As a wealth owner, you may find the range of services and solutions offered in the continuously growing wealth management market overwhelming to say the least.
Single family offices set the benchmark
In our view, single family offices are the most sophisticated and personalized way to cater to a family’s specific wishes and interests. However, they are also challenging in many aspects, such as staffing, administration, compliance, and costs. That’s why, for many years, wealth managers were the first alternative to cover comprehensive wealth management needs.
The case for a multi family office
The constant growth of the global ultra-high net worth population and the trend towards working with multiple service providers - particularly after the 2008 financial crisis and the correlated loss of confidence in incumbent industry players - have led to a rapid expansion of multi family offices.
These professional organizations provide family office services to several unrelated families, leveraging infrastructure and talent to simplify and accelerate a personalized wealth management process.
Whether a multi family office is a right fit for you depends on many factors. In this post, we will assist you in navigating a still opaque industry to find the ideal service. One that aligns with your interests and needs.
The multi family office structure
We believe the main distinction is between closed and commercial multi family offices.
Commercial multi family offices
Commercial multi family offices cater to a broad audience of families and are organized as profit-oriented businesses. They are either independent, i.e., in private ownership and not affiliated to a financial institution, or dependent, i.e., owned by a financial institution such as a bank.
Closed multi family offices
Closed multi family offices serve only a few families that share a wealth management strategy in a members-only structure. Often multi family offices have evolved from single-family offices that decided to onboard other families to leverage economies of scale.
The multi family office industry
Throughout the industry, you will find many variations, and frequently service providers, such as asset managers, use the label family office. It’s essential that you focus on the type of services you require rather than the label.
The value proposition
In general terms, a multi family office should offer independence, alignment of interests, and objectivity to develop a holistic wealth management strategy.
It should select the best service providers to implement it and monitor and control them in a comprehensive reporting framework to ensure consistent results and avoid conflicts of interest.
In a strict sense, this is only achievable through absolute transparency, independence from service providers, not offering own products, and clear pricing. With that, you’ll have one wealth management source of truth for impartial reviews and decision-making aligned with your interests.
We don't want to destroy any illusions, but we rarely find this ideal design in practice. For example, if a financial institution owns a multi family office, it’s hard to imagine an objective approach in sourcing the best asset managers and products.
It becomes even more difficult if such a dependent multi family office performs asset management and distributes investment products. The boundaries to a sales platform of the parent company can quickly become blurred here. We are not saying you will not receive excellent services. You may get access to global capabilities and networks, but you face a substantial risk of conflicts of interest.
Therefore, it is essential to thoroughly review service providers and assess your individual needs and associated service requirements.
Which family office services do you need?
Often the family office journey starts with the wish to transition from private banking and wealth management. Wealth owners may want to find different services and pricing, avoid conflicts of interest, independence, enhanced cost transparency, lifestyle services, family governance advisory, wealth planning, and estate planning.
Core services and deliverables
Even if you aim for all the above, there’s no need to search for the one multi family office that can solve everything. Instead, we recommend identifying your core needs and deliverables, such as a consolidated overview of your assets, comprehensive monitoring and controlling of all investment activities, or coordinating multiple wealth management service providers within a structured framework.
Less is more in this context since specific and concise requirement specifications simplify and accelerate the selection process and enable adequate service provision. As a wealth owner, you are in the lucky position that there’s a service provider for almost every requirement that can integrate into the core arrangement.
If you already receive private banking and wealth management services, you may not want to jump all ships but maintain what performs well and blend it with the envisaged multi family office services.
Clarity about capabilities and deliverables
Industry leaders will be clear about their core capabilities and client benefits while recognizing best-in-class external offerings and providing a collaborative environment to bundle in-house and exterior services in their clients’ best interests.
An objective view and input at an institutional service level are more valuable than solving every wealth owner’s problem within the family office at average outcomes. That’s why the multi family office can be seen as a platform for modular service integration to steer and control wealth management and act as a family’s trusted advisor.
The advantages of a multi family office
These are the advantages of a multi family office in defining investment strategies and asset allocations, selecting and monitoring the best asset managers, providing consolidated reporting, and overseeing a family’s entire wealth management, including wealth planning and estate planning at predictable costs.
All at sophisticated levels to grow, preserve, protect and transfer wealth
Which risks do you need to manage?
Your needs are one side of the coin, but you should see them in the context of the risks to be managed for making an informed decision. Do you run diversification risks, political and geographical risks, or legal and tax risks? Then the offered services need to be assessed against their contribution to risk mitigation.
For example, granular reporting manages diversification risks in a consistent due diligence and monitoring process for both service providers and investments. In most cases, wealth needs to be protected and preserved in the first place to uphold the family's financial status and standard of living.
In contrast, growth ambitions need to be evaluated in light of risk considerations. This should be done for the family wealth as a whole to ensure an appropriate degree of diversification.
The target set-up
Look for multi family offices with the ability to bring goals and objectives in alignment with risk management. This requires a deep understanding of your needs, the purpose and origin of your motivations, and putting wealth in context with your family’s unique attributes and requirements.
Whether you are at a wealth accumulation stage or focus on preservation for future generations, it requires a tailored approach that traditional wealth management offering has lost sight of due to industrialization.
Working through a checklist during an initial meeting won't get the job done, but an open and empathic approach will put the wealth owner's interests first.
Where should the multi family office be located?
According to the FINTRX and Charles Schwab 2021 Family Office Industry Briefing Series, there are approximately between 3’500 and 5’000 family offices globally with one or more employees, USD 100 million or greater in investable assets, and some form of external investment activity.
An estimated 39% are single family offices, and 69% are multi family offices. Approximately two-thirds of family offices are in North America, one quarter in Europe, and the remaining 9% are in Asia and the rest of the world.
Family offices have become the investment vehicle of choice for the world’s wealthiest since they have the capability and appetite for conducting transactions on a par with established investment companies and private equity firms.
Europe's multi family office tradition
Within the global family office space, you will find the highest concentration of multi family offices in Europe. This is due to a significant number of single family offices that have opened their doors to other families within a multi family office structure, often sharing the costs to create collective investment capabilities.
The essential attributes
Ideal multi family office jurisdictions are economically and politically stable with an exhaustive and high-quality wealth management ecosystem enabling efficient interfaces to custodians and other services providers.
A predictable legal and tax environment and robust financial and consumer protection regulation are other essential evaluation criteria.
High data protection standards, specialist know-how and academia, innovative technology communities, and a strong digital infrastructure complete the picture of an ideal family office ambient.
If you have now thought of Switzerland, you feel the same as we do.
What else should you consider in the evaluation process?
As a principle, you should not merely rely on recommendations but follow your own assessment. Do they understand your needs? Do they consider associated risks? Where do they add value?
Structure, ownership and clients
The multi family office structure itself is also essential to clarify. To which type of clients do they cater? How many clients do they have, and how many employees serve them? What’s the average amount of assets under management? What about staff seniority and specialization? How responsive are they? What’s the state of their technology infrastructure and its impact on data security? How is their ownership structure? The last point deserves special attention since the industry is ongoing consolidation, and succession planning impacts the long-term relationship.
Next is the type and quality of services. What do they deliver for asset allocation, the investment process, monitoring and reporting, cost control, and transparency? How do they differentiate from competitors?
Alignment of interests
Their business approach should provide further insights. How do they align with their clients’ interests? Do they accept remuneration from third parties? Are there internal cross-selling incentives? How does their compliance framework look?
Here it would be best if you also asked for past compliance incidents and negative media coverage. To a certain extent, with a multi family office, you share their other clients’ journey and face potential reputational spillovers, something you don’t want to discover at a later stage.
Finally, integrating services such as philanthropy, sustainable and impact investing, yachting, aviation, and other consulting or concierge services while gaining absolute clarity and transparency on all costs complete the picture.
A structured selection process
Your needs and risks to be managed are paramount for the selection process. As mentioned above, if you currently work with a wealth manager and want to transition to a multi family office, you can start small and focused, check the multi family office’s cultural fit and expand slowly but continuously.
In all wealth management matters, you should have a particular eye on conflicts of interest, diversify services and providers and ultimately create a system that allows you to stay in control.
Should multi family offices perform asset management?
This is the most critical point to consider and is rarely in line with conflict of interest prevention: how can they perform asset management and control it simultaneously?
The general rule
In our view, wealth owners should follow this specific rule: Either asset management or control but not both. Given the abundance of options in the market, limiting diversification and independent asset management is not appropriate either.
However, there's no rule without exception. You may buy a multi family office's asset management services if they have specific and outstanding niche capabilities such as private equity and real estate and enable otherwise hard-to-find investment opportunities.
The aforementioned FINTRX research suggests that multi family offices allow several families to invest together, enabling them to collectively engage in a broader range of more aggressive and ambitious strategies.
More than three-quarters of family offices invest in private equity and over two-thirds in hedge funds. While nearly 60% have investments in real estate, it’s notable that allocations target both private equity and hedge funds more widely, something typically riskier but offering higher returns.
Thus, alternatives are a family office strength. However, independent oversight may still be required to achieve truly great investments.
Family offices are also well positioned for direct investments and co-investments, a field that incumbent wealth managers mainly cover through venture capital funds. In contrast, entrepreneurial families may want to get directly and actively involved in venture investments to bring in their expertise and experience and influence the return potential.
We recommend a strict separation of asset management and control in all other cases. However, many multi family offices will try to convince you of the contrary, particularly with the argument that there are various multi family offices with several billions of assets under management. However, they may be assets managers that operate as family offices.
Trusts and fiduciary services
You should follow the same approach for trusts and fiduciary services. Also, here you should diversify and work with independent trustees. Just imagine you want to leave and are bound to the multi family office due to its trusteeship of your trust structure. Changing a trustee is often a cumbersome and lengthy process that you want to avoid. Working with an independent professional trustee allows for flexibility, and the multi family office can still assist in administering trust assets, but you usually don’t need it as a trustee.
The ideal multi family office
We believe that you hit the sweet spot with a specialized boutique providing independent wealth management advice and performing an objective provider selection to coordinate services. It guarantees comprehensive oversight, monitoring, controlling, avoiding conflicts of interest, and enabling the single source of truth for your wealth in a highly customized wealth management architecture.
Closed multi family offices' top service level
A closed multi family office can offer many benefits: As a member and, in most cases, shareholder, you participate in the firm's success, and their member selection process inevitably leads to the alignment of entrepreneurial strategies and interests.
They may also perform asset management as conflicts of interest move into the background in such a case. Usually, closed multi family offices are designed as co-investment clubs and provide access to outstanding investment opportunities.
You kill many birds with one stone, as you can directly influence the course of the business, control reputational risks, join a network of like-minded families that opens up opportunities in a wide range of areas, and experience the most personalized level of service.
Closed multi family offices are not widespread and place high entry barriers to ensure exclusiveness and alignment of interests.
The decision for a closed multi family office
Suppose, for whatever reason, a single family office is not an option for you. In that case, such a setup is the closest you can come to it, keeping costs and administrative overhead in check while making the fewest compromises on the quality of service and conflicts of interest.
At the same time, your decision must be well-considered, as you will have skin in the game, and your flexibility for an eventual change could be limited.
Alternatives to multi family offices
The market provides many opportunities. Again, with clarity on what’s core to you, services can be assembled to achieve similar results than with a multi family office.
External asset management
External asset managers offer independence and a personal relationship with their clients. You can combine their service with a wealth management platform to apply a structured selection process and monitor service providers and results. Such wealth management platforms often assist with the investment strategy and provide granular reporting.
Virtual family offices
Where a single family office is not the right fit due to cost and complexity, a virtual family office that leverages technology and virtual collaboration in an agile and multi-disciplinary setup can fill the gap and collaborate with a multi family office that offers services to other family offices. Finally, wealth managers still have a high-quality and broad offering that independent service providers can complement for comprehensive solutions.
A thorough assessment
Also, when designing an alternative setup, the groundwork is to understand your needs and the risks to be managed in detail. Technology assists in bundling individual services to panoramic wealth management solutions without depending on a one-stop-shop offering.
The multi family office baseline
The options are many, but the decision for the ideal wealth management setup is complex.
When should you consider a multi family office?
Suppose you are looking for high-quality services from the outset, more control and flexibility in wealth management, greater transparency on the investment process with objective performance metrics, diversification of asset managers and investments, and potential synergies with other families. In that case, you may feel comfortable with a multi family office.
The decision criteria
The critical decision criteria are needs and risks to be managed and how they translate into objectives and expectations to be met by the multi family office.
The multi family office industry
You will find many variations of the multi family office structure in the industry, but there’s no need to spot the one-stop shop that will solve all issues. Instead, the approach should be about building a diversified best-in-class wealth management services portfolio that avoids conflicts of interest and keeps you in control.
Separation of asset management and control
We believe in a strict separation of asset management and control to implement your wealth management strategy and to incentivize the performance and collaboration of the various integrated service providers. The same applies to trust and fiduciary services.
A structured process
A thorough evaluation process will ensure a cultural fit and a deep, long-term relationship. You don’t have to solve everything at once but can start with the core elements and constantly evolve the service landscape over time.
The best outcome
In our view, the best multi family office is a specialized boutique providing independent wealth management advice and performing an objective and structured provider selection to coordinate leading investment and wealth management services.
Such an office guarantees comprehensive oversight, monitoring, controlling, avoiding conflicts of interest, and enabling the single source of truth for your wealth in a highly customized wealth management arrangement.