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How to secure your legacy with a family office

Successful family offices seek to grow and preserve wealth as well as address issues of succession, governance and taxes.

In brief

  • The EY Family Office Guide provides leading practices on setting up and running successful family offices.
  • It highlights the need for communication and consensus as the family determines their expectations of the family office.
  • Family office risk management plays a central role in protecting families from succession challenges, market disruptions and privacy and cyber threats.

The idea of a family office developed in the 19th century when the family of financier J. P. Morgan founded the House of Morgan to manage the family assets. Today’s family office is a family-owned organization that manages private wealth and other family affairs.

There are different types of family offices. They include single family office (SFO), which is a distinct legal entity serving one family; multifamily office (MFO), which serves multiple families that pool their wealth; and embedded family office (EFO), which usually has an informal structure within a business owned by an individual or family.

Why set up a family office?

A family office supports the family vision and legacy, ownership transitions, leadership transitions and successful wealth transitions. The benefits include privacy and confidentiality as the family office is the sole entity that keeps all information for all family members, covering the entire portfolio of assets, activities, tax and general personal information. Other advantages include transparent governance and management structure, alignment of interests, potential higher returns, and improved risk management. 

Establishing a family office is a big undertaking, and there have been cases when family offices have not met the family’s expectations. Issues can arise over the lack of market, legal and tax infrastructure, a preference for privacy, lack of trust in external managers, unaligned expectations for returns, and generational differences.

What should your family office do?

Before creating a family office business plan, the family must determine their expectations, priorities and scope to decide what services they need. These can include financial planning (investments, philanthropy and life management), strategy (business and financial advice and estate planning), governance (reporting and record-keeping and succession planning) and advisory (tax and legal advice, compliance and risk management).

In-house or outsource?

Even the largest family office has to assess whether and what to outsource, and revisit this periodically. Outsourcing can provide great benefits in cost-efficiency and access to know-how, but some services are retained in-house for reasons of confidentiality and family office independence. The goal is to provide the most effective services in the most efficient way while avoiding and mitigating operational risks. Making the decision between in-house and outsourcing depends on the unique circumstances of the family and the family office.

Business plan, staffing and strategy

A written business plan, solid long- and short-term strategic plans, and the right staff are the foundations for a family office. The process that the family goes through to create the plan is just as important as the outcome and planning for the next 10 years. This allows the family to think differently and also be better prepared to meet challenges in the future.

A business plan should include:

  • The vision and mission
  • The relationship to the family business
  • The structure of the office, including legal structure and ownership and intended regulatory and tax impact
  • Jurisdiction
  • Governance
  • Services
  • Staffing
  • Operations, including what key technology is needed
  • Financials including funding and budgeting
  • Work plan - how will the office be implemented?

As well as a business plan, 5- and 10-year strategic plans are key as they bridge the gap between the family governance documents (sometimes up to a 100-year plan) and an annual business plan.

It is more important than ever that families have a long-term outlook. The strategic plan considers "stress testing" assumptions on asset growth and income against the projected number of future family members and their consumption.

Families often find it helpful to bring in an independent advisor to lead and facilitate the process, ask inconvenient but essential questions and help to bring new perspectives as well as develop holistic solutions.

The investment process

Family offices can diversify their assets through non-mainstream investment paths. This flexibility diversifies the risks while reflecting the personal preferences and passions of family members.

Investment strategies generally are either third-party managed, where family offices use asset management funds to invest their capital in third-party managed investing, or direct investing where the family office makes the decision to invest capital into a specific asset or security. Direct investing can fall into two categories. Public direct investing is centered on liquid debt, equity securities, exchange-traded funds and derivatives that trade over a public exchange, while private direct investing focuses on taking a more active role in the deal process and underlying investment.

Communication and technology

Family offices have to verify the assets, ownership structures, and varied business and personal interests of their client families. Several kinds of information are typically required: financial data to support decision-making, portfolio data to confirm the effective oversight of assets, and continuous monitoring of processes to spot and mitigate risk. 

Technology plays a central role in supporting this process of data gathering. Technology solutions can range from a single off-the-shelf product to a sophisticated ecosystem of integrated solutions. Components of this ecosystem can also be outsourced to external service providers, freeing up family office resources to focus on growing wealth. One key consideration before choosing or creating technology solutions is to identify and prioritize what is needed.

Digital transformation

Choosing from the range of technology options can be challenging for family offices due to a rapidly changing digital world and family offices need to be ready to adapt to these changes and challenges. Some areas to consider include:

  • Formalize remote infrastructure including setting up a virtual private network
  • Consider cloud-based applications
  • Focus on cybersecurity


When families consider philanthropy, many consider charitable giving for public good, but there are other options. 

These include: 

  • Traditional philanthropy
  • Non-traditional or "taxable" philanthropy – using structures that don’t have tax benefits to achieve families’ philanthropic goals; Often, by foregoing tax benefits, the structures also are freed from the associated operational constraints.
  • Impact investing — investing in companies, organizations and funds with the intention of making a positive contribution to society alongside a financial return 
  • Venture philanthropy — using investing techniques to measure the effectiveness of philanthropic projects and fund (or defund) accordingly

Governance structure 

Governance is an ongoing, active journey and not a destination. It takes time and effort to put a governance system in place, and it requires active efforts to operate it and adjust it as necessary to continue to meet the goals and needs of the family and office. 

Implementing a new governance structure is a long journey but can be broken down into six manageable steps:

  • Understand governance
  • Evaluate the size and complexity of family and family office
  • Identify any existing governance structures
  • Decide governance system: top-down or parallel
  • Analyze how to get from here to there
  • Appoint a team and develop processes

Family office risk management

Often, one of the key purposes of a family office is to protect the legacy. However, protecting it across generations can be a complex task, with multiple risks from family succession challenges, to market disruptions, to privacy and cyber threats. 

We have observed that risk management initiatives are historically too narrowly focused and family office personnel are pulled into siloed initiatives for specific processes. However, these reviews fail to uncover the real risks and effectively balance risk and the business. Family offices must adopt an approach tailored to their own risk appetite, resources and ability to execute coordinated initiatives.

A risk management process should begin with establishing a consensus on risk appetite with the family (see figure 3). Once this key decision is made the following steps are more straightforward — identifying and rating the key risks, measuring the impact of risks on investment decisions, and reporting and initiating controls to mitigate risks.


Today, private family capital is estimated to be larger than private equity and venture capital combined. This concentration of family wealth and rising globalization are fueling the growth of family offices. Their remit is broad and complex, and covers everything from the investment process, communication and technology, philanthropy, governance structure, risk management and tax considerations.