Family offices are 'in fashion'. A growing number of wealthy families are considering the use of a multi-family office and an ever-increasing number of companies are starting to offer multi-family office services.
A family office is a company that supports wealthy families with the management, organisation and maintenance of their wealth. Although there is no set minimum, the use of a multi-family office (MFO) is mostly considered by families with wealth above twenty five million US dollars.
In the context of increasing wealth worldwide, the rise of the family office model is a natural development: beyond a certain level of wealth, (financial) needs grow beyond pure private banking services and completing typical banking services with those offered by multi-family offices makes sense.
Where most (private) banks advertise, are well-recognised and their offices can be found in the main streets of cities such as Zurich, London, New York and Singapore, most MFOs are defined by their discretion. Also, as only a relative small group of people use family offices, it is not an easy task for a family to find and select the proper provider. That said, as a family's wealth and future well-being strongly depend on the selection of the right provider, the selection process should be taken very seriously.
No multi-family office is the same
Within the MFO universe there is no 'one size fits all' solution for every family. Most MFOs offer tailor-made and completely uncomparable services. Some of the providers are specialised in philanthropic or wealth planning services whilst others again focus more on lifestyle management or administrative services in order to improve the family's quality of life. This different angle is often related to the origin of the family office and the experience/background of its founders; indeed, whether the founder is a lawyer or a former banker will significantly impact the breadth of his offering. Even when MFOs offer (primarily) asset management services, significant differences may occur between the providers. There can, for example, be a focus on a certain type of investments, on pure asset allocation or on reporting and consolidation services. The type of client focused on, the size of family wealth or the region out of which clients are serviced also vary widely per provider.
An additional reason why MFOs are so diverse is the fact that to the exception of the United States and Luxembourg, they are not regulated in most jurisdictions – even though the asset management component of their activities is usually regulated by the financial supervisory authorities. As MFO services are offered to the public without a licensing procedure, this results in a very diverse offering with respect to both the actual services provided and the quality of those services.
How to properly select a multi-family office
The preservation and protection of wealth are often the main drivers behind the use of family office services. That is why the location of the actual office should lie at the heart of the selection process. A multi-family office should preferably be located in a politically and financially stable jurisdiction such as Switzerland, the United Kingdom or Luxembourg, in order to safeguard the wealth and wellbeing of the family under all circumstances. A family office which is located in the home country of the family can seem like the right fit, but might also eventuate to be the Achilles'heel of the whole set up at exactly the moment when stability and protection are needed by the family. Practice shows that it is this kind of considerations which are often overseen or ignored by families, either because they are not well advised or because they simply consider a set-up in their home country as being more practical.
What and why?
Apart from location, the type of services sought by the family ('what') is another important factor to take into account in the selection process, as most MFOs tend to focus on a specific selection of services – rather than on a wide array of them. And, as most providers cannot be compared in any way, it is also important that the family stakeholders establish which goals they actually seek to fulfill by engaging a family office ('why'). A family office can focus on giving the family insights on its financial situation, offering for example consolidated reporting and primarily uphold the contact with banks, or it can act as the coordinator of external advisors like trustees, lawyers, tax advisors and real estate agents. But it can also be focused on more practical and operational support, coordinating household staff, acting as a private secretary and making travel arrangements for the family.
Taking the process seriously
It is advisable to visit and analyse several providers before choosing an MFO. Knowing which questions to ask when visiting different providers, having a broad idea of what type of MFOs exist and what type of services they offer, are all important steps that can take time.
Where the primary motivation for a family in searching for an MFO is that they no longer want to deal with numerous banks and a large number of (financial) intermediaries themselves, our practical experience has been that families often do not know their own needs that well, or are not cognisant of what kind of services are offered by different MFOs. They thus have difficulties finding the 'right fit', i.e. the adequate MFO, which will offer them the best-suited services.
As the MFO market is far from transparent and it is not easy to compare different providers, families often commence their search by being referred by friends to the MFO which is utilised by them. Here it is often forgotten that different families have different goals and needs for MFO services, and that 'one size fits all' does not exist in the MFO industry.
Also, as for the choice of a private banker, the 'feeling' one has with the MFO staff is extremely important, as they become a part of the family's life and usually remain in place for generations. If only for this reason it is already advisable to visit and analyse several providers before deciding on which MFO provides the better match.
This article was first published in Family Office Elite Magazine, issue 1.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.