4 key questions to consider when launching a family office, according to top advisors to the world’s wealthiest

• The family office sector has exploded in the past 20 years.
• Family offices give complete control and privacy, but they also come with tradeoffs.
• Advisors told Insider what clients should consider before setting up their own shops.

As the global population has grown $200 trillion richer in the past twenty years, the world’s richest have created at least 10,000 family offices to oversee their assets. These offices range from operations with a handful of employees that outsource services like portfolio management to firms with hundreds of employees and their own chief investment officers.

Industry experts say that family offices are like snowflakes; no two are alike. But advisors do agree on a few common questions that clients should ask themselves before deciding to set up a single-family office or going to a multi-family office such as Bessemer Trust.

Insider assembled a list of 21 must-know professionals if you’re thinking of starting your own family office. Here’s their advice on what to consider before setting up your own shop.

How much are you willing to spend?

Advisors generally agree that families need at least $100 million in investible assets to justify the cost of a single-family office. Stephen Prostano only sets up brick-and-mortar family offices – firms that outsource little to no services – for families worth at least $500 million. Even these ultra-rich clients get sticker shock at the prospect of hiring a CEO for $500,000.

“Even if they’re worth close to a billion dollars, that’s usually where the rubber meets the road,” Prostano, partner and head of family advisory services of PKF O’Connor Davies, told Insider.

He recommends that families should agree on a budget, which can be difficult with multiple generations. Older family members tend to have more assets and needs than young heirs. The general rule of thumb is that the cost of running a family office equals 1% of the assets under administration. According to Citi’s modeling, even a small office with two full-time employees and four part-time employees runs at least $1.5 million.

Skimping on expenses such as staff defeats the point of having a family office, advisor Natasha Pearl told Insider.

“You can have six-star service or low costs, not both,” she said.

What are you looking to accomplish?

Even families with considerable resources shouldn’t set up a family office just for the sake of having one, according to Thom Melcher, director of family wealth at Glenmede.

“There are families who just feel like after achieving a certain level of success that a family office is something that they should have. It’s about a level of comfort or a reminder of the success that they’ve achieved,” Melcher. “I try to go a level further and ask, ‘What is it you need to accomplish?'”

Wealth preservation is just one goal of a family office, and multi-family offices can serve that need. Clients should think about their mission statement, philanthropic goals, and the role of younger family members, before setting up their own shop.

What are you willing to outsource?

Most families opt for a hybrid office, which outsources many services such as investment management, or a virtual office, which uses even more third parties. It is cheaper than having a brick-and-mortar office, which requires more staff.

But outsourcing means giving up some control and privacy. It is also harder to make sure all activities are in service of the family’s mission with third parties involved.

McDermott Will & Emery partner Elise McGee has seen clients underestimate the tradeoffs of outsourcing.

“So a lot of families when there’s a breakup in the family, or the first generation dies, a lot of times they unwind the family office,” McGee told Insider. “It’s successful about 50% of the time because they don’t realize what they’re giving up their family office services. There’s a lot of coordination that happens at the family office that’s very hard to replicate in an outsourced model efficiently.”

Do you want to take on burden of a family office?

Family offices provide the most control over your assets, but they come with added responsibility. People thinking about setting up a family office should think of it as taking on a job, said Withers Bergman partner William Kambas.

“A family office is about being in the business of managing the assets for a broad set of family members and their trusts,” the attorney told Insider. “It’s not simply managing your own investments and doing what you would do on your own anyway.”