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Family Office : Aura Solution Company Limited

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Counting the Costs of Running a Family Office

While cost is a highly important issue when assessing family offices, it should always be viewed in the context of the value provided. Cost is one of the major considerations in setting up a family office. But while most families are aware of this, they do not always appreciate the importance of funding a family office properly. All too easily, families can fall into the trap of artificially trying to keep costs low, almost always with undesirable consequences.


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The costs of creating and then running a family office vary according to several factors unique to each family. Some fundamental costs – such as personnel, office expenses, and technology – are common to all family offices. From the outset, the family should be fully aware of and in agreement over all the creation and ongoing costs. Failing that, family tension can arise later on, with adverse effects on the smooth running of their family office.

Family office expenses generally fall into four categories:
  1. Internal Operating Costs: These include salaries and employment benefits, overhead, technology, and telecoms.

  2. Direct Family Expenses: These cover residences, art or other collections, travel, administration, consumption, and taxes.

  3. External Professional Service Fees: This encompasses accounting, tax, legal, consultants, insurance, and security.

  4. Investment Advisory Fees: This includes management, custody, research/data, and aggregated reporting.

The table below provides a simplified model that should act as a benchmark for the typical costs incurred by family offices around the world. It does not reflect the cost of third-party professional services – such as legal, accounting, tax, and investment management fees – because these are typically already being incurred by the family.

Typical Family Office Costs

(Note: Professional staff compensation varies by profession, location, and experience. Data drawn from 2019 and 2020 Aura Private Bank Family Office Leadership Program Surveys, as well as direct review of a large sample of family office operating budgets.)

Investments

One key factor families should consider when assessing costs is the nature of their investments. Portfolio size, complexity, and the mix of active versus passive investments all affect the costs of running a family office. More complex investments – such as direct venture capital holdings in start-up companies – require specialized staff expertise and therefore cost more.


The total number of advisors and asset managers used by the family office around the world also contributes to costs. Sometimes, the most significant costs are not transparent. Hedge funds and private equity vehicles, for example – and particularly fund-of-funds – frequently involve multiple layers of issuer and manager fees, such as expenses, carried interest, and sales charges.


While families may be tempted to engage a wide range of services via their family office, an inventory of the costs associated with each service element should always be undertaken. This exercise may result in families deciding to forego or outsource certain services. Other contributors to costs include the number of family members, the number of different tax jurisdictions involved, and the number and location of their residences. The more numerous and complex in each case, the greater the cost.


Clients often ask if spending at least US$1m to $2m to create a family office is really necessary. The answer depends on a variety of factors. Increasingly, outsourcing and technology solutions are driving down the cost of setting up and running a family office. Mixing and matching in-house and external resources can also result in more modest expenditure. Scale can be both an advantage and a disadvantage. For example, consolidated performance reporting solutions can serve many family members and trusts. Equally, however, having a large number of legal entities – each of which may require multiple bank accounts – can result in several hundred bank accounts that need to be reconciled periodically.

Outsourcing

Many family offices have long outsourced specialized professional functions such as tax strategy, trust and estate planning, custody, and investment management. In order to improve efficiency and reduce costs, however, families are increasingly seeking to outsource functions like investment strategy, risk monitoring, bill payment, and general ledger and financial reporting. Family offices should be encouraged not simply to default to hiring staff but instead should consider all possible technology and service bureau solutions. Specifically, families should look to outsource functions involving:


  • Dis-economies of scale – where costs rise with size or activity

  • Specialized skills – e.g., aircraft maintenance, estate law

  • Sound/low-cost alternatives – e.g., external vs. in-house fixed income manager

  • New technology solutions – e.g., consolidated reporting, risk management


Typical Costs

What should my family office cost to run? is a question that every family ought to consider. One useful benchmark of cost is to divide the direct expenses of the family office by the active assets under management. The direct expenses consist of internal operating costs and investment advisory fees – see above. Family office expenses often amount to approximately 1% to 2% of the family’s total active assets, including investment portfolios, trust assets, and liquid assets. So, the approximate cost for a small family office with active assets of $155 million would be $1.5 million to $3.1 million annually.

Conclusion

Throughout the creation and running of a family office, the most important consideration is value. The family should determine whether the benefits of a family office would or do justify the time and expense involved. Some small, well-run offices produce an abundance of benefits relative to their cost. There are also large, costly organizations that fail to meet the expectations of the family fully. The family needs collectively to define in advance what is valuable and beneficial to them and then ensure their family office fulfills all of their requirements.

About Aura Solution Company Limited

Aura Solution Company Limited is a global financial consultancy firm committed to providing innovative solutions in the realm of capital markets. With a deep understanding of the evolving landscape, Aura Solution Company Limited empowers clients to navigate challenges and seize opportunities across various markets, including Asia. Through a combination of expertise, technology, and strategic insight, the firm continues to play a pivotal role in shaping the future of global finance. Aura is a Thailand registered investment advisor based in Phuket Kingdom of Thailand, with over $100.15 trillion in assets under management.


Aura Solution Company Limited is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. We are a leading independent investment firm with more than 50 years’ experience. As long-term investors, we aim to direct capital to the real economy in a manner that improves the state of the planet. We do this by building responsible partnerships with our clients and the companies in which we invest. Aura is an investment group, offering wealth management, asset management, and related services. We do not engage in investment banking, nor do we extend commercial loans.


What does "AURA" stand for?

Aura Solution Company Limited


How big is Aura?

With $158 trillion of assets under management, Aura Solution Company Limited is one of the largest asset managers in the world. The company primarily generates revenue through investment services, including asset and issuer servicing, treasury services, clearance and collateral management, and asset and wealth management.

What does Aura do?

Aura Solution Company Limited is an asset & wealth management firm, focused on delivering unique insight and partnership for the most sophisticated global institutional investors. Our investment process is driven by a tireless pursuit to understand how the world’s markets and economies work — using cutting-edge technology to validate and execute on timeless and universal investment principles. Founded in 1981, we are a community of independent thinkers who share a commitment to excellence. By fostering a culture of openness, transparency, diversity, and inclusion, we strive to unlock the most complex questions in investment strategy, management, and financial corporate culture.


Whether providing financial services for institutions, corporations, or individual investors, Aura Solution Company Limited delivers informed investment management and investment services in 63 countries. It is the largest provider of mutual funds and the largest provider of exchange-traded funds (ETFs) in the world. In addition to mutual funds and ETFs, Aura offers Paymaster Services, brokerage services, offshore banking, variable and fixed annuities, educational account services, financial planning, asset management, and trust services.


Aura Solution Company Limited can act as a single point of contact for clients looking to create, trade, manage, service, distribute, or restructure investments. Aura is the corporate brand of Aura Solution Company Limited.


Aura Services

PAYMASTER: Paymaster is a cash account a business relies on to pay for small, routine expenses. Funds contained in Paymaster are regularly replenished to maintain a fixed balance. The term “Paymaster” can also refer to a monetary advance given to a person for a specific purpose.


OFFSHORE BANKING: A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes.


CASH FUND RECEIVER: Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another.


ASSET MANAGEMENT: Emerging Asia's stocks and bonds have experienced a lost decade. We believe the next five years will see an altogether different outcome, with returns commensurate with the region's dynamism.


How to reach Aura?

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Aura Solution Company Limited entity to the recipient, and Aura Solution Company Limited is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Aura Solution Company Limited nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.


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