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Family office models: Is it possible to be “too bespoke”?

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I understand there is a certain amount of envy among billionaires.  Some, finding out that their rival has a family office think “I must have one of them as well”. It’s like the neighbour who brings home a new Mercedes Benz and then his neighbour buys one as well.

Envy is often the biggest driving force in purchases, and so it is with private investment offices among the wealthiest individuals and families.

But this poses a dilemma since there are, theoretically speaking, an infinite number of family office models – certainly more than models of Mercedes Benz. What your family office looks like will depend on what you need, and it can be tailored precisely to your wants – this is the conventional wisdom.  

But the problem is that while, in theory, there is an infinite number of family office models, in reality, there is only a finite number that work.

The reason for this is that families are different in many respects, but are also the same in many others.  They will want to take very different approaches to questions like outsourcing and insourcing. They will have different time horizons for realising investment returns, as well as various tax profiles and different attitudes to risk.  

But they are also the same. This is because families often suffer the same problems: divorce, falling-out, fraud, boredom, death, idiocy and lunacy. Any family office hoping to survive through generations will have to anticipate these difficulties.

Family office models that do not take these rare but often devastating problems into account do exist.  But you would do well to avoid them.

It follows that it is advantageous to know why for example, the Rothschild family business/family office has succeeded over generations, and why another family office has not. Family offices can learn a tremendous amount from each other, yet many don’t.  They are unaware of each other and perhaps even unaware they are a family office in the first place.

The professionalisation of the sector demands that the bespoke approach to creating a family office must change. Those families who are willing to share their experiences will take the lead role in this and must help bring an end to the “totally bespoke” mentality.

After all, even Mercedes Benz can’t cater to every possible quirk in an individuals’ taste – despite all the carmaker’s efforts.  

 

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