Demystifying Family Offices for Middle-Class Wealth Management and Privacy
Family Office Redefined
The popular belief is that family offices are only for the wealthy. This is not true. A middle-class family can build their own cost-efficient family office that serves basic roles such as providing privacy, flexible wealth management, and better tax treatment. It's time to rethink our perceptions of family offices and acknowledge their potential for a wider audience.
Common perception
The modern history of family offices can be traced back to the aftermath of the Industrial Revolution in the 1800s. At that time, industrial and financial titans were emerging in the United States. In that century, J.P. Morgan set up the House of Morgan to manage family assets. Later, J.D. Rockefeller created what is dubbed the first full-service single-family office, which managed both financial and non-financial family affairs.
Because of the high-profile nature of the early family office, the common view is that only the wealthy require one. It is estimated that there are approximately 10,000 single-family offices worldwide, with an average net worth of $1.2 billion.
The role of family office
For families with significant and complex financial matters, having a family office brings the benefits of enhanced privacy, efficiency, and simplified management of their wealth and personal affairs.
A full-service family office typically offers a comprehensive suite of services, including wealth management, estate and succession planning, philanthropic strategy, administrative support, concierge services, insurance management, and asset protection. These services are delivered through carefully designed company structures that ensure both privacy and efficiency.
However, a full-service family office costs a fortune. According to Citibank, a small family office with $155 million in assets can cost around $1.5 to $3.1 million annually. This explains why only the ultra-rich can afford to own one.
Addressing middle-class needs
Complex financial matters are not the exclusive domain of the ultra-rich. Middle-class families can face similar challenges, often managing multiple income streams from employment, side jobs, or informal businesses. These additional income sources can push them into higher tax brackets, increasing their tax burden.
In the event of succession, middle-income families are often compelled to divide their assets or businesses among their children. This process can dilute the benefits of owning entire assets. Additionally, with limited access to financial resources and knowledge, middle-class families struggle to navigate complex regulations and protect their privacy from Big Brother’s encroaching surveillance. As a result, they often fall victim to increasingly complex financial regulations.
Fortunately, there are ways for middle-class families to own their own cost-efficient family office that provides privacy and simplicity in wealth management. Surely, it may not be as convenient as the ultra-rich’s family office. There will be no concierge or lifestyle services. One may need to do some of the administrative tasks by himself. But it still provides the necessary privacy, flexibility, and simplicity.
The details, such as what assets can be put in the family office or what level of privacy it can provide, may be different from one jurisdiction to another.
As a rule of thumb, a non-U.S. citizen may be well served if he sets up a family office in the U.S. Some states provide a good level of privacy. And depending on the home jurisdiction, it may provide better tax treatments. Further, in times of succession, shifting ownership in a U.S. company can be much more convenient than shifting ownership of various bank and brokerage accounts.
In terms of costs, for a non-U.S. citizen, establishing a private corporation in the U.S. to manage your own family's assets—a family office—can cost as little as a few hundred dollars, depending on how much administrative service you want to handle.
Compare this to setting up a family office in Singapore or another country, which might cost you tens of thousands of dollars or more. And still, it doesn’t give you the level of privacy you need unless you layer it with much more complex and expensive structures.
So, why not start today?