Understanding the modern family office

Proven tips for advisors, practitioners and students involved in this growing industry

Family offices are attracting growing attention as the vehicle of choice by the mega wealthy to manage their assets, both in the United States (U.S.) and elsewhere. Yet they are by no means a new phenomenon. Family offices have been around in some form or other since civilization began in order to provide a vehicle for wealthy families to manage and safeguard their assets.

Before the Renaissance, only emperors, kings, and nobles had the political power and resulting economic might to amass great fortunes. The family office emerged to serve them, from the Roman majordomos to the chief stewards employed by noble families throughout the Middle Ages.

The Renaissance brought a flowering of commerce and international trade, which in turn generated great wealth for the leading merchant families. Their complex and far-flung business activities—as well as dynastic ambitions for their offspring—encouraged them to seek help managing their family affairs. They adopted sophisticated family office functions, such as systematically collecting, accounting for, safeguarding, and reinvesting their assets. Those tasks remain essential services of family offices today. These families came to understand the key qualities needed of those who would serve them by running their family offices. Those qualities were—and remain today—loyalty, discretion, attention to detail, timely execution, business acumen, and faithful stewardship.

The nineteenth century brought a surge in economic growth, industrialization, and wealth creation that far surpassed anything in history. Business empires sprang up and grew to enormous size. Family fortunes, as well as the need for family offices, expanded accordingly. Also encouraging the formation of family offices were the increased use of tax and estate-planning vehicles and the role of separate management companies.

One of the first modern family offices was established by John Jacob Astor in 1835. Astor, a German immigrant, made three successive fortunes, as a fur trader, an international merchant, and a Manhattan landlord, becoming one of the first multimillionaires in the United States. Astor’s family office headquarters was built like a bank and served as collection point, counting house, and vault for rents generated by his real estate empire. Known by its address, 85 Prince Street, it was designed to be impregnable—burglarproof, fireproof, and earthquake resistant. The building sported thick masonry walls reinforced with iron bars, an iron roof, iron doors, and iron-grated windows. It is sometimes said that family offices are established because of the founder’s desire for privacy, control, and continuity. That certainly seems the case with Astor, who oversaw his empire from within a fortress.

Another high-profile family office was set up by John D. Rockefeller in 1882. The cofounder of Standard Oil was estimated to have been worth over $1 billion in 1937. The Rockefeller family office continues to operate today, and indeed it established a number of businesses and nonprofit consulting firms that serve other wealthy families in the areas of wealth management and philanthropy.

Classification and Attributes

There are generally nine distinct classifications of family offices (figure 1.1): traditional family offices, virtual family offices (VFOs), commercial MFOs, traditional MFOs, direct investment family offices, active trader family offices, administrative family offices, embedded family offices, and real estate family offices. These nine archetypes are subsets of four distinct classes of family offices based on common characteristics: breadth of offering, multifamily offices, associated with family businesses, and institutional.

Figure 1.1

Understanding the various categories of family offices and their distinctive attributes is the first step when learning about this industry, whether as an academic, practitioner, or vendor.

This is an excerpt from The Family Office, A Comprehensive Guide for Advisers, Practitioners, and Students. Now available where books are sold.

Adapted from The Family Office by William I. Woodson and Edward V. Marshall. Copyright (c) 2021 Rybat Advisors, LLC. Used by arrangement with the Publisher. All rights reserved.

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Bill Woodson

Bill Woodson is the head of Strategic Wealth Advisory and Family Enterprise Services at Silicon Valley Bank.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein