Tips for Finding a Family Office That is Right for Your Family

Tips for Finding a Family Office That is Right for Your Family
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Interview with Ida Beerhalter, co-head of IOME, a private investment partnership of women principals from the Gulf region with its head office in Riyadh, KSA.

What does IOME do?

IOME is a private investment partnership of women principals from the Gulf region, which is set up as a hybrid family office by woman principals.

Each principal is driven by the desire to make her own decisions in regards to her investments and assets to develop the confidence to take back charge of her wealth from whoever is holding – or withholding it from her. There is also a great motivation also to add to the financial literacy of their families and women in their network.

Let’s begin with a basic question – should a family business have a family office?

It is not a given that a family should have a family office, but rather have the tailored solution for their needs – this could be a family office, but this could also be the election of one family member who is put into power and charge to manage the wealth and distributes shares to the other members.

There might be many solutions but before looking for a solution you should start with the definition of the “problem”, the needs, the risks, and the missing pieces and skills that are needed. The ideal solution could be a single family office, it could be a service-based multi-family office, it could be the splitting of assets over multiple family offices, and so forth.

It ultimately boils down to whether the type of family office makes a good fit with the wealth owner’s personality, circumstances or investment philosophy.

What advice do you have for families looking to set up or seeking the services of a family office? What should they look for and what mistakes should they avoid making?

It all start with asking the right questions – often the right questions are the ones which answers are uncomfortable, and you do not really want to hear or to face.

When it comes to the actual decision to set up a family office, it does not make much sense to ask for input and opinion from people who want to sell you their services and products as you might not get an unbiased opinion – and often very limited options to choose from.

For me, it also does not make much sense to involve any or too many non-family members into the process of finding out what could be the best solution for the asset owner.

I always recommend to talk after that to other families and ask them what worked for them and why and more importantly what did not work and why.

Read about why and when wealthy families failed, when and why and by whom their businesses where transferred into non-family members hands, and who and why is holding the purse strings of those family’s wealth now. This is because it is important to collect information about others, about yourself, and about the options you have so that you can take your time before making a decision.

The wealth owner should ask themselves what they genuinely want and why. If it is just handling of assets or part of the assets, choosing one of the typical service-based family offices might be the best option. If you seek this sort of pure asset management, your family office should not set up redundant structures, complicated reporting systems, and in-house specialists, but rather agile generalists who have a good network of specialists.

If you go with such a service-based family office, managing the fees and being aware of the fees in absolute and not relative numbers is paramount. Insist on a very transparent and complete fee reports and do you due diligence to monitor if the costs justify the benefits and services you are getting.

Also be aware if there are additional fees depending on the type of completed transactions and what they call success-based payment structures which correlate with realized or unrealized gains.

I personally try never to be blindfolded by “big brands” and their marketing efforts because they are usually not upfront with negative news about their performance. As an illustrating example: I could not care less for which bank my banker works. I trust her as a person for years, and I (and my assets) followed her through 3 banks, and as long as she delivers the performance and transparency, she will continue to be my banker. And if I need banking advice in a field she does not cover she will be the first I ask for a recommendation, and she will be the first to recommend somebody else. It is this type of relationship that your family should be looking to foster in the family office, instead of turning to the first big wealth management firm that comes knocking.

Of course, in comparison with the above service-based family offices, the cost structure in a single family office is much easier to plan and assess as it is purely operational and should contain minimal fixed costs – if any.

Wealth management is multi-faceted and sometimes a wealthy person runs during its life through one and sometimes multiple metamorphosis. All in all, I am a strong believer that the wealth owner and/or a trusted family member (preferably the heir) should at the minimum always have a finger on the pulse of their wealth. If non-family members must be involved, wealth owners should install them as early as possible and should take great efforts to get to know the persons and characters of the persons they intend to entrust with the destiny of the family wealth.