Family offices, which are private wealth management advisory firms that cater to ultra-high net worth investors, offer comprehensive services to manage the entire wealth of an individual or family. Family offices differ from traditional wealth management firms in that they offer a complete outsourced solution for all financial and investment concerns of their clients. Single-family offices serve just one individual or family while multi-family offices take on a small number of families for economies of scale that allow for cost-sharing among the clients.
What is the history of family offices?
Majordomos began managing the wealth of royal families and other aristocrats in the 6th century. The term majordomo comes from the Latin “maior domūs”, meaning principal of the house. Majordomos acted on behalf of the owners of residences. Over time, they came to manage finances of noble and royal houses as well as institutions and governments, including cathedrals and some cities.
In the United States, industrial titans pioneered the modern family office in the 19th century. The family of J.P. Morgan founded the House of Morgan in 1838, which managed the Morgan family’s assets. In 1882, the Rockefellers founded their family office.
Family offices began gaining popularity in the 1980s as new technologies introduced within the financial markets required a higher standard of expertise and sophistication from financial advisors while the consolidation of the financial service industry reduced or eliminated the role of the bank trusts that had historically served wealthy families. Family offices have increased since 2005, growing alongside the rise in super-wealthy families. The new wealth created from technology companies in the 21st century created a new demand for family offices.
While family offices were traditionally founded by a single family, many have opened their doors to other ultra-affluent families to share operating expenses. Multi-family offices are typically privately held companies and their capital is the investable assets of member families. Multi-family offices are most common in Europe and the United States, although firms in Hong Kong and Singapore are increasingly providing the services of a multi-family office.
What does a multi-family office do?
Multi-family offices offer a comprehensive slate of services for their clients. However, due the personal nature of multi-family offices, services and strengths vary wildly amongst offices. A common phrase in the industry is “When you have seen one family office, you have seen one family office”.
Common financial services provided by multi-family offices include:
- Accounting and reporting
- Financial planning, including investment advice and risk management
- Insurance analysis and management
- Managing multi-generational wealth, such as securing the future of new family members, inheritance and wealth transfer services
- Philanthropy (including private foundations)
- Tax advisory and regulatory compliance
- Trusteeship and estate planning
Many multi-family offices include additional administrative and lifestyle services, such as:
- Assisting in family governance
- Concierge medicine
- Coordinating all family staff
- Family education and mentoring
- Family security
- Large purchases, such as aircraft and new properties
- Legal services (often with an in-house legal counsel who coordinates with specialized lawyers as needed)
- Overseeing wine and art collections
- Property management (including aircraft and yachts)
- Travel planning
- Additional concierge service on demand
Multi-family offices provide a holistic solution for ultra-affluent families. Most multi-family offices employ a core staff, who coordinate with outside professionals to provide solutions to the full range of a family’s financial and lifestyle needs.
Ultra-affluent families who prefer multi-family offices expect responsiveness, top tier service, and a staff that can not only respond to issues promptly but anticipates potential issues and have solutions ready.
Multi-family offices personalize investments to fit the needs and risk profiles of member families. Investments may include commercial real estates, hedge funds, private equity, and venture capital opportunities.
The staff of a multi-family office often includes investment managers, financial advisors, and various administrative, legal, and tax advisors. As multi-family offices can have anywhere from two to over a hundred clients, staff sizing will vary considerably. Regardless of the number of families served, a dedicated small team should be assigned to work with you.
Many multi-family offices charge an asset-based fee or flat retainer rate that covers all services offered by the office.
What are the benefits and downsides of a multi-family office?
Multi-family offices provide a single point of contact for an ultra-affluent family’s financial needs. Benefits of the multi-family office model include:
- Optimizing the overall investment strategy across asset classes.
- Control – multi-family offices regularly evaluate the performance of all team members. Any asset manager who fails to meet the expected yield can quickly be removed.
- Coordinates all advisors to work towards an integrated wealth strategy specific to the family’s needs
- Ensure privacy and confidentiality while providing services to all generations of the ultra-affluent family. As baby boomers retire, then need for intergenerational wealth transfer advice will substantially rise.
- Family members gain time to enjoy their wealth that was previously spent managing it
- Finances and investments are managed in the context of the full family balance sheet, allowing for optimum efficiency
- Low employee to client ratios to allow for responsive and personalized service
- Multi-family offices streamline the family’s financial and legal affairs, allowing for a clear overview and greater control over the direction of the family’s assets
- One dedicated contact for all financial needs eliminates redundant communications with various private banks, advisors, and other services
- Unbiased financial advice provided with a complete understanding of the family’s assets and liabilities. Multi-family offices do not sell products and thus eliminate conflicts of interest.
There are some downsides to the family office model. Family offices are more expensive to operate than employing traditional wealth management firms. As costs are shared between member families in a multi-family office, the model negates some of the downsides of a single-family office. A multi-family office can spread the cost of investments over a larger asset base and achieve higher cost efficiencies. Multi-family offices can increase investable assets by adding a new family to the existing platform.
Multi-family offices are also less personalized than a single-family office. However, a well-run multi-family office can still provide a level of personalization and responsiveness sufficient for many ultra-affluent families. Additionally, you will benefit from the expertise gained by the staff of your chosen multi-family office from supporting other ultra-affluent families.
Who should consider employing a multi-family office and what does it cost?
Ultra-affluent families often seek out a multi-family office when assets grow to a size and complexity where full-time professional management becomes necessary or prudent. When the big picture of your finances becomes too complex, too complicated, or too time-consuming to manage alone, a multi-family office can provide a dedicated point of contact for all family members.
For single-family offices, the benefits may not outweigh the costs unless the family has over $500 million in assets to manage. Fully integrated family offices can cost upwards of $1 million per year to operate. Multi-family offices allow families who exceed a net worth of $50 million in investable assets to take advantage of the model, with the majority of clients holding over $100 million in investable assets. Some multi-family offices welcome any client who can pay their required fees while others have minimum asset requirements.
For ultra-affluent families who do not have the assets or desire to establish a single-family office, a multi-family office can provide personalized, holistic service at a much lower cost. Depending on the asset range of the family multi-family offices with annual costs for true multi-family services range from $50,000 per year up to $500,000 per year.
The decision to employ a multi-family office is typically made just once in a lifetime and should not be undertaken lightly. When vetting potential multi-family offices, make sure you know what services are in-house and what is outsourced. Looking at the quality and reputations of the providers contracted for the outsourced services chosen can often give you an idea of the quality of the multi-family office itself. Multi-family offices should have direct deal capabilities, having invested time and resources into cultivating relationships with private equity partners and independent sponsors. Inquire as to the specific services a multi-family office provides and meet with some of the advisors to get a feel for the level of professionalism, skill, and responsiveness of the multi-family office. The sole priority of the staff of the multi-family office should be the benefit of their client families. For most families the value that they can receive is in the form of more proactive taxes, investments, management of finances and avoiding mistakes.