Super-wealthy families often turn to family offices for the difficult responsibility of preserving wealth over generations. Single-family offices have been the most popular choice because of the autonomy, privacy, and personalized attention they offer. However, more and more family owners are seeing the benefits of choosing a multi family office.
They come with a higher degree of professionalism, specialization, and expertise, making them an even better bargain than just a cost-saving solution.
This guide offers a broad overview of family office types, with a closer look at multi-family offices and some important points to consider when determining if they’re the right choice.
From A Family Business to A Family Office
As time goes on, families and businesses grow together. The family structure becomes more complex, with new generations coming into the picture. The business then starts using its established structures and resources to support the management of the family’s diverse interests outside of the business.
This eventually leads to the formation of an embedded family office, which creates a delicate balance between business and family interests.
As the core business operation becomes increasingly complex and the demands of a growing family increase, it may become a liability to the business. This is usually when family owners start looking for alternative options to manage the family. The formation of a family office is often the next logical step.
The Four Types of Family Offices
There are four types of family offices that are utilized. They are:
- Single-Family Offices (Traditional)
- Multi Family Office
- Outsourced Family Offices
- Do-It-Yourself Family Offices
Below, I will dig into each one, explaining what they are and how they work.
Single-Family Offices (Traditional)
A traditional single family office provides a variety of services to protect and extend the wealth of the family. It is typically staffed with professionals, such as financial advisors, tax experts, estate planners, and accountants, who are experienced in managing family funds.
All the staff members are employed by the family, minimizing any potential issues of bias towards products and services that could arise from working with financial institutions. The ultimate goal is to provide the family with the highest quality financial service available.
For more information about single-family offices, please see our article What is a Single-Family Office? A 2023 Comparison Guide.
Multi Family Office
An established multi family office offers a variety of services similar to that of a traditional family office. Expertise is employed to craft tailored wealth management solutions for each family, extending beyond investment management to include services such as bill payment, wealth transfer strategies, philanthropic advice, and wealth education.
These offices typically charge a percentage of the assets under management in exchange for their services. Cost-wise, multi-family offices can be more affordable than traditional family offices due to their multiple client base, however, this often means that a family will have less control over the provider.
Outsourced Family Offices
An outsourced family office is a collaborative network of experienced service providers, such as financial advisors, lawyers, and accountants, with one typically acting as the coordinator for all communication and initiatives.
They possess the ability to consult with each other about one family’s financial affairs; this form of service usually handles tasks handled by traditional and multi-family offices, such as philanthropic planning and wealth education.
Outsourced family offices are typically less expensive than traditional ones, although the family will have significantly less control over the professionals in this case.
Do-It-Yourself Family Offices
I firmly believe that the structure and format of how a family office effectively uses every aspect of a family’s lifestyle and financial management should not just be attainable for the ultra-rich. This drove me to create the Do-It-Yourself Family Office, a completely new category developed right here in Familoff.
If you’re looking to take the benefits associated with a family office and apply them to your own life, I highly recommend getting started today.
Trends that Impact the Multi Family Office
We are already witnessing signs of increased wealth shifting into the multi family office (MFO) concept, which is expected to become even more popular over time. This shift is mainly driven by the emergence of new wealth as well as the elevated levels of specialization that MFOs offer.
The growth of private wealth over the past decade has been largely attributable to the tremendous success achieved in the tech industry. As a result, many tech entrepreneurs are turning to family offices to manage and invest their newfound wealth.
These modern entrepreneurs come with an innovative and international outlook when it comes to investing, necessitating the services of an MFO that is equipped to handle intricate investments across different regions of the world.
Levels of Specialization
MFOs are tailoring their services to the distinct needs of modern wealth owners, with a focus on providing customized services and specialized knowledge in particular areas.
This allows them to stand out by becoming industry experts and trusted advisers for investors who have specific wealth objectives in mind.
Growth of Multi-Family Offices
SFOs remain the top choice for ultra-affluent families when it comes to family offices, mainly because they bring autonomy, control, and personalized attention.
MFOs, on the other hand, have lower running costs and are often equipped with superior systems and structures that guarantee good governance and sustainability. The emergence of new wealth is expected to drive a surge in demand for MFO services in the coming years.
Selecting the Most Effective Family Office
When it comes to family office structures, the traditional way of deciding has been based on assets under management and the cost of running an office. This usually implies that single-family offices are the preferable choice – if you can afford them.
But there are many details to weigh in when comparing the advantages and disadvantages of the multi family office. In addition, certain developments that are reshaping the global wealth and business environment could change things in terms of how popular MFOs become in the future.
To make a more informed and balanced decision, here are some key aspects to consider:
Governance and Internal Control
Having strong diligence and governance procedures in place is key to preserving family wealth and ensuring that decisions are made soundly, transparently, and with continuity in mind. MFOs typically have an upper hand here because they are more likely to have solid internal controls to prevent misuse of funds.
However, the staff of an SFO being acquainted with the family and the overall close connection between these members and the family itself can sometimes lead to compromising certain controls and governance procedures.
Nevertheless, it would be unwise to assume that all MFOs are better in terms of governance, which is why it’s always essential to do thorough due diligence when choosing the right MFO.
Talent Management and Continuity
MFOs typically take a long-term approach when it comes to managing their internal teams. This may be due to managing multiple clients or having a more developed setup, but the main point is that they are more likely to have systems and protocols in place to ensure continuity even if there are personnel or business disruptions.
In comparison, SFOs can be more severely affected when crucial members become unavailable or leave. Speaking of personnel, having the right skills and experience is paramount to a successful family office. Bigger organizations that provide various career paths, personal growth opportunities, and broader visibility can sometimes have an edge over SFOs when it comes to bringing in the necessary people.
Levels of Objectivity
There’s no doubt that a multi-family office does not provide the same level of autonomy as a single-family office. On the other hand, impartiality may be lacking since investment decisions can be more likely to be swayed by family members and others who may not have suitable qualifications for doing so. This can hurt performance and cause tension.
Of course, it is not always the case that all MFOs lack objectivity; there are instances where a core family exercises an excessive amount of influence on decisions made for multiple families.
Data Security and Confidentiality
A major factor behind families selecting a single family office is the importance placed on privacy. Though it’s easy to think that SFOs are usually in a better position here—especially when overseen by a competent and dependable crew of pros—frequently, inadequate operational and data security protocols can lead to security issues.
A multi family office usually has better systems and infrastructure in place to defend delicate information. When it comes to guarding confidentiality, both types of family offices should sign the necessary agreements to secure family data.
An MFO provides a number of cost-saving benefits due to economies of scale. Starting up a single family office can be expensive and come with hefty administrative costs. But these expenses can be cut down significantly when they are shared across multiple families.
Increased Experience and Buying Power
By bringing together the resources and expertise of many families, an MFO gains more bargaining power to procure investments that wouldn’t be possible without pooled funding. This collective knowledge and broadened access to internal and external business networks allow MFOs to stay current with trends and industry standards while fostering innovation.
Alignments on Purpose
For many families, setting up a family office is an opportunity to maintain the identity and values of the family for future generations.
Yet, an MFO is not the best choice if maintaining this unique mission statement and principles is of utmost importance, as it cannot guarantee full alignment with decisions and operations that adhere to a single family’s wishes.
Control and Autonomy
The autonomy, control, and flexibility of SFOs make them an attractive choice for the affluent. The ability to dictate the hiring process and manage the family office without being confined by regulation affords families a level of freedom unattainable with MFOs.
But with this autonomy also comes responsibility – families must be prepared to devote more time and resources to overseeing another entity in addition to their original business operations.
Final Thoughts on a Multi Family Office
Preserving and managing large family wealth has become increasingly complex, making it paramount to have the right leadership in place.
With a clear goal for the future and an awareness of what services must be implemented immediately as well as in the long-term, families can make an informed decision on whether to create their own family office and how to do so.