Single-Family Office And Multi-Family Office: Which Type Is Right For You?
As wealth accumulates, so does financial complexity. For this reason, many wealthy individuals pursue a holistic and multi-disciplined style of managing wealth through family offices. Do not worry—family offices vary in source (single-family or multi-family) and size (assets under management), therefore you don’t have to be Bill Gates or descendants of Rockefeller to understand and consider this approach to wealth management.
What is a single-family office and a multi-family office? In this article, we will focus on each type of family office to help you explore what type of is right for you.
What Is A Single-Family Office?
A single-family office (SFO) is a private wealth management entity set up to manage the financial affairs of a single family, bringing together various professionals with different backgrounds and areas of expertise to round out a comprehensive team, selected to reflect the specific needs of the family. Beyond helping the family manage their investments, whether internally or through external asset managers, family office staff may include legal and tax professionals, specialists in philanthropy, and private equity analysts, among others.
The team may also cater to lifestyle considerations through what are called “concierge services,” which could include helping family members make travel arrangements and assisting with errands. For large families anticipating significant wealth transfer, family governance discussions and ongoing education may also be important services to consider in evaluating this process and setting up family members for success.
Curating a team of professionals specifically to look after the finances of a single family can of course be a costly venture, as the family would be responsible for staff member salaries, office premises costs, and equipping the team with technology and resources, among other considerations. However, the weight of these expenses scales down with relative asset size, such that the larger the family net worth, the less onerous these costs are in relation to the growth of investments and added value received.
While there is no true standard level of wealth that would merit the use of an SFO, families with this structure are typically ultra-high-net-worth in nature with wealth in the hundreds of millions, or billions, of dollars. They tend to have complexity of goals, constraints or planning considerations sufficient to call for this level of service and justifying the cost relative to value that can be added.
What Is A Multi-Family Office?
A multi-family office (MFO), on the other hand, provides professional services and wealth planning oversight akin to those offered by an SFO, but shares the team, resources, and costs with a group of families or individuals. Professionals employed and services offered at an MFO tend to be core financial services, such as investment management and tax advisory, to appeal and fit more broadly with different pictures of wealth and sets of needs.
While services offered at an MFO tend to be smaller and more general than those of an SFO, the cost sharing aspect of MFOs make them are more affordable and accessible to those who require sophisticated and comprehensive wealth management. There are, however, some other considerations to be mindful of in assessing the fit with a particular MFO.
For instance, it may be that a particularly wealthy family dominates the time and focus of the team, such that other, smaller clients are crowded out and may not receive the attention that they expect. Care should also be taken to ensure that the MFO’s service offering aligns with what the family actually needs, so that unnecessary services and their contribution toward the overall costs do not erode or impede the accumulation of wealth or the success of strategies deployed.
Which Type Of Family Office Is Right For You?
While a family office approach to wealth management can add great value through the involvement of key professionals and the application of their skillsets, ensuring that your needs are matched with the appropriate setup is critically important.
Committing to forming your own single-family office, where you will receive the highest level of customization in terms of service offering makes sense only if you can justify its added cost. Conversely, complex family wealth requiring specialized services due to asset location, family dynamics or specific goals may make it difficult for you to find a MFO with an appropriate service offering, so your situation may call for establishing your own team.
Take time to reflect on your goals and needs. Once you have identified at least the general skillsets and expertise you require, you may wish to consult professionals across the relevant disciplines to assess the scope of work, along with the corresponding fees, to evaluate the costs of setting up a family office relative to the wealth you seek to manage.
As a last note, you may also wish to consider simultaneously interviewing a few multi-family offices to provide you with an understanding of their existing service offerings and costs. Juxtapose your research with each approach to see where your specific situation can benefit the most with the best efficiency of cost and effort.
Bloom Investment Counsel, Inc. is a well-established Toronto-based independent, privately-owned boutique investment management firm providing customized, actively managed, Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.
Founded in 1985, Bloom has experience in managing in excess of $2.5B in assets over the years. We believe that generating independent cash flow is central to the success of our clients’ portfolios because it provides capital for the present day, if needed, while continuing to preserve and build wealth for the future.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.