How family office helps manage wealth

The members of the Godrej family, who had recently agreed to divide their property amicably, have now decided to set up family offices to help protect and grow their wealth. They told a newspaper that such a move will help them invest in new-age companies and take bolder bets. So, let’s look at what these family offices are and how they can help us.

When your corpus grows manifold, managing this vast sum and creating a portfolio that works for you becomes a concern. At this stage, you typically seek the help of a financial advisor. Now, imagine when this portfolio grows into millions and billions—what do you do? You need what is called a family office—a private firm that becomes your go-to guide for managing your entire wealth, including investing it, handling taxation, and importantly, succession planning.

Why is a Family Office Required?

Initially, the focus of family offices in India was largely on succession planning. Most of the big business houses have dedicated family offices. However, as the Indian economy has grown, so has the wealth, leading to an increasing number of people seeking family offices to manage their money and invest in startups. Much of this wealth is driven by new-age startups. Numerous IPOs are making many investors and several first-time promoters wealthier than ever before. Many firms in fintech, e-commerce, food delivery, etc., are now valued at billions of dollars, increasing the number of billionaires. According to Forbes, India now has the world’s third-largest number of billionaires, around 200 in 2024, compared with just one in 1991. The US leads this list with 813 billionaires, followed by China with 473.
 

What are the Benefits of a Family Office?

People who have become millionaires or billionaires have a different line of thinking. Their long-term goals shift from personal milestones like buying a house or funding children's education to investing their money wisely and ensuring that their wealth and legacy continue well beyond their lifetime. Family offices understand these personalized situations, the importance of heritage, family values, and real estate, and then prepare a plan accordingly. They address critical questions such as: Can you have a property in one person’s name? Or is making a trust a better option? How can one best avoid taxes while navigating wealth? How much is the risk tolerance? How can risk be mitigated? Will opening international bank accounts help? Which stable geographies can one invest in for the long term?
 

How Much Money is Needed for a Family Office?

There are no clear rules on how much money is necessary to have a family office, but often those with a net worth of Rs 250 crore are considered suitable because it costs a lot to have a dedicated unit for personal wealth needs. There will be office space, employees, legal fees, etc., and the cost could hover around 2% of one's active assets. One can also opt for another system of family offices—a Single Family Office (SFO) or a Multi-Family Office (MFO). An SFO is a completely dedicated unit focused solely on your needs, offering the best possible level of customization. In contrast, an MFO pools resources and expertise from multiple families, making it cheaper to operate. The latter could also work for individuals with a lower net worth of around Rs 100 crore.
 

Conclusion

While establishing a family office in India, ensure you have done enough internal consultations and chosen the right people to lead it, as a lot of personalized approaches require chemistry and an understanding of your temperament. Also, ensure there is a clear governance guideline in place with specific responsibilities in your family office. Communication should also be a significant focus of this establishment, with a point person and clear instructions on who will approve the release of information.
 

Many family offices are also exploring ways to do offshore investing via the GIFT City in Gandhinagar through Family Investment Funds (FIF), which could potentially offer tax advantages. The Reserve Bank of India has yet to offer more clarity on this subject, indicating that any significant movement of funds outside India could potentially impact the currency. Keep an eye out for such avenues and policy outlooks.
As firms evolve, family offices will also need to keep themselves updated on technology as they grow bigger. Basic tools like spreadsheets may not suffice; they will need tools designed for their specific needs. Family offices will also need to stay vigilant on cybersecurity, as there have been global cyber attacks on such firms. With multiple asset classes, they must ensure they increase hiring to meet the complexity arising from ever-changing global tax and investment requirements. Finally, they must handle the challenges of ESG (environmental, social, and governance) investing, as some in the new generation may favor it while others may not.