The History of Family Offices – Through the Ages

by

Stuart MitchellMW

Having briefly described the incarnations that family offices in the present can take, the second installment of the article looks at how we have arrived at these business models through centuries of evolution.

Ancient History

The concepts behind family offices have developed independently across the world, especially in Asia where there was a strong tradition of family dynasties in countries such as China and Japan. These dynasties required the means to preserve their legacies and power and significant facet of that would have revolved around their wealth. Some of the earliest incarnations of family office-type teams can be traced to these roots, with evidence of people being employed to preserve the wealth and welfare, for example, of the Shang dynasty in China as long ago as the 17th century BC.

Early European History

In Europe, the idea of a family office can trace its financial history back to the inception of the concept of banking for the sake of sustaining and preserving wealth; in contrast to money lending. One of the earliest examples of this practice can be attributed to the age of the crusades when a need arose to place wealth in trust whilst noblemen were away fighting in foreign lands. The demand for trusts to conserve wealth remained throughout the many conflicts that affected the continent down the subsequent centuries.

Generally speaking, family office-type and trust services were provided by traditional banking operators such as the Jewish communities, the protestant Swiss and Scottish bankers. However, prominent, sometimes ruling, European families from the middle ages – those that we now think of as dynasties like the Medicis of Florence and, more latterly, the Rothschilds family who spread across western Europe – also created their own banks and would have provided similarly styled services, They would have managed wealth creation on behalf of their own families but then, in turn, would have also offered services to the other prominent families of the time; effectively acting as forerunners of what we would now think of as private banks or specialist banking for HNWs. The lines for such families would no doubt have been very blurred, between entities that we would class as family offices and their banking services – because the family wealth would have been inextricably tied up with their banking activities. The families who were creating these early banks, and providing financing for others, were also likely to be those with the wealth to warrant a need for family office-style services.

Away from the financial management, land owners, from the middle ages onwards, also employed people to run their estate and the workers who would have toiled on their lands and serve the family in their day to day lives. Through the feudal systems of medieval Europe (for example, after the Norman invasion in England), ownership of land became focused within the minority nobility who in turn could give access to that land to vassals in exchange for their loyalty and labour. These labourers evolved through time, beyond the breakdown of feudalism, into teams of land workers and servants. These workers were free citizens and simply employed by the wealthy land owners to maintain the estate – lands and properties. The concept of these servant classes arguably reached its zenith in the Victorian era but as relative wealth declined the larger teams became the preserve of the ultra-wealthy only, creating the footprint for family offices.

Modern US History

The modern European incarnations of family offices in particular can therefore trace their lineage back to the medieval estate managers and family banks (indeed for those looking for a family office london is still a centre for the industry) but the modern concept is also heavily influenced by the resurgence of family offices as financial management organisations in the US. In fact term itself, Family Office originates from modern US usage.

The American resurgence occurred at the end of the 19th century and start of 20th when private offices were established by wealthy US families in response to a lack of third party financial services, such as private banks, which targeted ultra-HNW individuals. The banks were prohibited by US legislation from offering joined-up services and so it was left to teams of advisors and other financial firms, such as accountants and legal partnerships, to provide the services associated with family offices, often creating family trusts in the process.

The specialist companies that started to appear focused on managing the financial elements of multiple wealthy families in contrast to the in-house offices that had existed before and that were previously popular across the pond. Latterly, relaxation in the US laws has allowed for the integration of family office services back into private banks.

© Stuart Mitchell 2012

If you want to find out more about financial or estate management services for ultra-high net worth families then you can visit Family Office London.

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