It is not easy to find talent who has the experience and temperament necessary to work with family members. The talent market is becoming more competitive and family members are demanding greater efficiency from the family office. Many family offices are now more willing to source talent outside their borders to meet the increasing demand and to compete for talent. In order to preserve confidentiality and the family culture, many have switched from traditional arrangements where employees were expected to work full-time on site.
When establishing a Family Office, there are important tax and financial issues to consider. It is important to determine whether a family’s activity falls under the category 离岸信托 of business in tax terms. This will impact the deduction of expenses by the office. A tax analysis of the structure for the family office is also necessary.
The SEC family office exemption was created after the 2008 financial crisis, when the Dodd-Frank Act excluded family offices from the definition of “investment adviser” under the Investment Advisers Act of 1940. After the financial crisis of 2008, the SEC introduced a family office exemption. The Dodd-Frank Act excluded family offices under the Investment Advisers Act of 1980 from being considered “investment advisors”.
The burn rate for payrolls and other expenses required to operate a family business should also be considered. According to a recent study of 187 offices, the cost ratio average is 0.41 percent of assets managed. The operating costs for a $250 million family office could be as high as $1 million per annum.
Families, trusts and other related entities may compensate family offices through a pay-for-services model. In exchange for their services, family offices may be compensated with a profit interest when they oversee investment strategies of family investment partnerships. This is similar to the compensation received by private equity and hedge fund managers.
Many family offices will choose to complete a study on transfer prices in both cases to show the family the similarity between the charges or profit interest that a third-party would charge. Communication between generations is crucial in family enterprise issues. It is crucial that future generations are aware of the costs and benefits associated with keeping a family business.
Another hot topic amongst family offices is the creation of a strategy for long-term success that takes into account social impacts. In a survey conducted by UBS in 2021, 56% of the family offices surveyed had allocated funds to sustainable investments in environmental and educational issues. A Deloitte study of family offices found that family offices are also committed to supporting charitable causes. 62% of the respondents said their family office is devoted to philanthropy.