Family Offices: Services, Costs, and Alternatives

A family office is less a place than a job description: someone oversees the investments, reconciles every account into one picture, pays the bills, coordinates the tax and estate work, and runs the households. Your husband may have done much of that work himself, or directed the people who did. Now the subject arrives with a certain glamour attached, and bankers and friends may suggest that an estate of your size ought to have one.

Whether you need one depends less on the size of the balance sheet than on the number of moving parts. This guide compares single-family and multi-family offices with a well-coordinated team of independent advisers: what each does, how federal securities law treats it, how its costs are built, and what should worry you. By the end, you should be able to match a structure to the work your estate actually generates.

The five jobs a family office performs

Strip away the branding and a family office performs five recurring functions.

1. Investment oversight. Setting policy, choosing and monitoring managers, and keeping private holdings and real estate in view beside the liquid portfolio.
2. Consolidated reporting. One statement of everything you own across custodians, trusts, and entities, reconciled to the underlying records.
3. Bill payment and cash management. Paying household, property, and staff expenses, and keeping cash where it is needed.
4. Tax and estate coordination. Timing estimated taxes and trust distributions, and keeping the accountant, lawyer, and trustees on one set of facts.
5. Household administration. Insurance, property management, domestic payroll, collections, and the paperwork of philanthropy.

No single profession does all five well. The question is who performs each job, who checks the work, and who holds the whole picture.

Three ways to organize the same work

A single-family office

This is a company owned by family clients, controlled by family members or family entities, and serving only the people and entities the rule recognizes as family clients, with its own staff and outside specialists as needed. It offers the most control and privacy, and it is a business you must govern: hiring executives, approving budgets, setting conflict policies, testing access rights, and commissioning independent audits.

A multi-family office

This is a firm serving many unrelated families from a shared staff and platform. You gain a broad bench and established systems without building a company, but you are a client rather than an owner, competing for attention with other families and with the firm’s own business model.

A coordinated team with an outsourced chief investment officer

Independent specialists divide the work: an outsourced chief investment officer, meaning an advisory firm given discretion to run the portfolio under a written policy; a CPA firm; an estate lawyer; a trustee; and a bill-pay service. Someone, you or a paid coordinator, must hold the agenda. Our guide to building your own board of advisers explains how to keep any one adviser from controlling every decision.

The three models can perform similar tasks, but they allocate responsibility differently. A dedicated office gives the family the employer, technology and control burden. A multi-family office trades some control for a shared platform and staff. A coordinated team can preserve provider independence, but only if one person owns the calendar, document list and unresolved-issue log. Choose the operating model before choosing the brand.

How the SEC family office rule draws the line

Under 17 CFR 275.202(a)(11)(G)-1, adopted by the Securities and Exchange Commission on June 22, 2011, a qualifying family office “shall not be considered to be an investment adviser” under the Investment Advisers Act of 1940. It must meet three conditions:

1. It has no clients other than family clients.
2. It is wholly owned by family clients and exclusively controlled, directly or indirectly, by family members or family entities.
3. It does not hold itself out to the public as an investment adviser.

Family members are the lineal descendants of a common ancestor no more than 10 generations removed from the youngest generation, including by adoption, stepchildren, and foster children, with their spouses or spousal equivalents. Family clients also include specified former family members, key employees, trusts, estates, family companies and charities. The definitions are exact rather than intuitive: for example, the charitable entity itself must hold funding that came exclusively from other family clients. SEC staff have said that a charity may segregate third-party gifts in an account for which the office provides only administrative (not advisory)services, but they also warn that investment advice is interpreted broadly and counsel should review the arrangement.

One transition provision matters after a death or other involuntary transfer. If a non-family client becomes a client because of the death of a family member or key employee, or another involuntary transfer from either, the rule treats that person as a family client for one year after legal title to the transferred assets is complete. That is a compliance runway, not permanent eligibility; the office needs a documented transfer or exit plan before the year expires.

The adopting release, No. IA-3220, explains that many family offices had relied on the private adviser exemption for advisers with fewer than 15 clients, which the Dodd-Frank Act repealed effective July 21, 2011. The Commission’s “core policy rationale” is “that a family office is essentially a family managing its own wealth,” and qualifying offices “are thus not subject to any of the provisions of the Act.”

That cuts both ways. An office relying solely on this exclusion does not register or file Form ADV as an investment adviser, and it is not regulated under the Advisers Act merely for the family-office activity. That does not erase other federal or state laws, contractual duties or fiduciary duties that may apply. Your safeguards are governance: ownership documents, written authority limits, independent custody, audit trails, independent audits, cyber controls, and duties owed under applicable state law. The SEC expected family disputes to be “resolved within the family unit or, if necessary, through state courts.”

Multi-family offices are generally registered advisers

The exclusion stops at one family. The SEC declined to extend it, saying commenters had not persuaded it that the rule could distinguish multi-family offices “in any meaningful way” from “family-owned commercial advisory firms that offer their services to other families,” and noting that a family served by another family’s office could have conflicts of interest with it. SEC staff have since written that the exclusion is “applicable only to single-family offices.”

A firm that serves many families and gives investment advice is therefore generally an investment adviser and may need SEC or state registration unless an exclusion or exemption applies; the label “multi-family office” creates no exemption of its own. Ask the firm to identify its legal status in writing, then verify it. Treat the name as marketing and the registration record as evidence. Look the firm up at adviserinfo.sec.gov and read its Form ADV:

• Part 1 reports the firm’s business, ownership, clients, affiliations, and disciplinary events.
• Part 2A, the brochure, gives the fee schedule, whether fees are negotiable, other costs such as brokerage, custody, and fund expenses, and the firm’s conflicts.
• Part 2B, the brochure supplement, covers the background, disciplinary history, other business activity, additional compensation and supervision of the people who will advise you. An SEC-registered adviser does not file it with the SEC but generally must deliver required supplements to clients; state filing rules can differ, so ask for the current copy.
• Part 3, the relationship summary or Form CRS, is required of SEC-registered advisers serving retail investors.

Check individuals and any affiliated brokerage on FINRA’s BrokerCheck, which reports customer disputes, disciplinary events, and certain criminal and financial matters. The same discipline, set out in our guide to choosing a financial adviser after a loss, applies to an outsourced chief investment officer, which should have a Form ADV of its own.

What each model costs, and how the bill is built

The economics differ in kind, not only in amount. A single-family office is an operating company: salaries, benefits, space, technology, insurance, and audit costs arrive whether markets rise or fall, with outside managers’ fees on top. That largely fixed cost suits work that is large and continuous.

A multi-family office or outsourced chief investment officer commonly charges on assets; Investor.gov notes that an adviser’s fee is typically based on the value of the assets in your account. Some add a flat retainer for administration. Fund, custody, and brokerage costs form another layer. A coordinated team bills in pieces: hourly or fixed fees from the lawyer and accountant, an advisory fee, a monthly bill-pay charge.

Compare the models in total annual dollars, every layer included, for the same scope of work. Put salaries and benefits, outside managers, fund expenses, custody, tax and legal work, reporting software, cyber insurance, bill payment, property administration and audit on one page. Mark each cost as fixed, asset-based, hourly or transaction-based, and show what happens if assets fall 25 percent or a property or business is sold. Our guide to how your adviser is actually paid shows how to trace each path of compensation.

Do not compare a full single-family-office budget with only the headline advisory fee of a multi-family office. Require each bidder to price the same service inventory, name every affiliate or subcontractor, and state which work will still be billed separately.

Warning signs worth taking seriously

• A firm that calls itself a family office but cannot say plainly how it is regulated.
• The same people pay your bills, prepare your reports, and move money, with no second approval and no statements reaching you directly from the custodian.
• Consolidated reports that cannot be reconciled to custodian statements.
• Proprietary funds or firm-sourced private deals without written disclosure of how the firm is paid.
• Reluctance to provide Part 2B supplements or to discuss a regulatory disclosure.
• Pressure to place trusteeship, custody, advice, and bill payment under one roof quickly, particularly in the first year of widowhood.
• Shared logins, emailed payment instructions, one-person wire authority, or no independent callback for a changed bank account.
• No written continuity plan for the departure, incapacity or death of the relationship lead, or no practical way to export records and data.

Choosing by complexity rather than prestige

The right structure follows the work. Count the moving parts: trusts, entities, and custodians; operating businesses and direct real estate; staffed properties; private funds with capital calls; the generations to be served; a foundation.

Suppose your estate is a diversified portfolio at two custodians, two houses, a revocable trust, and a donor-advised fund. A strong coordinated team can likely handle that at lower cost, and with more independence, than a dedicated office. Suppose instead that you control a family company, a portfolio of buildings, dozens of private-fund commitments, and trusts for three generations. There the volume of work can justify dedicated staff, in a multi-family office or a lean single-family office with strong outside oversight.

A family office is a staffing decision, not a rank, and it should be sized to the work rather than to the fortune.

Two further questions settle many cases: how much governing you want to do, and who will check the people you rely on. Whatever you choose, keep custody with an independent institution, receive statements directly, and have an outside accountant review how money moves. Require two-person approval above a written threshold, callback verification using a known number for changed payment instructions, individual credentials with the least access each role needs, and prompt revocation when staff or vendors leave.

Questions to ask before you hire or build

1. Are you registered with the SEC or a state, or relying on an exclusion or exemption, and on what basis?
2. May I have your Form ADV Part 2A, a Part 2B supplement for everyone who will advise me, and your Form CRS?
3. What is my total annual cost in dollars, including fund, custody, and brokerage expenses?
4. Which functions do you perform in-house, and who does the rest?
5. Who holds my assets, and will I receive statements directly from each custodian?
6. Who can move money, with what approvals, and who reviews those payments?
7. Do you or any affiliate earn anything from the investments you recommend?
8. For a single-family office, who governs it, who audits it, and how are family disagreements resolved?
9. How do I end the relationship, and how are my records and accounts transferred?
10. What requires two approvals, how are new payment instructions verified, and who reviews the access log?
11. What is the continuity plan if my lead adviser, controller or family decision-maker becomes unavailable?

This article provides general U.S. educational information and is not legal, tax, investment, or securities-regulatory advice. Confirm current rules with the SEC, your state securities regulator, and qualified professionals who know your facts.