1. Family offices – step 21/11/16
Clare Archer

2. 1. Introduction - structure
Classic saying about family offices - when you have seen one family office….
Structure depends on circumstances and priorities of family:
Geographical
Where is business in cycle?
Where family in cycle?
What services the family office to perform?

3. 2. What else determines the structure?
Revolutionary vs evolutionary
Choice of structures
Style depends on:
Size and scale
Employing people in house or outsourcing
Privacy
Control
Cost

4. 3. Types of structure Administration Hybrid Full range
Family office undertakes basic administration / bookkeeping / coordination but outsources many functions
Hybrid
Certain functions in-house – often strategy – but choose whole of market approach to buy in the best assistance
Full range
Family office performs all the functions to be carried on in house
Specialised activities may be outsourced

5. 4. Legal Structure – key considerations
Families wealth and wishes
Location
Managements and control
Cultural issues
Where are they in the wealth cycle?
Governance structure must be implemented along with the legal structure of the family office
NB Can have informal governance structure but recommend a robust governance structure is put in place

6. 5. Informal Family Constitution
Reflects the family’s beliefs and attitudes in relation to a wide variety of important matters:
Wealth
Leisure
Education
Work relationships and marriage
Privacy
Danger of accumulation of false assumptions, misunderstandings and expectations.
This may work for first generation family but it is unlikely to work as wealth becomes more spread across families and down the generations.

7. 6. Formal Family Constitution
A statement of intent or agreement entered into by family members in relation to the family office
Sets out
How the family wishes the family office is to be run
The family’s goals and long-term strategy
How different members of the family will interact with the family office
How the family will communicate with the business

8. 7. Creating a Formal Family Constitution
Understand: what is the purpose of the family office e.g. “why the family want to be in business together?”
Shared purpose in a family office is usually a combination of financial and emotional reasons:
Providing the desired level of financial security for a growing family
Achieving a lifestyle
Pride in a brand or a reputation for being a family enterprise
Creating, preserving and/or extending a legal or family ownership to pass to the next generation
Process leading to the family constitution can facilitate the success of the business/investments for the benefit of the next generations.
Beware of dominant family member and/or hidden emotions, illness or agenda.
Danger it will build expectations if not properly managed

9. 8. Contents of the Family Constitution
Section 1: Our Shared Purpose
A statement of why there is a family office – vital for buy in
Section 2: Ownership Governance
The role of owners
Bloodline or spouses
Working or non-working owners
Return on investment/dividend policy
Transferring ownership
Decisions reserved for owners (including how these are made)
Section 3: Family Governance
The role of family members
Family Assembly and Family Council – act as advisory board
Family policies (e.g. employment/remuneration of family members)
Is there a need for other committees eg audit, investment, education
Resolving disputes

10. 9. Contents of the Family Constitution (Contd)
Section 4: Corporate Governance
Role of the board
Composition of the board
Selecting and appraising board members
The role of non-executive directors
Communication between the board and owners of the wider family
Remuneration and incentives
Decisions reserved for the board
The responsibilities of any board committee

11. 10. Key Points
Problems can arise in family offices and considering them from the outset can prevent them.
Family governance must be able to evolve as infrastructure of family changes
Financial Reward is a notoriously difficult area to address from a family perspective when some involved in management and others on outside.
Communication between the family office, the business and the family, often through the Family Council, can ensure expectations are managed.
A well drawn up Family Constitution can help to reduce conflict and aid the future success of the family for generations to come.
Legally binding?
Have to give the family the opportunity to meet and contribute
Importance of Exit Arrangements – the ultimate safety valve!

12. Shareholders’ Assembly
Corporate Governance
Family Governance
Bloodline only
Reserved matters
Shareholders’ Assembly
Bloodline and Spouses
Remuneration
Family Assembly
Executive
Board
Social
Educational
Formal
ED1
ED2
ED3
NED
Management

13. 11. Infrastructure Investments Risk Employees Tax compliance
Policy, Audit, Ring fencing, Accountability
Risk
Confidentiality / security, insurances
Employees
How funded – does it charge or require funding
Employment contracts / incentivising / retention
Tax compliance
Service agreements
Technology

14. 12. Family office – ownership structure
Variety of ways in which they can be structured but often through a private trust company – PCT
PCT can provide
Continued administration for the future
Reduce liability of family members if on board
Can provide fiduciary services directly to family
Family may wish to consolidate family office in existing structure
Simpler for administration
Reduce cost
But combined holding structure greater risk in the event of claims
More usual to have a stand alone structure

15. 13. Family Office within existing Structure

16. 14. Family Office within new Structure