Understanding Family Offices: A Primer For Physicians

For generations, the concept of a family office has been a cornerstone for the wealthy, providing a structured approach to managing and preserving wealth across generations. In recent years, this concept has piqued the interest of various professionals, including physicians who have achieved significant financial success. But what exactly is a family office, and when should a doctor consider being part of a cooperative family office or even starting their own?

I'll have to admit that it hasn't been until the past few years that this terminology has even entered my orbit. My unfamiliarity with the concept likely stems from my working-class background, where I was the first person in my family to attend college and no one in my immediate circle owned a business. This upbringing provided limited exposure to the world of high finance and wealth management for ultra-high-net-worth individuals.

However, I recognize that there are those in our SimpliMD community who might have grown up within such an environment, or even personally qualify for these exclusive services. The diversity of our community means we have members from various financial backgrounds and experiences. So, I thought it would be worth pointing out to our tribe, as this topic may be relevant or of interest to some of our members, even if it's not something I personally have extensive experience with.

What Is a Family Office?

A family office is a private wealth management advisory firm that serves ultra-high-net-worth (UHNW) individuals and families. The services provided by a family office are extensive, including investment management, estate planning, tax services, philanthropic management, and even concierge services. The primary goal is to grow and protect the family’s wealth while providing for future generations.

Family offices come in two main forms:

• Single-Family Office (SFO): This type is dedicated to managing the wealth of one family. It provides highly personalized services, including the coordination of all financial, legal, and administrative needs.

• Multi-Family Office (MFO): This is a more cost-effective option where several families share the resources of one office, benefiting from economies of scale while still receiving specialized services.

Net Worth Requirements for a Family Office

Establishing a family office is not for everyone. The net worth requirements are significant, typically starting around $100 million in assets for a Single-Family Office (SFO). This is because of the high costs associated with running such an operation, which includes hiring professionals in various fields, managing investments, and maintaining legal and tax compliance.

For a Multi-Family Office (MFO), the entry point can be lower, but families still need to have substantial wealth, often around $25 million or more, to justify the costs and benefits of this structure.

Even if you're not quite at these levels, if you're focused on long-term wealth preservation, legacy planning, and educating your heirs about financial management, a family office structure might be worth exploring.

Why Family Offices Are Considered the Gold Standard for Wealth Management

Family offices are revered among the wealthy for several reasons:

1. Personalization: Family offices provide bespoke financial services that are tailored specifically to the needs and goals of the family. This allows for a holistic approach to wealth management that integrates investment strategies, tax planning, and legacy preservation.

2. Control: Families retain full control over their financial decisions, often working closely with their advisors to ensure that their wealth is managed in alignment with their values and long-term objectives.

3. Privacy: Unlike public companies or large financial institutions, family offices operate with a high level of discretion, offering families privacy in their financial affairs.

4. Generational Wealth: One of the main purposes of a family office is to preserve and grow wealth across generations. This includes educating younger family members about financial responsibility, investing in assets that provide long-term growth, and establishing trusts and other structures to ensure a smooth transition of wealth.

Why Most Physicians Might Not Qualify

While many physicians earn a comfortable living, the vast majority do not reach the ultra-high-net-worth status required to establish a family office. The financial barriers to entry are significant, and the costs associated with running a family office may outweigh the benefits for most doctors.

However, for those physicians who have achieved substantial wealth—perhaps through entrepreneurship, successful investments, or other ventures—a family office could be a viable option. Here are some scenarios where it might make sense:

1. High Net Worth: If a physician’s net worth approaches or exceeds the $100 million threshold, a Single-Family Office could be considered to provide comprehensive and personalized wealth management.

2. Cooperative Family Office: For those with a net worth in the range of $25 million to $100 million, joining a cooperative or Multi-Family Office might be more practical. This allows for the sharing of resources and costs while still benefiting from the expertise of a family office structure.

3. Planning for the Future: Physicians who are particularly focused on long-term wealth preservation, legacy planning, and educating their heirs about financial management may find a family office structure appealing.

4. Complex Financial Needs: Those with diverse and complex financial portfolios, including real estate holdings, private equity, and other investments, may benefit from the coordinated and comprehensive approach that a family office provides.

Take the Next Step in Your Wealth Management Journey

If you're considering the benefits of a family office, it's clear you're focused on making strategic financial decisions. As you continue to explore these options, consider expanding your horizons with my course, "Creating A Practice Without Walls." This course is designed to help you take your practice to the next level, offering innovative strategies for scaling and growing your business. And for a limited time, you can purchase the course at 50% off using the coupon code "EARLYBIRD."

Conclusion: Family Offices and the Physician's Path to Wealth Management

For the average physician, the concept of a family office may seem out of reach, and indeed, it often is. The financial thresholds are high, and the costs can be prohibitive for those not in the ultra-high-net-worth category. However, for those physicians who have amassed significant wealth and are looking to preserve and grow it for future generations, the family office offers a powerful structure for achieving these goals.

Whether through joining a cooperative family office or establishing a Single-Family Office, the benefits of such a structure can be immense, providing peace of mind, control, and a lasting legacy. For those who qualify, it’s an option worth exploring in the broader context of their wealth management strategy.