Good to Great: How to Scale With an Outsourced CFO

Family office structures make it possible for families to “professionalise” their money management and wealth creation. They offer professional third-party insight designed to protect and preserve family wealth into the future, while meeting goals and objectives with a structured level of decision making (governance).

Australians have been quick to embrace the family office structure. In fact, while Australians account for less than 1% of the world’s population and less than 2% of global GDP, more than 9% of the world’s single family offices are held by Australians.

In this post, we’ll examine why more and more high net-wealth families are choosing family offices as the best vehicle for taking control of their finances.

 

What is a Family Office?

Many families accumulate large amounts of wealth over time, and find it’s often better to invest this wealth together as a family than to divide it up among individual members and invest it separately. The old saying “Money makes Money” often holds true as families are able to obtain diversification and take advantage of opportunities as and when they present, sometimes opportunities they wouldn’t have been individually or separately been able to make. For example, a Mum and Dad with three kids could through succession or estate planning decide to divide their inheritance three ways, or it could continue to be invested as a whole. 

A family office facilitates the continued investment of a family’s wealth over generations, and it can be customised to your family’s specifics needs and goals. A family office uses an external organisation to facilitate planning, risk management, asset allocation, reporting, tax and compliance. In short, it can be a great way to preserve and perpetuate a family’s wealth.

 

Who Could Benefit from a Family Office?

Generally speaking, ideal candidates include high net-wealth families in which Mum, Dad and children want to invest their money together so it can continue to accumulate over the long term. Many family office candidates are families who have sold a successful family business and wish to invest the proceeds upon sale

Other families may still own and operate a successful business, but generate large amounts of surplus cashflow and desire to have a structured investment strategy for this or additionally allocate capital to next generation members for their own start-up or business ideas.

For family offices to succeed, family members need to be clear on individual roles and responsibilities and respect the family office’s governance and framework. Families with the ability to have open, clear discussions together and already strong relationships are ideal candidates for a family office, because the most successful arrangements are those in which everyone has a say in the future of the wealth and all views are heard and valued. 

Philanthropy is often an important component of a family office as well. If your family is interested in establishing long-term support of the arts, local schools, sporting clubs or charity organisations, a family office can be an effective way to contribute as a group or even open a foundation of their own.

 

What Services Do Family Offices Provide?

Family offices use external organisations like Altus to manage family wealth. Services include management of the financial plan, tax and compliance, financial reporting, risk mitigation, asset allocation and ongoing support to family members on any of their requirements (business planning, budgeting, education plans, coaching etc). 

Think of it this way: the family office sits side by side the family, understanding the family’s goals and objectives and helping them to navigate as their guide and guardian through their financial journey.

 

Important Considerations

Successful family offices take the following four things into consideration:

1. Individual roles and responsibilities within the family

Just as employees have different roles within businesses, family members play different roles within the family office, and it’s important that the family  takes these roles into consideration. Roles and responsibilities should be clearly laid out so there’s no confusion among stakeholders as to who does what and which decision can be made separately and which must be made together

2. Clear structure

In order to keep communication open among all parties, it’s important that a family office has a clear structure. If there is a business involved, structure becomes especially important. The Altus family office service can also support the business through outsourced CFO services. There must also be rules placed on individuals within the family, such as stipulating the amount of time they must dedicate to working within the business or what there required commitment and involvement is to the family office (e.g. attend mthly meetings).

3. Investment plans

One of the foremost reasons for forming a family office is to capitalise on increased investment opportunities. Therefore, investment plans should be clearly laid out and well defined, whether those plans involve portfolio construction and monitoring, intergenerational wealth planning, superannuation or other strategies.

4. Risk mitigation strategies

Investing always comes with risks, but your family office can institute risk mitigation strategies to keep known risks in check. Some of these risks might include debt, marriage breakdowns or problems within family business. Be sure to make risk mitigation strategies an important consideration as you discuss your family office. Preserving and protecting what has been built is usually more important that growing it.

 

High net worth families that are considering a Family Office service need to consider all of the above factors as well as if and how they align with the family’s goals. Whether the family wealth is small, large, managed in-house or outsourced, a family office should always be guided by its ultimate goal. This should be aligning interests, making it easier for the family to manage their assets, and enhancing communication and cooperation.

For more information about finding the right family office fit, get in touch with us at Altus Financial.