They are well-defined. A family office is a company fully owned by a family, with no clients other than the family, that doesn't hold itself out as a public investment advisor.

The SEC release notes that most family offices already qualify, but the law was somewhat ambiguous. The problem isn't that family offices can't legally invest, but rather that companies are reluctant to sell to them --- that's where the real risk is in running afoul of these rules, to the securities issuer, not the investor. Clarifying the rule mitigates that reluctance on the part of issuers.

https://www.law.cornell.edu/cfr/text/17/275.202(a)(11)(G)-1

Thanks. That makes sense.

When does it make sense to have a family office? I would guess, when you want to employ at least one financial professional full time? Is that right?

At the lower end of asset value range families often end up with a "family office" because the previous generation ran a family business which was passed down and now it's jointly owned by a number of family members. The option is to sell the family business and distribute the cash or start a "family office" and run it and it's assets together in a pool.

For both sentimental and other reasons the family business is not sold (i.e. may have never had audited financials since it had a single owner and no outside investors so it would be near impossible to sell it for a price the family believes is fair).

These type of "family offices" don't have any full-time investment management staff. They work with the same type of advisors an individual who had $5M of investment assets would.

That’s not what a family office is. That is a family-owned business. See the link in the sibling comment.

Also, it’s possible to determine a value for any company.. not sure why you think it isn’t? Net profit/compensation to owner multiplied by a multiple determined by what industry/sector it is in is how small business valuation is done, plus/minus assets/liabilities.

There's a reason I put family office in "quotes", your view may be the Wikipedia definition of family office with $100M+ of investment assets, that isn't the view of many "family offices" out there and not matching Wikipedia doesn't make them wrong.

Second issue on valuation, logically you're totally correct. In a jointly owned family business logic and Excel aren't the only way the business gets evaluated. Depending on the structure a sale may even be blocked by a minority owner member so all parties have to agree it is a fair sale price to sell.

If this "family business" has built up $5-10M in investment assets and the operating business runs at a break even while the investments generate $1-3M a year in gains is it a small "family office" or a struggling family business with an excellent treasury team managing the investment assets?

People also use the term to mean something else, e.g.:

https://en.wikipedia.org/wiki/Family_office

But I think you're right as well.

> When does it make sense to have a family office?

When your networth is high enough such that paying for a professional money management means you get to recoup back the time you otherwise would have to spend to do so.

Family offices often deals with more than just finances, but also things like butler/chauffeur and other utilities (like gardening etc), and if they are truly rich, they would provide a fixer type service (e.g., somebody to get you what you want - like if you wanted a yacht/mansion/luxury goods, they'd be the one doing the looking and present to you the good options without you having to sweat).

That makes sense, although of course most people with significant assets pay for professional money management (there are several "tiers" of this kind of service, e.g. wealth managers) without actually having a family office.

The tl;dr seems to be "when it saves you time/effort," vs. "here is a financial threshold where a family office is more financially efficient than a traditional wealth manager." Right?