The constantly increasing number of wealthy families has, over the past years, had a strong effect on demand for wealth management services. Ever more wealthy business owners and families that have sold their businesses are considering a family office to support them with their wealth management, instead of standard wealth management services.
What is a family office?
A family office is normally set up as a privately-owned legal entity (or structure) and supports wealthy families with the management, organisation and maintenance of their global wealth. Although a family office can be used or established anywhere in the world, you will find them primarily in Europe (mainly in Switzerland, Monaco, Luxembourg and London) and the United States. Families can decide to set up their own single-family office (SFO), or make use of a multi-family office (MFO):
- An SFO supports only one family, its legal structure is owned (or at least controlled) by that family and its services are made to measure to meet the needs of that family;
- An MFO comes in all sizes, serving any number of families, ranging from only a couple to over a hundred. The legal structure is in most cases owned by the partners who manage the MFO, and it is also they who decide which services the MFO offers.
As an SFO is not economically feasible for most families, the majority of families end up opting for MFO services. Generally it can be said that for an SFO to be viable, family assets totalling at least $ 200,000,000 are required.
Recent trends for multi-family office services
As demand for MFO services increases, it could easily be concluded that the growth of the MFO industry is the automatic result of that; however, the supply side of this development should not be underestimated. Due to, amongst others, regulatory developments, the consolidation of the private banking industry, overall cost pressures on wealth managers and the “general hype” around MFO services over the last years, quite a few providers are entering or have already entered the MFO market with the aim of getting in on the action. So it is clearly not only demand but also supply that is feeding this trend.
While a large number of providers is generally considered a good thing in a free-market economy, given that this generates a variety of benefits – such as decreasing prices and a more competitive choice for consumers – the same does not automatically apply to the MFO industry.
What range of services is offered by a multi-family office?
There is no industry standard for what range of services an MFO should offer, and most MFOs tend to operate discreetly, off the high street, without giving an insight into their activities and what they actually offer clients. Moreover, the use of the term “family office” is, in almost all jurisdictions, neither regulated nor supervised, and even when it is, only lightly. Lastly, MFOs originate from very diverse backgrounds and tend to offer completely different ranges of services as a result. Most MFOs only provide a small core of services in-house and coordinate a small number of other services on your behalf. Almost no family offices provide a very wide range of services. For these reasons, the MFO industry is very opaque, which is especially problematic for families looking to use MFO services. Or, as it is also sometimes put, “If you’ve seen one family office, you’ve only seen one family office”.
How to select your Multi-Family Office
It is therefore important for families who are considering using an MFO to compare providers carefully. An important starting point in this process is the origin of the MFO and its founders. Although this does not apply to all MFOs, the majority of them tend to focus on one or a limited number of services, which are closely related to the background of the founders. When the needs of the family are as closely related as possible to the main competencies of the MFO’s founders, the chances of a successful relationship are at its highest.
In this respect, several main types of providers can be defined:
- Former wealth managers. This type of MFO focuses primarily on asset management, asset allocation, consolidated reporting, risk management and managing relationships with banks. These are often established by a small number of former bankers, and more recently there have even been smaller private banks repositioning themselves as MFOs.
- Law firms/lawyers. Generally, these focus on estate planning, succession planning, family governance and a wide range of legal issues. Their services are often also related to the structure of the family business. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is regularly provided in-house.
- Tax consultants/tax lawyers/accountancy firms. These focus on tax-efficient structuring, establishing and managing international structures for family businesses and real estate, international relocation, estate and succession planning, and audit and administration. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is mostly provided in-house.
- Private banks or MFOs owned by private banks. These have a strong focus on asset allocation and asset management.
- Trust providers/trustees. These focus primarily on setting up and administering structures such as trusts, foundations and holding companies, and providing audit and administrative services; some of these MFOs also focus on issues related to yachts and aircraft. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is almost always provided in-house.
- A Single-Family Office opening up for other clients. This is a difficult category to define, as the services offered are often closely related to the original needs of the founding family. Most of them have a focus on asset management, consolidated reporting and risk management, combined with a limited number of other activities, such as real-estate or private equity investments.
- Others. The final small but broad category, which includes MFOs founded by real-estate or private equity experts, asset allocation experts, former investment bankers, or for example, by people with a focus on lifestyle management.
What questions to ask when selecting a multi-family office
As every wealthy family has distinct needs, families should carry out proper research on the providers they visit and ask the right questions to get the necessary insight into what they are offering. Otherwise, there is a significant chance that, further down the line, they will not be satisfied with the services their MFO of choice is providing them with. In another article we will deal with some of the practical questions that families should ask when searching for the right MFO.
Jan van Bueren is Global Head Family Office Advisory and Thomas Ming is Senior Family Office Advisor at Union Bancaire Privée. They are the Founders of UBP’s award-winning family office advisory service ‘FOSS Family Office Advisory (www.family-office-advisory.com).