The report released by Campden Family Office and Edelweiss Private Wealth Management titled ‘A roadmap for the Indian family office’ shows that number of ultra HNIs in India grew by 290% between 2006 and 2016. Moreover, it is predicted that this trend will continue with India producing more than 1,000 ultra HNIs each year over the next decade, said the report.
The report said that in recent times, the family office has emerged as an increasingly popular vehicle for these families looking to professionalise their wealth management.
What is a family office?
A family office is a wealth management boutique dedicated to the needs of a family with significant wealth.
A family office set up is a must for families having a net worth of $100 million and above. Typically, most business families are multi-generational; wherein, the first generation starts the business, the second generation builds it up and the third and the fourth generation grows it.
These members need advice on asset allocation, setting up a trust for estate planning, lifestyle management, tax planning, philanthropy and money for new businesses. A family office set up is ideal to take care of these needs.
While some family offices cater to single nuclear families (single family office), others cater to multiple families (multi family office) across different generations and familial links.
Why the concept of family office
Talking about how the family office concept came to India, Amit Patni, Director, Campden Family Connect told Cafemutual, “If you look at all industrial families like Tatas, Birlas and Mittals, the main sources of income were family’s wealth and company’s profits and dividends. There were no segregation between personal wealth and company’s wealth. These families used to appoint a CFO to manage their wealth. However, when these companies got listed or attracted investments from foreign players and PE funds, they were required to follow corporate governance practices, which included segregation of personal wealth and company’s wealth. That is where family office set up came into picture. These families wanted someone to manage their wealth, income tax, estate planning and so on in a professional way.”
The purpose of a family office
- Preserve and grow the family’s wealth through a consolidated organisation
- Professionalise and maximise a family’s investment function
- Prepare the forthcoming generation to become good stewards of wealth
- Transfer of wealth between generations
- Serve as a philanthropic arm for the family
- Support the family’s entrepreneurial endeavours
- Create and manage co-investing opportunities
- Coordinate family governance structures, family activity planning and communication vehicles
- Manage any liabilities of the family at a parent/family level
- Manage the group holding companies
- Provide family professional services, administrative services, general advisory services and investment-related services
- Other relevant services like succession planning, trust, and estate planning, philanthropic giving, concierge services, life style management and so on.
The costs of setting up a family office
Family offices are costly enterprises to operate; therefore, the decision of setting up should be made carefully. Those families who endeavor to establish a single-family office incur the cost of setting it up, along with the cost of its ongoing operation.
Families who prefer not to incur the full breadth of these costs can join a multi-family office, as the running fees are lower and can be more predictable at times.
Families can consult family office consultants, their peers who own or manage a family office, or external professionals within the banking, finance, tax or legal spheres to set up a family office.
Families can also join membership organisations, investment/angel clubs, and philanthropy circles to meet other like-minded families of wealth or to partake in various wealth management/family office workshops and conferences.