trend is hiring highly qualified and diverse accounting and legal professionals to assume the CEO positions within SFOs.

Job Responsibilities The CFO position within an SFO differs from a tra-ditional CFO position in other companies in that this position is also responsible for the personal tax issues and returns of the family members (in-cluding family trusts and partnerships). In large SFOs with multiple accounting personnel on staff, this may be under the supervision of the CFO, but the function is completed by the staff.

The CFO should be experienced in complex multi-generational estate planning and needs to coordi-nate efforts with family legal council (whether in-house or outsourced). In certain areas of extreme tax specialty on these issues, the CFO should source appropriate accounting council and coordi-nate efforts.

The CFO should coordinate with the CIO on tax strategies for the family involving their invest-ment portfolio. Tax overlay, capital gains decisions on sales, and many other aspects dictate that an efficient SFO has synchronized efforts among all personnel. Coordinated and integrated manage-ment is one of the primary benefits of establishing aSFO.

Many family leaders, as well as the CEO, desire to constantly view updated cash flow reports, fam-ily income and expense statements, as well as fi-nancial statements (i.e. balance sheet). The CFO needs to perform this function and maximize utili-zation of the applicable infrastructure and technol-ogy systems at their disposal in preparing docu-ments and reporting. If there is no CFO, then the CEO may take on this function directly or manage and compile the data from internal sources (CIO, bookkeeper, accountant, etc.) or outsourced pro-viders.

Although sometimes sourced to bookkeeping and/or an executive assistant, the CFO may also handle bill paying for the SFO as well as the family (par-tially automated through custodial relationships, cash management and other online resources).

The CFO commonly assists in evaluating business and real estate opportunities for the family, man-aging lines of credit, business and family loans,



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as well as cash distributions to family members.

A combination of business and personal financial management capabilities is highly preferred for a CFO, but if the family has a specific need for this role, the expertise of the CFO may reflect that need and then the CFO can coordinate hiring or outsourcing for the other areas of responsibility.

CFO Salary Ranges and CompensationIn smaller SFOs, this position can cost $150,000 - $250,000 and increase to $500,000 - $750,000+ in mid-size to larger SFOs. The salary range for this position is more highly variable than other high level positions. Those families with few business holdings and family members may not required a CFO position, while other families may have mul-tiple family businesses and many family members with highly complex tax returns and estate-plan-ning issues, which would absolutely require this important position.

Many families and their SFO CEO and/or CIO elect to outsource this position. In almost any out-sourced arrangement, it is difficult to achieve the same level of control and privacy as compared to having all in-house senior staff. There needs to be a balance of need, cost and talent agreed upon by the family and CEO/CIO. The talent and resources in an excellent accounting firm may be more valu-able to the family than hiring a CFO, which at a comparable talent level may be very costly. All op-tions need to be weighed against other personnel needs when making decisions on these key per-sonnel positions.

CHIEF LEGAL OFFICER A Chief Legal Officer (CLO) is common in more substantial SFOs. However, as stated throughout,

it is all about what is best for the family’s needs. A key benefit for the family is building out an SFO organization that is highly customized.

Job Responsibilities Families with highly complex and/or multiple busi-ness interests can benefit greatly from hiring an in-house legal professional. The CLO can evaluate business, real estate and complex investment op-portunities from a different perspective than the other senior executives of the SFO. The CLO can negotiate business transactions and perform clos-ings as well.

The CLO may be hired for both business and per-sonal needs, or have a focus on the personal fam-ily needs, organizing and monitoring family trusts and partnerships, as well as trust & estates is-sues.

As noted earlier in the CEO section and again in discussing the CFO position, there is a trend among families with significant business interests and/or complex personal legal needs, to hire a le-gal professional for the CEO position.

Families of vast wealth often need multiple spe-cialized experts in business, patents, litigation, marriage law/pre-nuptials, trust & estates, etc. A well diversified and connected CLO can manage these areas through internal staff and outsourced relationships and coordinate all efforts.

CLO Salary Ranges and CompensationIn smaller SFOs, this position can range from $150,000 - $250,000 and $500,000 - $750,000+ in mid-size to larger SFOs.



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DIRECTOR OF PHILANTHROPYSome families elect to create a Director of Phi-lanthropy position. Most commonly, the family’s philanthropic initiatives are directed through a separate entity, such as a family foundation(s), as opposed to directed by the family SFO.

It is always recommended to create separate enti-ties for the SFO and the family foundation(s). Until a family’s philanthropic mission and giving level is expansive to warrant hiring a full time director, typically an engaged family member assumes the responsibility for the role.

Most families of significant wealth desire to im-prove their ability to indentify and verify philan-thropic opportunities for causes that are in

Job ResponsibilitiesThe family member or director selected to under-take this endeavor needs to understand how phil-anthropic endeavors fit within the family mission statement and business plan. Focusing active fam-ily members and engaging younger generations in their passions is critical to this role.

The Director of Philanthropy along with a

specific philanthropic advisory committee, sources and vets philanthropic opportunities aligned with the family mission statement and business plan. If desiring outside contributions, fundraising experi-ence is preferred, with both traditional and online expertise. Executive management experience at a foundation or other charitable experience would be recommended.

How the family should donate money to various organizations involves legal and tax implications. This is best left to experienced in-house or out-sourced legal and tax professionals. Family foun-dations, charitable remainder trusts, and charita-ble lead trusts are all viable options. The Director of Philanthropy should assist in managing the pro-cess and distributions to charity (no matter

the vehicle), as well as following through to gage and measure the results.

Families are encouraged to organize applicable philanthropic giving vehicles only after they are fully committed to giving. The first step is to de-velop a philanthropic strategy built around the family mission statement and business plan. A truly engaged family member is often needed



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Families are encouraged to organize applicable philanthropic giving vehicles only after they are

fully committed to giving.

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to drive this process. Philanthropy is an excellent way for younger family members to feel active in the family decisions.

Philanthropic giving goes deeper than tax benefits, and helps to teach the younger family members about compassion, giving and choices.

Director of Philanthropy Salary Ranges and CompensationIf going outside the family to fill the position, sal-ary can range from $100,000 - $200,000.

DIRECTOR OF INFORMATION TECHNOLOGYLarge SFOs frequently hire a Director of Informa-tion Technology (IT). This position is vastly under-rated and should be considered in all SFOs. This position advices and coordinates the technical in-frastructure of the SFO. Many SFOs have critical computer needs and highly specialized software requirements that all need to be supported and upgraded on an ongoing basis.

This position should positively impact family con-nectivity and communications as well as costs and control of the SFO.

This position can range from $75,000 - $150,000, depending on the complexity of the technology in-frastructure required.

FAMILY OFFICE MANAGERThe Family Office Manager (sometimes referred to as general manager or “GM”) is a unifying position that focuses on the SFO running as efficiently and effectively as possible. This position can involve HR functions (managing directly or in coordination with an outsourced firm). The Family Office Man-ager frequently is the conduit for the family and

in-house staff and assists with coordinating out-sourced professionals.

The Family Office Manager is commonly less de-fined by a traditional role than other positions. The position requires a person of diverse talents who learns quickly, is highly organized, and initiates solutions.

In smaller SFOs, the Office Manager will coordi-nate business and personal services, in conjunc-tion with the executive assistant, for the family.

This position can range from $75,000 - $150,000.

EXECUTIVE ASSISTANTFamilies can have one or multiple executive as-sistants depending on the size and number of employees of an SFO. Frequently, there is an ex-ecutive assistant to the key family leader(s) and another executive assistant assigned to key SFO personnel.

The responsibilities of this position, particularly at the personal level, can vary widely. An execu-tive assistant may act as the primary person co-ordinating household management and personal household staffing needs. They may manage mul-tiple personal matters such as medical informa-tion, insurance, family vehicles, child care, and collectibles. They may be the primary conduit to the family leader for personal appointments, cal-endar management and children’s needs.

Personal service and highly organized are the hall-marks of this qualified professional. Infallible under pressure and proactive in the needs of the family or key SFO personnel are a must. Commonly, the executive assistant is excellent at communication



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(written and verbal) and proficient in technology.


BOOKKEEPERThis position often supports the CFO, or in smaller SFOs without a CFO, may take on additional re-sponsibilities. Managing payroll (or coordinating with an outsourced firm), handling receivables, paying business and personal family bills, coordi-nating medical and insurance claims, processing and coordinating mail (this may also be handled by an executive assistant) are just some of the traditional responsibilities of this position.


FAMILY ART DIRECTOR Many families of significant wealth enjoy collect-ing art. Some families have an art director to pur-chase, sell and manage their collection. The art director may also catalogue collections, coordinate transportation, manage insurance and act as a cu-rator showcasing and educating the family and guests at home functions and events.


FAMILY SECURITY DIRECTORMany families are rightly concerned about secu-rity and are finding a need to hire a Security Di-rector to manage and mitigate family residence, business, cyber and outside activity risks. If not a direct employee of the family or the SFO, the security director can be an outsourced specialist. In larger SFOs, the Family Security Director is also responsible for the security measures within the SFO, including offices, technology security and familysafety.




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VII. Trends

VII. Trends

There are many trends that may change the future of SFOs or add to the requirements from a family. These include:

Increase in the number of new SFOs as the number of families of significant wealth ex-pands worldwide and more families become aware of the benefits of organizing an SFO Increased interest in private family trust companies managing the family wealth across multiple generations as families de-sire even greater control and privacy Significant increase in the utilization of technology, specifically in family connec-tivity and communication. Most SFOs are behind the technology curve, however, younger entrepreneurs and family mem-bers demand it Families incorporating their philanthropic focus into their investment portfolios, in-cluding clean energy, green living, micro-lending, volunteer vacations and other op-tionsMore creative hires by SFOs, as many tra-ditional professionals for important posi-tions can be difficult to source. Their back-grounds will be more diverse in technology, engineering, family dynamics, language and luxury services, which will add fresh perspectives to the SFO More interest from younger family mem-bers in private company purchase oppor-tunities, or start ups, through the family SFO

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Greater interest from families in sourc-ing and seeding globally talented traders (i.e. hedge funds, private equity, venture capital, etc.) and creating wealth through partnerships and investment in emerging growth companies around the worldFamilies supporting education and training for SFO key personnel to further maximize performance of results

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The family and their SFO executives should con-duct extensive research, connect to other families, service providers and professionals in the indus-try, and attend conferences and education events to keep up with all the trends and changes in the marketplace that may affect the results of their SFO.

No longer can a family keep up with all of the in-formation, education and connections needed. Through an SFO, qualified staff can recommend changes in the SFO strategy to protect against downturns, and take advantage of opportunities to create wealth.



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VIII. Examples of an SFO

VIII. Examples of an SFO

The following are SFO examples with different in-frastructures and requirements based on the fam-ily needs.

ENTREPRENEURIAL – AGGRESSIVE GROWTH STRATEGYA 40-year old, single, serial entrepreneur with a net worth $175,000,000 organized an SFO to ag-gressively manage wealth and procure business and new investment opportunities.

The entrepreneur views the SFO as a proactive business entity and wants to remain actively en-gaged in expanding his wealth. The SFO acts as a private equity investor and real estate purchaser.

In this situation, the entrepreneur assumed the CEO position, and hired a CIO with strong global experience (particularly Latin America) and con-nections, a business-savvy CFO, and one execu-tive assistant.

In addition, the entrepreneur CEO made a decision to hire a bright MBA from a top business school two years after the SFO was established to help source and evaluate business opportunities. A very mod-est base compensation was offered to the MBA, as well as a minority interest in transactions with excellent upside for successful transactions.

Focus of the CEO, CFO and MBA associate is on ag-gressively sourcing and vetting business and real estate transactions. The CIO allocates the individ-ual’s global assts, manages the money managers and sources opportunities for partnership with tal-ented young traders.

The SFO utilizes its own custom Excel program-ming and spreadsheets to aggregate and report on all investments.

Lifestyle, concierge, medical management, tech-nology and legal services are all outsourced.

FAMILY - LEGACY SUSTAINABILITYAn SFO established two decades ago by the founding couple currently in their late 60’s with six children and 14 grandchildren and a net worth $500,000,000. They have two highly profitable family businesses and have recently expanded overseas.

When weighing their options, the family decided an SFO provided the most control and ability to inform, engage and benefit generational fam-ily members through family legacy sustainability strategies.

The family maintains a conservative investment philosophy managed by the CIO focused heavily on limiting down market exposure. The family is highly concerned regarding multi-generational es-tate and asset protection planning. The SFO CEO is a highly experienced attorney with a 20-year historywiththefamily.Thefamilyhasagreedtoprogress with organizing a private family trust company in favorable domestic jurisdiction to manage family wealth and trusts. Besides addi-tional privacy benefits, the family greatly desires favorable trustee considerations for further control and various asset protection benefits with such an entity when domiciled in a jurisdiction with favor-able laws.

The SFO CEO and outside council were integral in initiating a multi-year strategy to transfer real



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estate and other long-term potential assets that were hard hit by the global recession into a com-plex series of grantor retained annuity trusts, char-itable lead trusts, intra-family derivatives, etc., to save hundreds of millions in estate taxes.

The SFO CEO and CIO are both encouraged to host quarterly educational forums for the children and grandchildren. Two of the couple’s children are highly successful entrepreneurs in their own right and contribute to building the family wealth.

NEW YORK FINANCIER - LONG TERM INVESTMENT STRATEGYA 70-year old New York area private equity profes-sional with a net worth of $700,000,000 organized an SFO two years ago. He is CEO and his oldest son is CIO. He felt that given his background and passion for investing and a dedicated family inter-est, that channeling his efforts into building his family legacy through an SFO provided the great-est likelihood of long-term family success.

The family is very comfortable with complex in-vestments and multiple currency trading. A new investment initiative for the family is global ven-ture capital and green investing.

The SFO has a very experienced CFO with sig-nificant accounting and investment banking back-ground. The CFO is provided co-investment op-portunities on certain investments. Investment banking, lending, business and personal tax coor-dination, and other traditional duties are all part of the CFO activities.

The family has a significant private foundation, which runs its philanthropic affairs and is led by the SFO leader’s daughter. Keeping in line with

the family’s new focus, the private foundation’s core areas for giving and venture philanthropy are in environmental and multiple green initiatives.

Estate planning is outsourced to a prominent legal firm with advanced capabilities in offshore trusts, intra-family lending and asset protection.

The family is considering organizing an offshore captive insurance company to manage significant hard to insure risk and to provide tax, estate and asset protection capabilities. The SFO is technology proficient, with a Chief Technology Officer managing their state of the art aggregation, reporting and risk metric/analytic ca-pabilities.

High level executive assistants manage multiple family relationships and assist the family with trav-el and personal passions, including a significant rolodex of resources in the art and wine world.

SILICON VALLEY EXECUTIVE – LIFESTYLE MANAGEMENTA 45-year old, single and retired Silicon Valley ex-ecutive with a net worth of $125,000,000. The ex-ecutive completely outsources his investments to several private bankers in a coordinated effort.

The SFO in this case is not a private investment office. Instead, the SFO focuses on managing mul-tiple global residences and life affairs. The execu-tive maintains an active social and philanthropic life and desires a self contained organization to attend to his needs.

The SFO Office Manager runs the SFO. Her multi-faceted focus is to coordinate all communication between the SFO leader and the financial



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advisors (multiple private bankers) and business intermediaries (accounting, legal, lenders, etc.). In addition, the SFO leader maintains four global residences and the SFO Office Manger is charged with sourcing household talent and required per-sonal services.

The SFO leader has an executive assistant, who manages his calendar and many personal services including sourcing world class providers of specific services for the executive. An outsourced book-keeper organizes all mail and pay bills.

BRAZILIAN ENTREPRENUERS – EXPANDING GLOBAL INTERESTSBrazilian brothers, ages 53 and 49, married with children, have a combined family net worth of $350,000,000. They recently decided to organize an SFO to manage their expanding family global business interests and their personal finances.

The family considered direct private banking rela-tionships, however, they felt that maximum con-trol, due diligence and proactive investment re-search and vetting would be achieved by creating a team of coordinated professionals exclusively devoted to the family’s needs. The family main-tains multiple global private banking relationships, all coordinated through the family’s SFO.

The family custody’s assets across various global providers, currencies and platforms, and maintains the domicile of trust assets and actual real estate holdings in diverse global locations to spread mar-ket, currency, as well as geographical risk.

The older brother’s 28-year old son is a Latin American private equity professional who desires, with his family’s seed capital, to organize global

capital to invest in Latin American endeavors, exponentially expanding and diversifying family wealth and continuing in the entrepreneurial spirit ofthefamily.

The family’s SFO employs direct talent to manage the family’s lifestyle, travel and security detail. The family is highly private and prefers to main-tain such functions in house.



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IX. Conclusion

IX. Conclusion

For families with the applicable financial resources, an SFO is undeniably the ultimate in control, pri-vacy and customization in optimizing the family’s wealth, legacy and resources.

The collapse of renowned public and private finan-cial institutions, the panic in the global economy, outright allegations of fraud among financial su-perstars, and many other factors make it impera-tive that SFO’s be considered to control a family’s destiny and build upon a legacy of sustainability.

Much like a CEO of a corporation does not run a multi-billion dollar business alone or make every decision in finance, accounting, legal, marketing, and other areas, the SFO should be viewed as a way for the family to delegate decisions, actions and opportunities to those more qualified and fo-cused.

The ability to progress with an SFO has never been easier with the proper advice from dedicated SFO organizations and consultants. New technology, selective outsourcing and the vast amount of tal-ented individuals currently displaced allow for a family of significant wealth to create an SFO as efficiently and effectively as ever before.

A well run SFO is a smart business decision. As with any business, it requires a vision outlined in a mission statement, business plan, and an under-standing of costs and expectations as outlined in the pro forma. An effective SFO is a highly valu-able asset that CREATES wealth for the family.

It is important that the family electing to move for-ward with their own SFO follow all critical steps,

including hiring trusted consultants to help them every step of the way. The family needs to be 100% dedicated to the creation and management of their SFO – a half hearted attempt won’t lead to a long-term positive return.

Generations from now when business interests have likely been liquidated and/or greatly dis-persed, the SFO stands as the family unifying en-tity, uniting and signaling a path for those that follow. The family SFO showcases the values es-tablished and maintained by the family for the worldtosee.



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About Family Office Association

About Family Office Association (FOA)

Family Office Association’s mission is to enhance multi-generation family fortunes and family legacies by building a foundation of best practices, values, and sense of purpose. That foundation can be developed, fostered, and enhanced for individuals and families by creating a thriving and successful Single Family Office (SFO).

FOA has developed a consulting practice solely focused on the creation and sustainability of SFOs. FOA is a trusted source for individuals and families to receive unbiased and comprehensive support to create an SFO, educate their employees to optimize performance of the SFO, and obtain management best practices for ongoing improvements.

“Now more than ever, ultra high net worth individuals and families need to make smart investment decisions as well as informed philanthropic choices and passion ventures with trusted employees, socially responsible advisors and reliable service providers,” said Angelo J. Robles, CEO of the Family Office Association. “FOA helps individuals and families navigate the steps necessary to create and sustain successful and often com-plex SFOs.”

About the Authors Angelo J. Robles is the Founder & CEO of the Family Office Association (FOA), based in Greenwich, Connecticut USA. Prior to organizing FOA, Angelo was a Private Wealth Manager at UBS, Founder of the consulting firm, The Robles Group, and Director of Global Executive Benefits at Arthur J. Gallagher & Co. Angelo also served in the capacity as the Organizer and Director of the Northeast chapter of the Hedge Fund Association.

Angelo has written and presented extensively on financial, estate and asset protection matters, including many independently published articles and two books. Angelo is authoring his latest book “Creating a Successful and Profitable Single Family Office” for release in early 2010.

Co-author Karen Vogel is an accomplished business development leader successful in accelerating revenue growth for business and product launches. Ms. Vogel has been in business development, marketing and sales executive roles for several start ups, including the Family Office Association. She has proven expertise in driving sales, business planning, P&L development & management, creating & executing integrated mar-keting plans, sales process & management, and technology identification and deployment. She is currently Vice President of Business Development for eWayDirect, an emarketing solutions provider, and operates her own business development consulting practice.



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To learn more about FOA and the SFO services offered, contact:

Angelo J. Robles of Family Office Association 203-570-2898 . [email protected]

Family Office Association500 West Putnam Avenue, Suite 400 Greenwich, Connecticut 06830

www. familyofficeassociation.org

FOA White Paper Creating A Single Family Office

Documents

Transcript of FOA White Paper Creating A Single Family Office