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What is a virtual family office?

Lake Cauma Flims

Family offices are the zeitgeist in wealth management. Everyone has or wants one. You can choose from single-family offices that can depend on family and be integrated into the family business or independent from the family business or multi family offices that can be privately owned by various families or by independent third parties.

Either way, there has been exponential growth over the last decade. Which one is better suited for a family depends on many circumstances. Both options come with considerable costs, limited flexibility, and a steady headcounts increase due to regulatory complexity.

This is when a virtual family office changes the game by leveraging technology and virtual collaboration in an agile and multi-disciplinary setup.

The virtual family office structure


Let's have a closer look at the structure of a virtual family office: It's a single family office tailored to the specific needs of the family with a central cockpit to oversee the various building blocks that are variable depending on the challenges.

It all starts with an analysis and definition of the core goals to achieve. Let's say a family has defined independent investment management as their prime goal. They then need to clarify which other areas are vital for them, such as wealth preservation, asset protection, succession planning, and estate planning.

In our experience, a family office performs best in specific, realistic in-house core capabilities and services without getting distracted by trying to cover the broadest service range along the wealth management value chain.

The human context


Another essential point is understanding technology's function in the structural system: It's not building services around technology but leveraging it to satisfy specific family needs. As outlined below, focusing on essential needs in a human context is crucial in a virtual collaborative environment.

A virtual family office is a complex arrangement, and if the design process concentrates on the fundamentals, core services can be delivered effectively, and other competencies can develop over time.

However, before designing the structure itself, the family needs to clarify how approaching wealth in context with values, purpose, and belonging for its long-term preservation. 

Family governance


Family governance facilitates complex and challenging conversations in a structured setting and guides family members in integrating into and contributing to the family and, eventually, business network. Again, there is no standard template for that.

However, it's essential to consider the position of all generations involved to achieve the best results to cover the needs of all family members. The definition of values, purpose, roles, and decision-making is crucial in this context.

A written family governance framework and mission statement provide guidance and unity. In particular, cross-jurisdictional families and millennial family members will appreciate virtual family assembly gatherings to exchange information and make decisions.

We advocate for the early involvement of future family leaders, and broad governance consensus and participation. Next-generation leaders should have clarity about succession plans and the requirements to step into leadership roles.

We further recommend transparent and frequent communication; again, technology can facilitate the process. All of these governance elements will shape the "family culture" and foster alignment and commitment to preserving the family wealth over generations.

Succession planning, like in business, is a process, and it's as essential for wealthy families as for businesses.

Virtual family office governance


With the defined family governance framework, the virtual family office and its core building block – in our example, the investment management part – can be designed to integrate technology and an investment team.

It doesn't need to be full-time and in-house since external providers may offer a robust investment process and institutional-level research. We would not even recommend full-time in-house teams for the simple reason that external investment managers can be replaced if performance is not as expected. With a flexible digital platform, it can also be a mix of in-house and external specialists. 

The market offers various family office technology solutions tailored to individual requirements. A virtual investment committee with family members and independent specialists alongside a strict investment and due diligence process can save costs and deliver the desired results.

And with a reliable reporting and control framework, adherence to the family's investment strategy can be guaranteed.

A coherent governance framework assures the quality of services and seamless integration of all building blocks in a robust policy and process landscape. Combining technology and leveraging external service providers' expertise in an efficient virtual collaborative environment will lead to excellent results at lower costs. 

Due to technology and external advisors and professionals adapting to a new collaboration and predictable pricing model, the family office space is evolving towards platform ecosystems. They enable efficiency, data-based decision-making, real-time oversight and control, and substantial cost reduction.

The virtual family office governance framework defines such an ecosystem's principles, systems, roles, and responsibilities. 

Virtual family office technology


The core technology covers the investment-related matters, collaboration, project management, and customer relationship management for effective service delivery to the family. The entire system should be lean, focused on the essential, personalized, and quality-driven.

This requires a structured evaluation and implementation process and, in most cases, expert assistance. Consolidated overview, data management, aggregation, granular reporting, analytics, consistent visual output, adaptability to future changes, risk management, risk analysis, and intuitive interfaces to gain immediate insights are just a few requisites to consider.

According to the UBS Global Family Office Report 2022 family offices focus on the core capabilities of strategic asset allocation, risk management, and financial accounting and reporting. Most technology solutions cover precisely these areas. 

There's no need to spot the one product covering everything since specialized solutions that solve one specific problem successfully usually integrate into other products. Thus, the preferable approach is to unite best-in-class capabilities on a platform incorporating custodians' and other service providers' interfaces.

The ideal outcome is the combination of leading functionality in a secure network with a supreme digital user experience that supports effectively addressing the family members' needs.

A note on cybersecurity: Specialist advice is necessary here to meet the highest security standards, including enterprise-level protection architecture and communication. With a secure environment in place and awareness, education, and guidance for all involved parties, the risks of emerging cyber attacks can be mitigated.

Single Family Office Core Services

The coordinator


Let's now focus on the other building blocks of the virtual family office structure.

Interestingly enough, wealth planning, succession planning, and estate planning trigger higher costs than investment management. And cost is not the only reason why coordination and collaboration are crucial.

A trusted advisor with international and multi-disciplinary collaboration experience and the respective network is best suited to cover this role. The virtual family office may also provide for this role within its internal structure to coordinate the various tasks to be outsourced to external specialists.

Such an internal appointment ensures an additional level of control and efficient exchange of information if projects are highly complex. The decision, whether internal or external, depends on the individual needs of the virtual family office and budget allocations for these building blocks.

With the assistance of technology, ad-hoc specialist teams work on various solutions to satisfy individual needs. Such collaborations require a structured process and project management skills to maintain control over tasks, communication, costs, and timing.

With that in mind, a virtual family office can, in almost real-time, adapt operations to the family's changing needs.

The most critical ability for this position is understanding the needs of the family. Only a deep understanding of their issues, pressures, and challenges allows for an effective orchestration of several specialists in various jurisdictions.

They need to anticipate outcomes, communicate transparently, and create an environment of ease, control, and trust. The governance framework at the family's and virtual family office's level will guide everyone involved to grasp the family's values and purpose in connection with their financial objectives for services that provide value to the family and address their wants, pains, and needs.

Single Family Office Outsourced Services

The importance of the human element


In most cases, the above-outlined investment management part is straightforward. However, wealth planning, succession planning, and estate planning require in-depth analysis and a clearly defined strategy that should consider all involved generations' positions.

The human element needs to be supported by comprehensive technical capabilities and an international top-professional network. With an external specialist, the virtual family office can outsource this part but maintain control and oversight. If they are already advising on family governance, all services can be provided with a holistic view of the family's needs.

Virtual family offices: the future of family wealth


A virtual family office offers many advantages in terms of efficiency, communication, agility, and costs, and there's no entry barrier or minimum wealth requirement.

It can dynamically adapt to the family's evolving needs and enable results that provide the family with peace of mind. The fundament for every family office is values, governance, and transparency that define the family's wealth purpose and lead to the desired culture.

Early involvement of the next generations ensures commitment and alignment to preserving the family's wealth over generations.

The focus on realistic in-house core capabilities and services and integrating external professional service providers in a technology-empowered collaborative environment lead to a platform ecosystem and modular aggregation of leading and innovative solutions.

Although a complex arrangement, the virtual family office is designed to outperform the traditional private wealth service offering in terms of a personalized experience, quality, and costs.

Technology is undoubtedly a central pillar of the virtual family office, but it should never eclipse its epicenter of human-centric wealth management.

Updated 03-03-2023

Contact us to schedule a free consultation to learn more about getting the most value from your individualized family office solution.

Lake Cauma Flims
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