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| Family Office |
Office Protocol
Anne Field
06/01/2004
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Five years ago, Tim Cavanaugh left his job as an executive in the health care
industry to go to work full time for his family. His father-in-law, George
Russell, had recently sold the family business, the investment management firm
Frank Russell Co., to Northwestern Mutual for more than $1 billion, and he
wanted Cavanaugh to explore creative ways to meet and manage the personal
financial needs of family members. In his new position, Cavanaugh quickly
established a family office in Gig Harbour, Wash., to serve a dual purpose:
provide asset management and personal financial services to family members,
while putting those services under strict family control.
For many of us with
similar concerns, family offices are an effective means of ensuring that our
affairs are handled in a professional, confidential manner. Generally registered
as corporations or limited liability corporations, America’s estimated 3,000
family offices are entities set up to serve the business—and sometimes
personal—interests of a particular group. They range widely in scope and breadth
of services, from fairly simple operations with no more than an accountant and
administrative assistant on staff, to full-scale enterprises with investment
managers, philanthropic coordinators and lawyers. Whether established anew, or
as an adjunct to an existing business, these operations are typically highly
personalized to meet our personal needs. “Family offices have the thumbprint of
the family, but they also have their own DNA,” says Kathryn McCarthy, a family
office consultant in New York.
But are family offices worth our investment?
Experts estimate that the cost of running an office with even a small staff is
$400,000 to $500,000 a year. A larger operation, counting salaries, technology
and other expenses, can run $1 million annually for a family with a $100 million
asset base. “People have to want to spend money on this,” says McCarthy. In
fact, she recommends that families should have at least $75 million to $100
million in assets to justify even a simple office. For more ambitious, fully
staffed operations, the figure rises to $250 million.
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