A family office is a privately held entity that serves the financial and day-to-day needs of one family. The employees of the family office serve the family however they need, often crossing multiple generations.
The typical scope of service for a family office includes everything from investment and asset management to wealth transfer, governance, estate planning, bill pay, legal, and tax services. But they also can stretch beyond wealth-related tasks. Often a family office will facilitate family events, book travel, and care for the family’s many properties and assets across multiple states.
How Is a Multi-Family Office Different From a Single-Family Office?
Does the expense associated with hiring one full-time employee (perhaps several), paying benefits, and covering all expenses sound high? Enter multi-family offices (MFOs).
The multi-family office can offer many of the same services, but for multiple families (50–60 families is common). Clients are attracted to a higher level of personalized service than is typically provided by a private bank or brokerage provider without the complexity of managing employees.
MFOs offer a wide range of wealth management services, including financial planning, investment advisory, risk management, tax planning, and estate planning. Delivering these services in coordination with other professional advisors, such as CPAs, attorneys, and insurance specialists, is critical. With the multi-family office often taking the lead, the combined team provides services tailored to the needs of each family and can be adjusted according to their changing circumstances.
What Are the Benefits of a Multi-Family Office?
Multi-family offices have emerged as a popular solution for high-net-worth and ultra-high-net-worth families. MFOs offer several benefits to families with wealth.
- Cost savings.
- Reduced risk.
- Greater transparency.
- Access to investment opportunities that may not be available to individual investors.
1. Access to More Investment Opportunities
MFOs often have access to a wider range of investment opportunities than traditional wealth managers. Most wealth managers are limited to a proprietary or approved list of investment opportunities that are offered to all investors on their platform. MFOs can go anywhere to find the best investment solutions for each individual client. Additionally, MFOs have relationships with a network of other professionals, such as investment bankers, private equity firms, and hedge funds, that can unlock access to exclusive boutique investment opportunities.
2. Personalized Service
MFOs work closely with individual families to understand their unique goals, preferences, and circumstances. They are not locked into the standard solutions offered by many private banks. This partnership allows the MFO to develop strategies and investment plans that align with the specific needs of each family. The outcome is a more personalized and effective wealth management approach.
3. All-in-One Expertise
MFOs feature a diverse team of professionals with expertise in various areas, such as investment management, tax planning, estate planning, philanthropy and more. In addition, if expertise is needed in an area outside the scope of the MFO, the team can go find the resources, wherever they are, on behalf of the family. This wide range of specialized services ensures all aspects of a family’s financial affairs are considered.
What Services Does a Multi-Family Office Provide?
When looking for an MFO, look for one that can provide you with support in the following areas.
Legacy Planning and Management
Families that have accumulated wealth have more complex planning opportunities. An MFO can help you identify intended beneficiaries, manage business interests, ensure a smooth estate disposition, be tax efficient, and implement a plan that protects wealth for multiple generations.
Investment Strategy and Management
An MFO provides comprehensive investment management services that include managing a diversified portfolio of investments. The ideal MFO has expertise in private equity deals, hedge fund investments, real estate, natural resource management, and venture capital investments, in addition to the typical core parts of a diversified investment portfolio (stocks, bonds, liquid investments).
One of the major advantages of working with an MFO is access to a dedicated team of investment advisors. These money managers stay abreast of market trends and provide strategic investment advice using research available across the industry, not just a parent company. This team can help clients navigate chaotic market cycles, stay diversified and identify attractive investment opportunities that match their investment objectives.
Family Wealth Education
Family wealth education is often important in maintaining family unity and preventing money issues between generations. Younger generations need to be equipped with the financial literacy and skills necessary to manage family wealth responsibly and sustainably.
An MFO can support this by offering comprehensive services that include family governance and succession planning. They can act as a coach to help families navigate the complexities of wealth transfer and unique family dynamics. With the right education and support from an MFO, families can maintain unity and build a legacy that lasts for generations.
Wealth and Tax Planning
One of the key areas of support with wealth planning is cash flow planning. The MFO can help to manage short-term and long-term cash flow over multiple generations, ensuring that the family’s financial future is protected.
In addition to wealth management services, a multi-family office can provide expert guidance on other financial matters. For instance, taxes matter to most families. Coordinating tax efficiency with risk management, legacy goals, and philanthropic intent is designed to ensure that the family’s assets are protected and in compliance with tax laws and regulations. With the right expertise and experience, an MFO can help families minimize their tax liabilities and maximize their wealth.
There are different types of charitable vehicles that an MFO can employ to help families achieve their philanthropic goals. These vehicles include private foundations, donor-advised funds, and charitable lead and remainder trusts.
Business Transition Planning
Many high-net-worth families own businesses, and eventually, they face the challenge of ownership transfer or succession planning. An MFO can have a team of experts who are well-versed in the different options available to clients. Options might include selling the business, passing it down to heirs, or bringing in outside management. A strong team of advisors can provide clients with an objective analysis that considers factors such as business valuation, tax implications, legal agreements, and succession planning for key personnel.
Ownership transfer and succession planning are complex and emotional processes. The experts within an MFO understand this. They act as a neutral party to facilitate open communication among family members and business stakeholders. They help clients navigate the technical aspects of planning for the long-term success of the business.
Do You Need a Family Office?
So, how do you know if you need a family office? There are several factors to consider.
- Determine the complexity of your wealth. If you have multiple properties, large investment portfolios, business ventures, international assets, and other non-liquid assets, it may be time to consider engaging a family office. The more complex your wealth, the greater the demand on your time. It can become challenging for you to manage it all on your own.
- Do you have the desire to manage your wealth on your own? While some families enjoy the challenge of managing their investments and finances, others may feel overwhelmed, unsure, or uninspired by the task. If you find yourself in the latter category, it may be time to consider hiring a family office.
Having a family office to manage your wealth can offer peace of mind while allowing you to focus on other interests or passions.
If a family office could benefit you, schedule a time to speak with one of our advisors. We’d be happy to answer any questions you have.