Multi family office
Encyclopedia
A Multi-family office is usually an independent organization that supports multiple families to manage their entire wealth.
in excess of $50 million.
A multi-family office (MFO) is a commercial enterprise established to meet the investment, estate planning and, in some cases, the lifestyle and tax service needs of affluent families.
MFOs can be created in one of three ways:
In the United States, many MFOs are registered investment advisors, some are trust companies and a handful are accounting or law firms.
concept has its roots back in the 6th century. Then a majordomo was a person who would speak, make arrangements, or take charge for the affairs of the royal family and its wealth. Later in the 6th century, the upper nobility started to use these services of the majordomo as well. Hence, the concept of administrator ship was invented and has prevailed until today.
The modern concept and understanding of family offices was developed in the 19th century. In 1838, the family of J.P. Morgan founded the House of Morgan, which managed the families’ assets and in 1882, the Rockefellers founded their family office, which prevailed until today.
Many family offices have started their business as so called single family office
s, where the family owns the family office and serves only the owner family. Instead of covering the entire operative costs, many owners of single family offices decided to offer its services to other families as well. This concept is called multi-family office or multi-client family office. Only a few multi-family offices have founded their business independently, without a large family backing it.
In addition, the development of the multi-family office came as a result of the growing number of wealthy families, as well as the rapid developments in technology within the financial markets which required greater sophistication and skill in financial advisors in the 1980s and 1990s. The difficulty in attracting and retaining such talented employees became more difficult. These changes, combined with the consolidation of the financial services industry, significantly diminished the role of the bank trust departments that traditionally served the wealthy families. These trends resulted in an increased need and cost for family office-type services. To defray such costs many families opened their family offices to non-family members, resulting in multi-family offices.
Independence: MFOs typically do not sell (traditional products that a family might typically encounter from a brokerage firm) and generally are not compensated for the products utilized by clients. MFOs usually follow a “service delivery model” holding themselves out as an objective provider of advice that places the interests of their clients first.
Breadth and Integration of Services: MFOs provide a wide array of services and typically oversee their clients’ entire financial universe. MFOs will have full information about their clients investments, tax situation, estate plan and family dynamics. With this information the MFO can assist in structuring and administering the clients’ financial universe in an optimal fashion.
Professionals with Diverse Skills and Deep Specialties: MFO professionals provide a wide array of advice and assistance to their clients. MFOs also have to be able to provide specialty knowledge on certain topics such as: income taxation, estate planning, and investments.
High Touch Services: MFOs have high average account sizes (usually in the tens of millions) and low client to employee ratios (around 3 to 1 range). Large account sizes combined with low client-to-employee ratios allows a great deal of focus and attention on each client family. Meetings with clients often occur many times a year.
Multi-Generational Planning: MFOs typically work with an entire family – the patriarch/matriarch, their children and grandchildren. Planning encompasses the family’s goals which typically includes passing wealth down to lower generations in a tax efficient manner. Children and grandchildren are clients and are counseled on investments, taxes, estate planning, and philanthropy from an early age. MFOs often coordinate and moderate family meetings for their client families.
Outsourcing: MFOs do not typically provide all services in-house. It is common for some of the investment management
to be outsourced to independent money managers. Custody and tax return preparation are also commonly outsourced.
Focus on Taxable Investor: Most MFOs have a myopic focus on taxable investors as the bulk of their client's assets are subject to short and long term capital gains. This is unique to very high net worth families. Most investment research (academic and financial service industry) is geared toward the institutional investor and foundations (with very different tax concerns than individuals and families). The bulk of the research done for the individual investor relates to 401ks and IRAs.
Class A Family Offices are operated by an independent company that receives direct oversight from a family trustee or administrator. A typical Class A family office:
Class B Family Offices are operated by a bank, law firm, or accountant firm. A typical Class B family office:
Class C Family Offices are operated by the family with the assistance of a small support staff. A typical Class C family office:
• The industry grew to $170 Billion of assets under management in 2003, a 17% increase over the prior year; in 2004, the increase was 26.6%
• MFOs manage an estimated 10% of the wealth of all ultra-high-net-worth-families.
Definition
Multi-family offices typically provide a variety of services including tax and estate planning, risk management, objective financial counsel, trusteeship, lifestyle management, coordination of professionals, investment advice, and foundation management. Some multi-family offices are also known to offer personal services such as managing household staff and making travel arrangements. Because the customized services offered by a multi-family office can be costly, clients of a multi-family office typically have a net worthNet worth
In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
in excess of $50 million.
A multi-family office (MFO) is a commercial enterprise established to meet the investment, estate planning and, in some cases, the lifestyle and tax service needs of affluent families.
MFOs can be created in one of three ways:
- a single family officeFamily officeA family office is a private company that manages investments and trusts for a single wealthy family. The company's financial capital is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and...
opens its doors to additional clients or merges with another single family office - as a start up by a team of advisors (typically with some combination of investment, tax and or legal professional credentials)
- an existing financial institution (most often a bank or brokerage firm) creates an MFO subsidiary or division.
In the United States, many MFOs are registered investment advisors, some are trust companies and a handful are accounting or law firms.
History
The family officeFamily office
A family office is a private company that manages investments and trusts for a single wealthy family. The company's financial capital is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and...
concept has its roots back in the 6th century. Then a majordomo was a person who would speak, make arrangements, or take charge for the affairs of the royal family and its wealth. Later in the 6th century, the upper nobility started to use these services of the majordomo as well. Hence, the concept of administrator ship was invented and has prevailed until today.
The modern concept and understanding of family offices was developed in the 19th century. In 1838, the family of J.P. Morgan founded the House of Morgan, which managed the families’ assets and in 1882, the Rockefellers founded their family office, which prevailed until today.
Many family offices have started their business as so called single family office
Family office
A family office is a private company that manages investments and trusts for a single wealthy family. The company's financial capital is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and...
s, where the family owns the family office and serves only the owner family. Instead of covering the entire operative costs, many owners of single family offices decided to offer its services to other families as well. This concept is called multi-family office or multi-client family office. Only a few multi-family offices have founded their business independently, without a large family backing it.
In addition, the development of the multi-family office came as a result of the growing number of wealthy families, as well as the rapid developments in technology within the financial markets which required greater sophistication and skill in financial advisors in the 1980s and 1990s. The difficulty in attracting and retaining such talented employees became more difficult. These changes, combined with the consolidation of the financial services industry, significantly diminished the role of the bank trust departments that traditionally served the wealthy families. These trends resulted in an increased need and cost for family office-type services. To defray such costs many families opened their family offices to non-family members, resulting in multi-family offices.
Characteristics
MFOs tend to have the following characteristics:Independence: MFOs typically do not sell (traditional products that a family might typically encounter from a brokerage firm) and generally are not compensated for the products utilized by clients. MFOs usually follow a “service delivery model” holding themselves out as an objective provider of advice that places the interests of their clients first.
Breadth and Integration of Services: MFOs provide a wide array of services and typically oversee their clients’ entire financial universe. MFOs will have full information about their clients investments, tax situation, estate plan and family dynamics. With this information the MFO can assist in structuring and administering the clients’ financial universe in an optimal fashion.
Professionals with Diverse Skills and Deep Specialties: MFO professionals provide a wide array of advice and assistance to their clients. MFOs also have to be able to provide specialty knowledge on certain topics such as: income taxation, estate planning, and investments.
High Touch Services: MFOs have high average account sizes (usually in the tens of millions) and low client to employee ratios (around 3 to 1 range). Large account sizes combined with low client-to-employee ratios allows a great deal of focus and attention on each client family. Meetings with clients often occur many times a year.
Multi-Generational Planning: MFOs typically work with an entire family – the patriarch/matriarch, their children and grandchildren. Planning encompasses the family’s goals which typically includes passing wealth down to lower generations in a tax efficient manner. Children and grandchildren are clients and are counseled on investments, taxes, estate planning, and philanthropy from an early age. MFOs often coordinate and moderate family meetings for their client families.
Outsourcing: MFOs do not typically provide all services in-house. It is common for some of the investment management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
to be outsourced to independent money managers. Custody and tax return preparation are also commonly outsourced.
Focus on Taxable Investor: Most MFOs have a myopic focus on taxable investors as the bulk of their client's assets are subject to short and long term capital gains. This is unique to very high net worth families. Most investment research (academic and financial service industry) is geared toward the institutional investor and foundations (with very different tax concerns than individuals and families). The bulk of the research done for the individual investor relates to 401ks and IRAs.
Benefits
MFOs may have one or more of the following benefits:- Objective financial advice
- Creative solutions to financial issues
- Clearinghouse for financial, investment, tax and estate planningEstate planningEstate planning is the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses...
ideas - Cross-fertilization of ideas resulting from solving issues for multiple families
- Services are typically “all you can eat” for asset based fee or flat retainer fee
- Advice from professional team with diverse backgrounds
- Coordination of other advisers
- Proactive advice – a function of low client to employee ratio and frequency of meetings
- Delivery of “best of breed” money managers, custody, insurance, loans, etc.
- Negotiated cost savings with other financial providers (e.g. investment management, custody, trading costs)
- Integration of client’s estate planning, income taxes, investments, philanthropic goals and family situation
Modern Family Offices
Modern family offices are typically separated into three classes:Class A Family Offices are operated by an independent company that receives direct oversight from a family trustee or administrator. A typical Class A family office:
- Offers comprehensive financial oversight of all liquid financial assets.
- Offers daily management of all illiquid assets, such as real estate.
- Can administer and manage the entire estate with little to no supervision.
- Charges a flat monthly fee for all family office services.
- Offers advice free from conflicts of interest and will not sell products.
- Offers a comprehensive monthly report of all estate activity for no additional fee.
Class B Family Offices are operated by a bank, law firm, or accountant firm. A typical Class B family office:
- Offers investment advice for a fee.
- Can offer products and services outside the scope of a family office.
- Does not directly manage or administer illiquid assets in the estate.
Class C Family Offices are operated by the family with the assistance of a small support staff. A typical Class C family office:
- Has a staff that will monitor the estate and report into the family trustee with any irregularities.
- Provides basic administrative functions, such as bookkeeping and mail sorting.
- May have an office inside a family member's home.
Typical services provided
- Trustee Services
- Coordination of Professionals
- Cash Management
- Global Asset Allocation and Investment Strategy Consulting
- Comprehensive Performance Reporting
- Investment Manager Selection and Monitoring
- Portfolio Management
- Estate Planning
- Philanthropic Planning
- Life Insurance Analysis
- Debt Structure and Analysis – Bank Financing
- Tax Return Preparation
- Foundation Management
- Entity Administration (FLPs, CLTs, CRTs, Installment Sales, etc.)
- Aircraft Consulting
- Risk Management & Asset Protection Consulting
- Fraud Detection/Accountability
- Real Estate Management
- Family Business Advisory
- Family Counseling/Family Meetings
- Sufficiency and Retirement Planning
- Document Management and Recordkeeping
- Bill Payment Services
- Personal Financial Statement Preparation
Miscellaneous
• The term Multi-Family Office (“MFO”) is becoming commonplace in the financial services market.• The industry grew to $170 Billion of assets under management in 2003, a 17% increase over the prior year; in 2004, the increase was 26.6%
• MFOs manage an estimated 10% of the wealth of all ultra-high-net-worth-families.
See also
- Family OfficeFamily officeA family office is a private company that manages investments and trusts for a single wealthy family. The company's financial capital is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and...
- List of family offices in Switzerland
- Private foundationPrivate foundationA private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...
- Investment managementInvestment managementInvestment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...