‘Multi-family offices have gained in popularity’

Deep-pocketed business families have plenty of wealth at their command. What they lack though is the time and expertise to manage it. Enter the Family Office — a one-stop entity that handles the entire gamut of money matters of high-end clients. Nishant Agarwal, Managing Partner & Head - Family Office, ASK Wealth Advisors, tells us the why and how of Family Offices.

Edited excerpts:

What is the value proposition of a family office? How old is the concept in India?

Family office can be seen as the personal CFO of the family, taking care of all decisions around family wealth and estate. The proposition covers not only investment and portfolio management but other aspects related to the family’s wealth such as succession planning, tax, accounting, legal, philanthropy, risk management/insurance, real estate and private investments.

While the concept of family office is more than a few decades old, the popularity of multi-family offices has gone up significantly in the last six to eight years.

How are family offices different from wealth management firms?

Wealth management firms typically oversee or provide advice on a small portion of the family’s wealth, primarily restricted to giving suggestions around investment products and manager selection. A family office looks at portfolios across multiple advisors and investing entities in the family and provides holistic advice based on goals, liquidity, overlapping investments and tax considerations. Other than investment management functions, a family office also looks at other aspects related the family’s wealth as highlighted in the point above.

What is the threshold in terms of assets to consider going for a family office?

₹100 crore is the base minimum portfolio where there will be opportunities to have multiple asset classes and managers.

This requires consolidated reporting, investment policy construction, and tackling complexities around taxation and succession. Hence, a client with ₹100 crore-plus assets will benefit from a professionally-run independent family office structure.

What is the difference between single family office and multi-family office?

Single family office is an exclusive “in-house” set-up for a large family with experts and professionals taking decisions and managing assets of only a single family’s/sponsor’s assets. PremjiInvest is an example.

A multi-family office is a shared family office concept where a team of experts pool in their resources and expertise to advise a small group of families, thus achieving cost-efficiencies and economies of scale.

The size of a family’s estate and wealth is the main factor in deciding between single family office and multi-family office. The cost of setting up an exclusive team with seasoned professionals and experts across different domains might be prohibitive for portfolios lesser than ₹1,500 crore.

Hence, multi-family office is ideal for portfolios between ₹100 and ₹1,500 crore.

What are the key factors one should consider when selecting a family office provider?

While selecting a family office provider, it is important to consider its team members and their capabilities, which should entail experience across asset classes, a good reputation, and performance track record.

Along with that, one should consider the longevity and continuity of team members, including whether they are the owners/stakeholders in business or salaried professionals, as owners/stakeholders can give a longer term view.

Another significant factor is alignment of interest with clients — a pure advisory fee and no product commissions earnings is typically recommended. They should have no other businesses which can potentially bring conflict with their advisory.

Additionally, one should be cognisant of the number of clients managed by the provider. Boutique/niche set up is always preferable. The multi family office’s partnership and network with other financial services providers can also be an important parameter.

Lastly, one should opt for a family office provider registered under SEBI Investment Advisory Regulations or comes under any other regulator’s purview.

What is the fee structure in family offices?

Family offices follow a combination of percentage of assets under management (AUM) based fee and fixed fee.

Depending on the size and complexities of issues, this can range from ₹25 lakh per annum to a few crores. Typically, 25 to 40 basis points of assets per annum is a good approximation for fees of a family office.

How does a family office handle disputes among family members?

This is done by creating clear family constitution covering expectations, family values, do’s and don’ts, conflict resolution mechanism, principles of managing family estate, etc.

Also, there are formal family boards and family meetings to discuss issues. Also, there is engagement with external counsellors and experts for resolution and guidance in extreme cases.

Is there any estimate on the number of family offices in India?

There are no formal reports on the number of family offices in India. In my assessment, there will be more than 30 active single family offices and around 10-15 multi-family offices in India. The concept of multi-family office is fast growing.

With rapid creation of wealth, increasing complexities around regulations and products, and appreciation of professional advice by the current generation, we expect this segment to show more than 30-50 per cent annual growth for the next five years.

How are family offices in India different from those in other countries?

Family offices in India and around the world have same objective of managing the family assets and estate. However, cross-border regulation, and tax complexities and product sophistication is much higher in developed markets than in India and, hence, would require a lot more diverse team and expertise.

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