Part I: Unpacking the Benefits of a Multi-Client Family Office (MFO)

It Takes a Village to Change Your Tax Domicile

By Neil Shapiro, TAG Associates Managing Director, Head of Family Office Services

A perception in the world of wealth management is that Single Family Offices are the best solution for the ultra wealthy, and Multi Family Offices are a good option for those a rung below. If family assets exceed $500 million to $1 billion, then set up an Single Family Office (SFO), the common logic goes. Anything less than that, and a Multi Family Office (MFO)is the right solution.

It is a misconception that we will explore in a series of articles about 1) why all ultra high net worth families should consider MFOs; 2) if a change is in the offing, how to identify the right time to make the transition from SFO to MFO; and 3) an exploration of the services offered by MFOs along with how to navigate the onboarding process.

Amidst the competitive landscape of financial and wealth management solutions, understanding the right strategies for effective resource optimization is a necessity for ultra high net worth families.

The Benefits of a Multi-Client Family Office: Efficient Wealth Management

What are the benefits of MFOs compared to SFOs? Overriding the traditional SFO approach, MFOs have swept into prominence, offering a more efficient, cost-effective, and holistic spectrum of services. We will highlight the key reasons why an MFO could provide a more fitting solution to your wealth management requirements.

Part 1

The Benefits of a Multi-Client Family Office: Efficient Wealth Management

For most of history leading up to the 21st century, Single Family Offices, along with multinational private banks, were seen as the holy grail of ultra high net worth wealth management. An entire staff dedicated full time to one family, and one family only, was the best, most effective way to manage a family’s complex finances, assets and ad hoc projects. But around the turn of the century, that began to change.

There was more wealth than ever, more complex and interconnected global financial systems than ever, and clients were more knowledgeable about finance than ever. That meant many ultra high net worth families started understanding the conflicts inherent at private banks selling products to them, and they started to understand the limitations of SFOs.

SFOs, while tradition-rich, run into unique challenges that can limit their potential. Due to these challenges, Multi Family Offices began to emerge as an attractive alternative to SFOs and private banks by utilizing cross-functional teams and shared resources to better manage wealth.

The Institutional Benefit of MFOs

Unlike SFOs, which need the family’s full commitment for management and maintenance, MFOs have the built-in leverage of institutional design. Having an SFO is the same as running another business, one that requires principal time commitment, and one that might be outside the family’s area of expertise.

Both attrition and concentration of leadership and staff, a significant management challenge in the world of SFOs, is almost completely removed in the world of MFOs, thanks to their size, cross-team coverage, and a back-up plan for leadership transitions. If any key team member of an SFO leaves, the burden is on the family to search for a new one. If an MFO team member leaves, the burden is on the MFO team, not the client family.

Cost-Efficient and Structural Advantages

Costs for SFOs lie entirely within one family and inevitably increase over time. The financial burdens of payroll, office space and technology costs, for example, are mitigated by working with MFOs. MFOs offer an indirect, more efficient corporate structure thanks to economies of scale and shared overheads.

Enhanced Investment Opportunities

With greater assets under management (other than the very largest SFOs run by household name families), MFOs have more leverage and broader reach when sourcing fund managers. MFOs are also viewed by the investment community as an attractive distribution channel to the ultra high net worth community. This allows for a greater and wider range of investment opportunities.

Further, when MFOs identify innovative investment or tax efficient investment ideas for one client they can evaluate its appropriateness to deploy to other clients. This results in increased or more tax efficient investment opportunities, something SFOs might struggle to have access to due to their limited staff or asset bases compared to MFOs.

Control, Privacy, and Discretion

SFOs provide full family control, privacy, and discretion, which are important for many wealthy families. But contrary to common misconceptions, sharing resources with other families in an MFO does not compromise privacy. MFOs, by acting as an agent for many families, may enhance a family’s ability to maintain privacy and discretion. The scale and/or regulation of an MFO necessitates enhanced data security systems and training of its staff that may not be easily, or cost efficiently, replicated in an SFO. The perception of better privacy at SFOs is not necessarily worth the cost that comes with it.

Holistic Services At reasonable cost

SFOs often have fewer services on offer to the family they serve versus an MFO. For example, MFOs may have expertise in areas like risk management, private aviation, or philanthropy. Adding these services at an SFO means accruing more costs or operational complexity, which is already a challenge for many SFOs.

SFO’s can certainly outsource these services, but that defeats the purpose of maintaining privacy. On the other hand, MFOs can provide a broad range of services to their clients at a reasonable cost thanks to shared resources among multiple families, and can almost always offer those services in-house. MFOs have many clients seeking similar services so, at a minimum, they understand the players in the industry and have sufficient data to know competitive terms and pricing.

Long-Term Sustainability

While scale and growth can pose challenges for SFOs, it is an enabler for MFOs. The larger pool of clients provides a rich diversity of experience, broadens the knowledge and resources available, and creates opportunities to expand service offerings without magnifying costs.

It is common for firms that started out as SFOs to eventually transition to MFOs. As families grow and branch out, as wealth gets passed on to the next generation and the family fortune becomes more diluted, the inefficiencies of running an SFO can become even more problematic. Frequently, the solution is to recruit other families to share in the costs, thus creating a modern MFO.

Multi Family Offices offer a more efficient organizational structure, reduced costs, access to diverse investment opportunities and comprehensive services, and a safeguard on privacy — all while enabling scalable growth.

In the next part of our series, we will explore how to be aware of the signals to make the transition to a MFO.