Fractional Family Office

Do you feel your financial situation is too complex for the average financial advisor, but you need more assets to hire a family office? Hiring a fractional family office may be the option that provides you with the best of both worlds.

What is a Financial Advisor?

A financial advisor is an individual who provides financial advice and expertise to individuals, families, or businesses to help them make informed decisions. While most financial advisors market financial planning services, seldom does their expertise lie in enough areas to make a financial plan truly strategic because of their compensation model. Because most advisors are mainly compensated for selling either investment or insurance products, this is what most of their advice and planning surrounds.

The lack of broad expertise limits the quality of the services they can provide to families or businesses with complex financial situations and numerous cash flows. Therefore, families that own multiple businesses have a large asset base or want help in other areas are forced to either spend more of their hard-earned money on hiring a lot of other professionals or spend more of their time trying to fill the knowledge gap themselves, which can come with learning from expensive mistakes.

What is a Family Office?

A family office provides comprehensive wealth management services beyond investment advice. It often includes tax planning, estate planning, philanthropic strategies, bill payment management, concierge services, and even family governance. Family offices aim to address the holistic financial needs of high-net-worth individuals or families with assets around $250 million or more.

The complexity of wealth management increases significantly with more extensive portfolios. They work closely with investment professionals to ensure investment strategies align with the family’s financial goals and risk tolerance. Such families may have diverse investments in various asset classes, including private equity, real estate, and alternative investments, which demand specialized expertise and comprehensive oversight. Family offices become your new management team involved with every step of your investment strategies. They often negotiate real estate contracts on your behalf or coordinate with private equity firms, venture capitalists, or angel investors to raise the funding you need to create or grow your businesses.

Family offices excel in tax planning and optimization. They work diligently to minimize tax liabilities for high-net-worth individuals and families. This includes strategies for creating different entities or trusts to reduce income tax, capital gains tax, or estate tax. They may also help with tax-efficient investment strategies and structures.

They often assist clients in developing comprehensive estate plans to ensure the smooth transfer of wealth to future generations. They consider the financial well-being of children, grandchildren, and beyond, with an eye toward long-term wealth preservation and growth. They help clients create wills, trusts, and other estate planning documents, often collaborating with legal experts to maximize the efficiency of wealth transfer.

Many high-net-worth families are involved in philanthropy. Family offices help clients establish and manage charitable foundations, donor-advised funds, and other philanthropic vehicles. They develop strategies for charitable giving that align with the family’s values and goals.

Family offices manage their clients’ day-to-day financial affairs, including bill payments. This includes coordinating the payment of utility bills, mortgages, insurance premiums, property taxes, and other recurring expenses. They ensure that bills are paid accurately and on time, preventing late fees and disruptions.

They often provide concierge services to enhance their client’s quality of life. This can involve arranging travel, making reservations, coordinating household staff, and handling various personal requests. These services free up the client’s time and provide convenience.

They also assist in establishing and maintaining family governance structures. This involves creating guidelines and protocols for family decision-making, wealth succession, and conflict resolution. Family offices are critical in facilitating communication and collaboration among family members to preserve generational wealth and values.

What is a Fractional Family Office?

In contrast to a traditional family office, a fractional family office offers wealth management services to multiple families while operating on a shared or fractional basis. This means that resources and expertise are divided among several clients, making it a cost-effective alternative for families with substantial but not ultra-high net wealth.

Since smaller clients don’t meet the threshold to hire most family offices, they need more expertise to reach their goals more efficiently. However, fractional family offices look to fill this knowledge gap by providing services to multiple clients with assets ranging from a million to tens of millions of dollars. These offices provide services like traditional family offices, such as investment management, financial planning, tax optimization, and estate planning.

If you have significant complex financial assets but still can’t justify hiring a family office, a fractional family office may be right for you.

Key Takeaways

Financial advisors offer expertise in either investment or insurance vehicles. This narrowed expertise limits the quality of strategy they can bring to individuals with complex financial situations.

Family offices offer financial services for those with complex financial situations. They help with investment management, tax planning, estate planning, philanthropy, bill payment management, concierge services, and family governance structures. Family offices are geared more toward individuals with $250 million or more in assets. They’re compensated based on AUM and the complexity of the family’s needs.

Fractional family offices offer similar services to a family office but to those with under $250 million or more in assets. They help advise many families instead of just one like the traditional single-family office. This management is a great option for families with complex financial needs that an average financial advisor can’t help with but doesn’t have the asset base to reach the threshold for a family office.