Family Office Industry Jargon – What Do These Terms Mean?

The Most Important Family Office Industry Terms

SFO – Single Family Office – Serves an individual family’s needs.

MFO – Multi Family Office – Serves many family’s needs and typically brings many disciplines under one roof.

AFO – Administrative Family Office – Serves many families with most all disciplines. Outsources to create the team needed to serve the family.

Bookkeeping – Reconciling all checking, savings, investment accounts, etc. on a monthly basis. Ensure everything is running smoothly, providing financial reporting on income and expenses.

Bill Payment Services – The service (often using a bill pay company) provider receives all bills, invoices, etc. and then runs them through a protocol for payment approval. Typically, invoices or bills are mailed to a central location (v) or a central email for processing. This can be a irtual mailbox that the family always has access to. All invoices and a reconciliation of payments should be retained. And expect a reporting back on a frequency of your choice.

Consolidated Reporting – Reports that a wealth manger will run from their software, show how your portfolio is invested, returns and usually becomes a discussion point for updates. These reports may or may not include other investment professionals you have. You will need to ask how that is handled.

Family Balance Sheet Reporting – A report showing everything a family owns. This would include real estate, private equities, business interests, automobiles, aircraft, boats, jewelry or any other high value items. Also, investment accounts, checking & savings, and anything else that is owned by the family.

Entity Balance Sheet Reporting – A report that is typically a supporting document to the Family Balance Sheet. It will show the underlying assets or holdings of a specific LLC, Trust or business.

AUM – Assets Under Management – The total value of financial assets managed by a firm. This is usually a term used by wealth managers, determines the fee you will pay them to manage your money.

Fiduciary – A legal and ethical obligation to act in the best interests of the client. Putting the client’s interests ahead of the family office’s or advisor’s interests.

Investment Policy Statement (IPS) – A formal document outlining the investment goals, strategies, risk tolerance, and guidelines for managing a family’s investment portfolio. If you have multiple wealth managers or advisors, it is important they are all working from the same
document.

Estate Planning – The process of organizing and structuring an individual’s or family’s assets to pass them on to heirs or beneficiaries. This should minimize taxes and ensure the desired distribution.

Philanthropic Advising – Services that assist families in setting up and managing charitable foundations, trusts, and other vehicles for philanthropic giving.

Risk Management – Strategies and processes to identify, assess, and mitigate risks to a family’s financial assets and well-being.

Trustee – A person or entity appointed to oversee and manage assets held in a trust on behalf of beneficiaries. This person oversees the assets held in the trust, does the record keeping and reporting, communicates with beneficiaries and carries out the business according to the trust.

Executor – A person or entity appointed in a person’s will (or by a court in the absence of a will) to carry out specific responsibilities related to the management and distribution of the deceased person’s estate after their death. This person oversees the probate process, asset inventory, notice to creditors and beneficiaries, estate management, pays debts and taxes, distributes assets, does the record keeping and accounting, works with the attorneys and courts and communicates to the beneficiaries. (Hint: naming your favorite child or best friend is not giving them a gift)

Family Governance – Establishing rules, structures, and processes for decision-making within a family. Particularly in the context of wealth management and succession planning.

Family Constitution – A formal document that outlines the family’s values, mission, governance principles, and expectations for family members’ roles and responsibilities.

Legacy Planning – The process of defining and preserving a family’s values, history, and wealth across generations.

Due Diligence – The process of thoroughly investigating and evaluating potential investments, advisors, or service providers before making decisions.

Exit Strategy – A plan outlining how a family can transition or exit a particular investment, business, or financial arrangement.

Key Performance Indicators (KPIs) – Metrics and benchmarks used to assess the performance and success of various aspects of a family’s wealth management strategy.

Financial Planning – The process of setting, organizing and managing a families financial goals, resources and strategies to achieve specific objectives and secure a stable future. The financial plan and Investment Policy Statement go hand in hand to ensure everyone is on the same page. Both are documents reviewed at least bi-annually, though more often annually.

CFP – Certified Financial Planner – A professional designation and certification for individuals who specialize in providing comprehensive financial planning services to individuals and families. The CFP designation is globally recognized and considered one of the highest standards of excellence in the field of financial planning.

CFA – Chartered Financial Analyst – A professional designation and certification for individuals working in the field of investment management and financial analysis. The CFA designation is globally recognized and highly regarded in the finance industry, particularly in roles related to portfolio management, investment analysis, and financial research.