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The Role of the Family Office in Business Succession

The statistics aren’t pretty. Only a little more than 30 percent of family businesses survive into the second generation, even though 80 percent would like to keep the business in the family. By the third generation, only 12 percent will still be viable, shrinking to 3 percent at the fourth generation and beyond.1 The disconnect between what 80 percent of families intend and the far bleaker reality can in part be attributed to a failure to plan for the family dynamics issues involved in family business succession.2 

In “Correlates of Success in Family Business Transitions,”3 the authors of the study found a consistent pattern of factors that led to breakdowns in the succession process. Sixty percent of succession plans failed because of problems in the relationships among family members. Twenty-five percent failed because heirs weren’t sufficiently prepared to take over ownership and management of the family business. Only 10 percent failed because of inadequate estate planning or inadequate liquidity to pay estate taxes. That means that 85 percent of family businesses fail in the succession process due to inadequate planning to resolve intra-family disputes and the inability to groom successors to run the family business. Yet, families who take seriously their stewardship of the family business from one generation to the next can be surprisingly successful in effective succession planning. For larger family businesses, establishing a family office connected with both the family and the family business can play a crucial role in coordinating and facilitating the family business succession process. By understanding the needs and desires of all family members, a family office can provide for the family’s holistic wealth management needs, including family business succession. 

Purpose of the Family Office

The Family Office Exchange (FOX), a membership organization of family offices, defines a family office as “a unique family business that is created to provide tailored wealth management solutions in an integrated fashion while promoting and preserving the identity and values of the family.”4 The family office acts as the quarterback for the stewardship of the family wealth, coordinating with the family’s outside professional advisors and creating and implementing strategies connected to the family’s wealth objectives. Typical family office services include providing directly or coordinating with outside professionals services such as tax, investment management, wealth transfer (including estate and philanthropic planning), risk management, family governance, financial education and development of the talent of family members. In addition, the best family offices have a higher purpose, which is “to bridge generations to create continuity and cohesion for families around their wealth.”5 In its ideal form, the family office helps steward family wealth by supporting the following four dimensions of the family: 

1. Business legacy; 

2. Financial legacy; 

3. Family legacy; and 

4. Philanthropic legacy.6 

History of Family Offices

In the United States, the early family offices were established by business-owning families that made their wealth during the Industrial Revolution. One of the first family offices was established in 1882 by John D. Rockefeller, Sr. as a mechanism for centralizing the family’s wealth and philanthropy. Numerous other business-owning families of great wealth followed Rockefeller’s lead, such as the Mellon, DuPont and Phipps families. 

The growth of family offices connected to family business continues to today. A recent study found that more than 70 percent of family offices surveyed originated from an existing family business, with 60 percent of those surveyed continuing to own an operating business.7 Because these entities are private and because they emphasize confidentiality, it’s difficult to get a true number of the family offices currently in existence in the United States. It’s estimated that there are more than 3,000 single family offices (SFOs). In addition, there are at least twice that number embedded within private operating companies (primarily family businesses).8 

Scope of Family Office Services

Understanding the services a family office oversees or provides directly gives a strong indication of how it operates in relation to a wealthy family. According to FOX, there are six categories of services that family offices typically provide: 

1. Strategic wealth management. This is perhaps the most important service that the family office can provide in connection with family business succession planning. It involves long-term strategic planning for accomplishing family wealth objectives for current and future generations. In addition to determining goals, strategic wealth management includes building the family’s governance structures, including family boards and councils, as well as family mission statements and constitutions. 

2. Investment planning. For a business-owning family, this includes the investment of family capital not necessary to operate the family business. Whether investments are handled in-house or outsourced, proper investment oversight, including asset allocation and portfolio construction, creation of investment policy statements, manager selection and due diligence are core family office functions. Also included in this category are investment record keeping and reporting (including consolidated reporting). 

3. Trusts and estates. This service involves overseeing the structure and execution of the legal documents necessary for efficient wealth transfer. The family office is also the keeper of these documents, overseeing their administration and working with those serving in any fiduciary role. 

4. Philanthropy. This service includes coming up with strategies for helping the family be effective in its charitable giving. Creation and oversight of the family’s giving vehicles, such as family foundations and donor-advised funds, are also components of family office philanthropic services. Involving the younger generations in the family’s philanthropic initiatives can be an effective way of transferring values and engaging younger family members in the overall family governance structure. 

5. Family governance and education. Once family governance structures are in place, the family office coordinates the necessary meetings and communications to make sure such structures are working effectively. Family education involves teaching junior members of the family necessary skills to ensure they’ll be effective shareholders, directors and managers of the various family governance structures and businesses.  

6. Tax and financial planning. Tax planning includes the oversight of personal and business tax returns. Financial planning includes cash flow management and budgeting for individual family members along with bill pay and concierge services such as management of family real estate and art. 

Types of Family Offices

Family offices are as unique as the families they serve. They should be structured in a manner that best represents the needs of the family, including helping with family business succession. When a business-owning family is considering a family office, there’s a steep learning curve. Numerous for-profit entities provide family office services. These include private banks, private wealth divisions of large brokerage firms, registered investment advisors, accounting firms, private client law firms and consultants. All have their place in the structure and execution of family office services, but the family first needs to consider the type of family office it will create or participate in. These include: 

• SFO. An entity that manages the financial and personal affairs of one wealthy family. Such an entity typically has several staff members, including a chief executive officer, chief investment officer, staff accountants, bookkeepers and employees handling family real estate, art and family education and governance. Complicated tax planning, certain investment classes (for example, hedge funds and private equity) and wealth transfer planning are typically outsourced. There’s typically a dedicated family office location, separate from the family business, with little or no crossover staffing and its own tech infrastructure for privacy and confidentiality purposes. 

• Virtual/coordinating family office (VFO). A VFO outsources most, if not all, activities, gaining access to people, products and services when needed. It typically employs one or two individuals to handle day-to-day operations and coordinate outside advisors and outsourced services. It’s usually headed by a senior family member, the family business chief financial officer or an external trusted professional, such as a CPA or attorney. Many private banks and private wealth divisions of large brokerage firms have set up specialized departments to provide these entities with full service around investing, along with specialty advice in wealth transfer, succession planning, philanthropy, family education and family governance. 

• Family-owned multi-family office (MFO). A company that manages the wealth of a group of wealthy families. It’s usually owned by one or more of the founding families. The idea is to reduce the overall cost of services when compared to a full-fledged SFO. 

• Commercial MFO. Typically a boutique investment firm owned by a third party that provides investment and certain other ancillary services to wealthy families. These businesses range from pure investment shops to those that provide a full range of family office services. 

Evolution of the SFO

Most family businesses, no matter what their asset level, provide family office-type services to owners and their family members. It isn’t uncommon for a family business to also be called the family bank. The formalization of these services into a family office structure depends on several factors including: 1) the size of family wealth, 2) the current generation of the family business (founder, siblings and cousins), 3) the size and complexity of the family, and 4) cost. The stages of family office evolution when connected to the family business are typically: 

• Embedded family office. This structure provides services to family members within the family business. There are typically no separate employees. Services are provided by family business employees; specifically long-tenured, trusted employees. Most services are outsourced under the oversight of a family member or trusted employee. This type of structure can work well for smaller families in the founder or sibling generations or families with total wealth less than $250 million, when hiring dedicated employees may be unwarranted or cost prohibitive. There are several downsides to this type of structure. First, family business employees may not be particularly skilled in providing oversight of family office services such as investments and family governance. Second, these employees may favor family members active in the business to the detriment of inactive family members. Third, these entities tend to have less confidentiality and privacy for family members. 

• Separate VFO. Sometimes motivated by the scale of family wealth or the increasing number of family members, with a separate VFO, family office services are moved out of the family business to a dedicated entity that only handles family office services. While most services continue to be outsourced, management is professionalized and dedicated specifically to the family office. These types of entities work well for families with total net worth of $250 million to
$1 billion. 

• SFO. Once a business-owning family crosses the billion dollar mark, things tend to change. More of the administrative services are brought in-house. In addition, SFOs typically have a chief investment office, which may invest many asset classes in house. The SFO tends to have the greatest internal costs, but these can be offset by the fact that investment fees to outside providers are reduced by in-house management and economies of scale due to the size of assets under management. 

Whatever structure the family chooses, it’s crucial that the family dedicate someone to do the necessary due diligence to make sure the best decisions are made. A few resources that might be helpful are FOX ( and The Complete Family Office Handbook: A Guide for Affluent Families and the Advisors Who Serve Them, by Kirby Rosplock.    

—The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services, Inc. UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your legal or tax advisors regarding your particular circumstances.


1.  Family Firm Institute, Inc., Global Data Points,

2. Ibid.

3. Michael H. Morris, Roy O. Williams, Jeffrey A. Allen and Ramon A. Avila, “Correlates of success in family business transitions,” Journal of Business Venturing (September 1997), at pp. 385-401.

4. Family Office Exchange, FOX Guide to the Professional Family Office (2014), at p. 3.

5. Kirby Rosplock, The Complete Family Office Handbook: A Guide for Affluent Families and the Advisors Who Serve Them (2014), at p. 1.

6. Ibid., at p. 9.

7. Ibid., at p. 27.

8. Ibid., at p. 7.


Trump at Brink of His Own Bull Market as Dow Flirts With History

By Joseph Ciolli and Lu Wang

(Bloomberg) --The Trump bump keeps getting huger.

Consecutive gains in the Dow Jones Industrial Average have left it at the doorstep of history, including a 20 percent surge in futures from the early hours of Nov. 9 that could be loosely framed as the president’s own bull market. The 120-year-old measure has set a record on 10 straight days -- the longest streak since the Ronald Reagan administration. Two more would tie it for the longest ever.

How does the future look when stock prices jump this fast? There’s good and bad news. The last time it happened, in January 1987, the Dow dropped 11 percent over the next year as the market endured one of its worst crashes. The previous occurrence in March 1964 saw the index climb 9.3 percent over 12 months.

The Dow’s continuing streak of all-time highs is the longest since it closed at a record 12 straight times in 1987. If the run got to 13, that would be the longest ever, according to Bloomberg data dating back to 1952. Records aside, the Dow’s streak of daily gains is also the longest in almost four years and would tie for the longest in 25 years with a jump Friday.

To be sure, the contour of the rally has evolved since its first weeks, and not in an altogether good way. Energy stocks, one of the leading groups of the post-election surge, have faltered, down 2.5 percent this month. Small-cap shares thought to benefit most from Trump’s domestic growth agenda have also slowed, adding just 2.4 percent in February after surging 16 percent in the month following the vote.

Investors are putting more money into equities. Traders have poured $45 billion into American stock ETFs and mutual funds in four months after yanking money in seven of the past nine years, data compiled by Investment Company Institute and Bloomberg show.


To contact the reporters on this story: Joseph Ciolli in New York at ; Lu Wang in New York at To contact the editors responsible for this story: Arie Shapira at Chris Nagi, Richard Richtmyer

The 'Death Tax' Deserves to Live a Long, Useful Life

By Noah Smith

(Bloomberg View) --Whenever Republicans gain control of both Congress and the White House, there is talk of abolishing the estate tax. Groups such as Americans for Tax Reform love to call for the end of what they inaccurately label the death tax, and President Donald Trump’s campaign website included a plan for replacing it with a new kind of capital-gains tax.

Elimination would be a minor change -- the estate tax has already been mostly abolished. It was phased out under President George W. Bush, between 2003 and 2009. Although President Barack Obama resurrected the tax in 2010, the levy now has a very high exemption -- if your estate is less than $5 million, you don’t pay a dime. Because of this, almost no one actually pays estate taxes anymore -- whereas about 1 percent to 2 percent of households paid the tax in the 1980s and 1990s, now less than 0.2 percent pay anything:

But this isn't a good thing. The much-maligned estate tax is far better than its detractors claim -- and instead of being eliminated, it should be restored to its 1980s levels.

First, as economists like the University of Minnesota’s Fatih Guvenen have pointed out, there’s reason to think wealth taxes like the estate tax can make a nation more productive. Wealth often gets passed on to heirs who squander it on bad investments. They invest in companies or real estate with poor prospects. They speculate foolishly in the markets and lose their money. Or they park their wealth in low-earning bonds, keeping it from being invested in projects that will expand the economy.

The estate tax can save some of society’s capital from this sad fate. Skillful heirs, such as the Koch brothers -- who turned their father’s successful company into an even more successful conglomerate -- would easily be able to pay the tax and still get richer. But heirs with lesser skills would have a substantial part of their fortunes garnished before they could fritter it away. If the resulting revenue is used to offset cuts in the corporate tax, it essentially redistributes money from bad investors to profitable companies. That should give economic growth a boost.

In addition to being pro-growth, an estate tax helps combat inequality. Economists, along with lots of other people, are increasingly worried about the rising concentration of wealth. Concentrated wealth erodes equality of opportunity, since wealthy parents can buy their children top-notch education and other tools that allow them to out-compete the poor. It can also create a dangerous imbalance of power, if a few wealthy people use lobbying dollars or campaign contributions to turn government into their tool.

To fight this trend, economists such as Thomas Piketty have called for wealth taxes. The estate tax is an easy form of wealth tax to implement, since it doesn’t have to be collected yearly from each household. Instead of inventing a new tax system as Piketty suggests, the U.S. should just lower the $5 million threshold, and index the new lower threshold to the inflation rate. That would restore the estate tax to its modest 1990s levels, when the top 1 to 2 percent paid the tax.

A third reason to love the estate tax is the moral reason. As economist Greg Mankiw has noted, our idea of how much tax each citizen should pay is heavily influenced by our sense of fairness. Inherited wealth is unearned income -- you get it not by skill, talent, virtue or hard work, but by pure luck of the draw. Do heirs really deserve to keep all of this windfall? Many would say no.

Some people see estate taxes as unfair because they tax money that was already taxed once, when it was received by the person leaving the estate. But the same is true of many taxes -- sales and consumption taxes, property taxes and corporate income tax have this same feature. Inheritances should be thought of as a form of consumption -- leaving millions of dollars to your heirs is a luxury.

So don’t kill the death tax. Instead, make sure it lives and grows. It’s the perfect tool for this increasingly unequal age.


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
To contact the author of this story: Noah Smith at To contact the editor responsible for this story: James Greiff at

Enhanced Vision Sees In Dark Through Fog, Smoke, Smog
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New cockpit vision technologies are helping reduce delays caused by low visibility conditions around airports
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Turkish Airlines’ new CEO works on restoring the carrier to profitability
Bilal Eksi had to deal with the June terrorist attack at Istanbul Ataturk Airport and an attempted military coup that seriously hurt demand and profits.

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Pilot Report: CSeries Is A Smooth Operator
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Pilot Fred George flies and reports on the Bombardier CS300 and discovers a sophisticated jet that is thoughtful of crew and passengers

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China's Secondary Airports Offer Capacity, But Profits Can Be Elusive
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Local government subsidies and slot shortage encourage airlines to shift attention to Chinese secondary city airports, but profit does not always follow.

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SEC Says Conflict Minerals, Pay Ratio Rules Remain In Force
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FCC Chairman Ajit Pai Will Seek to Suspend Privacy Rule
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Germany’s Condor expands US services
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German leisure carrier Condor Airlines has outlined what it called the largest US expansion in its 60-year history.

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