Talk about family offices has become much more common over the past few years, but the term has many different meanings. One of the most serious players in the area, Sandy Loder, once said something along the lines of: ‘Show me a family office and I will show you one family.’ For, if you are wealthy enough to justify having a family office, then it will reflect the individuality, or, some might say, quirks, of your family’s dynamics.
Many suggest that the first family office set up was that of the Rockefeller family. If it was not the first, it was one of the first. Certainly, the concept of the family office is well known in the US, and family offices are also common in continental European countries. But they have not been as common in the UK, which is not to say that many of their functions have not been there. Their growth in the UK has been of a different nature.
The traditional UK wealthy family had its estate office, the name of which reminds us that wealth in the UK was largely built on land. The agent for the estate, or the factor in Scotland, was the powerful representative of the family. But that reflected the source of wealth, and it does not tell the whole story.
With wealth much less often being dependent on land, there is every possibility that many more wealthy British families will be attracted by the option of a family office.
For me, a major issue was that, with primogeniture being the focus of succession planning, and there being much less ability to be flexible in dividing up landed estates without damaging their continuity, the title holder was dominant in the wealth-management arena overall, especially with the powers that he exercised under the Settled Land Act 1925. So, when the tenth Duke of Omnium died, his advisors either died with him, or they became the servants of the 11th Duke.
In the US, and in continental Europe, succession did not follow primogeniture. In the US, the default position was equal sharing, while the civil law, with its forced heirship, achieved the same result of spreading wealth much more equally across the next generation. If the wealth was in the form of a successful company, or if it was a large estate, who was going to hold the ring between the competing family claims? The family office, with its apparent neutrality, and without a stake in the family assets, provided the ringmaster to keep family interests in check, and made itself indispensable by holding the cheque book.
But, as I have observed before, primogeniture in the UK is now in decline, because we create no new hereditary peerages, and the adoption of gender-blind primogeniture on the part of the royal family (although I doubt it was their choice) may prove persuasive for other families where the title would otherwise fall to distant relatives instead of immediate family members if they are of the ‘wrong’ sex.
Without primogeniture, the default position on succession will, in my view, follow the US example. With wealth much less often being dependent on land, there is every possibility that, with the regulation and specialisation that accompanies the management of wealth, many more wealthy British families will be attracted by the option of a family office. Such a vehicle enables them to enjoy the privilege of their wealth, while delegating the management and, importantly, monitoring of investments, the organisation of philanthropy, completion of myriad regulatory and fiscal obligations, and sometimes just the overall advisory role.
Of course, there is a cost component, and I do not suggest that the family office is without difficulties, because human frailty on the part of the wealthy family member or the executive of the office will always be a risk. The family office does not detract from the need for an independent, trusted advisor alongside the structure, because the hardest, but most important, task is to tell the family when they must not do something, and the executive of the family office has their livelihood on the line at the moment that crunch comes. So, an independent professional becomes a vital balance and protection for both sides.
Expect to see more British family offices, but do not see them as an answer to the management of all issues.