Many wealthy families in the US and worldwide utilize family offices to manage their assets and various other needs. Last year, the number of family offices surpassed 4,500, collectively managing an estimated $6 trillion in assets. North America holds the largest concentration of these family offices. North America hosts approximately 1,682 family offices, managing over half of the global family office assets. Family offices address the unique needs of wealthy families, offering a broader range of services than traditional financial institutions. These offices may serve a single family or multiple families, depending on resources and needs, with Multiple Family Offices (MFOs) cost-sharing for economies of scale. Additionally, family offices can be outsourced to various management firms.
Who Needs a Family Office?
Families with net worth assets from $50 million to $1 billion and more benefit from having a family office oversee their assets. Family offices provide comprehensive financial planning integrated with asset management, cash management, risk management, and lifestyle management. Wealthiest families also need professional assistance with legacy planning to address estate taxes, estate law, and family businesses.
The family works with an advisory team from multiple disciplines to manage and transfer business interests, estate disposition, family trusts, philanthropic goals, and family governance. These family office advisors also educate the next generation of the family.
2024 Study Findings
J.P. Morgan, a multinational finance company, recently published the firm’s 2024 Global Family Report with some interesting findings. The organization interviewed 190 of the world’s wealthiest families to find out ways for the family offices to be more effective and adaptable in today’s complex world. Some findings include the following:
- Over 90% of family offices offer financial asset management services, including investment management, private investments, trading and market execution, professional accounting, tax, legal services, estate planning, finance, and family office staffing and compensation.
- The average family office costs $6 million annually.
- The average target market return is 11%. However, some family offices don’t have a target return.
- In North America, principals make investment decisions in 56% of family offices, compared to 26% internationally. The 26% typically utilizes an investment committee.
- The average alternative portfolio allocation is 45%, indicating a shift toward taking liquidity risks to achieve higher long-term returns.
- About 40% of small to medium family offices worth between $50 million and $999 million outsource investment management to a degree. In contrast, only 20% of family offices with $1 billion or more under management outsource investment management.
Top Areas for Concern
J.P. Morgan’s study found that family offices are most concerned with cybersecurity services, family governance, succession planning, and wealth education. While 90% of family offices provide financial and asset management, many lack in these less tangible areas.
- One-quarter of families surveyed reported exposure to cybersecurity breaches or financial fraud, and another quarter reported lacking cybersecurity measures. Family offices, much like businesses, need robust cybersecurity measures.
- Nearly 40% of family offices need to improve their cybersecurity services.
- Family offices are also struggling to maintain cohesive, productive family units. There are pressing needs for succession planning, family governance, and wealth education, especially for the next generation.
How KJK Can Help
KJK counsels families in office structure, family structure, business succession planning, estate planning, charitable planning, and wealth education. Our attorneys collaborate with a range of professionals, including investment advisors, insurance advisors, tax and accounting advisors, and charitable entities, to ensure comprehensive support for family offices. Contact KJK Estate, Wealth & Succession Planning attorney Susan Friedman (SLF@kjk.com; 216.736.7272) to discuss further.