How to deal with disputes in the family business?

How to deal with disputes in the family business?

Sound Management and the Family Business

A Family business is the pillar of family assets. A special attention should be given to it in a Family Charter. Who manages the Family Business? Family members and/or others? They may be assisted by consultants and advisers. How are Family directors and officers appointed? Are they remunerated? If yes, what is their legal status? Are they employees of the Family? How to remunerate them? The Family Charter should provide answers to these questions.

An intricate matter not to be ignored when drafting a Family Charter, is to clarify and set out the management roles of Family members and of non-Family members. Who will manage the Family Business? A Family member? An outsider? What are the prerequites for a Family member to sit on the Board of the Family Business? Are young Family members admitted to play a part in the management of the Family Business? On what conditions? How are the Family Business managers and/or directors remunerated? How to evaluate their performance? How are shares in the Family business transferred?

The easiest way to approach these matters is to assimilate the Family to a legal or a corporate entity, having its own existence and interests independently of its members. The reason for this approach is to set a tested framework for the purpose of managing the Family and its assets in the most professional and businesslike manner. Ultimately, the Family members shall benefit from such an overall unbiased management. Consequently, and as a result of such simulation, a Family may have a number of bodies to manage it. The Family Charter shall provide for a structure which may comprise of the following bodies:

  • A Family Assembly: It comprises of all direct Family members. Its operation and decision-making process follow the pattern of a general meeting of a company.
  • A Family Board: This board is the executive management arm of the Family. It runs its affairs. Its members are appointed by the Family Assembly from amongst Family members or non-Family members. As a matter of fact, the independent executive Board members play a crucial role within the Board, as their input and contribution are made without any outside influence or pressure.
  • A Family Council: It is the body that comprises of Family members elected by the Family Assembly. In families, with a large number of members, it is more practical and more efficient to have a Family Council. In its capacity as the Family’s representative, this Council deals with Family matters on behalf of all Family members. The Family Charter shall set out the role and powers of the Family Council. Its most important role is to inter-act between the Family Assembly and the Family Board.
  • Family Committees: These are specialized committees comprised of the Family members who share common interests. Relevant matters of concern to the Family may be submitted to them for perusal and issuance of related recommendations.
  • Family Office: This appointed body runs the Family day-to-day affairs. It implements the Family Board decisions. Typically, it consists of administrators, legal counsels and fund managers. Family Office executives are recruited on the basis of their education, skills and experience. Their main task is to tend to the needs of the Family and its members in all respects. Family Office services range from concierge services to the provision of highly technical financial and legal advices and opinions, which cover current or contemplated investments of the Family.

Mismanagement

A family business, just like any other business, is exposed to the mishandling of its affairs, and the mismanagement by those who have been entrusted with the same. Such mismanagement may materialize in a number of ways, and may be attributable to a number of factors: a Family officer acting intentionally, or negligently, or simply omitting to act when his/her action is required; or to the lack of skills required for the job.

The easiest way to assess the performance of a Family business directors, officers and executives (hereinafter “a Manager” or “Managers” as the context dilates), is to assimilate such business to a corporate business. The duties, in particular the fiduciary duties, laid upon a Manager are no different than those laid upon their counterparts in corporate concerns. Governance, in its widest sense, is equally required in Family businesses.

Family Office Managers are similarly bound by the duties of care and loyalty. Their fair dealings, on behalf of the Family, is not a virtue, but a genuine duty. They should exercise generally recognized best practices, in good faith, using sound business judgement at all times. The fact that a Family Office Manager is at the same time a Family member, elected, or designated, to assume a managerial function, does not exonerate him of such duties.

  • Liability and Accountability: We are inclined to consider a Family member, who is in charge of managing a Family business, more at fault when violating governing regulations, in-house or otherwise, such as laws and official directives, than if “strangers” to the Family perpetrate the same wrongful act. The blood and “next-of-kin” bond with those the wealth of whom have been put in a Manager’s hands, creates, somehow, a type of a personal charge that does not exist in concerns managed by people who do not have such relationship. As we know, a court of law, looking into a matter brought to its attention, may very well award damages to the Family resulting from the misperformance of a Manager. In the event of criminal wrongdoings, such member may, in addition to the payment of a monetary fine, be sentenced to confinement in jail.
  • Disputes with a Managing Family Member: Is a dispute that arises between a Family member, who holds an executive function in the Family Office, or in any other concern owned or controlled by the Family, and the managed entity considered a Family dispute? There are two possible ways to look at this intricate matter, which occurs quite frequently in Families, let alone in Family businesses. If we consider the dispute as a Family dispute, in some cases, other Family members may take sides and support the Manager whose performance is being questioned, against other Family members who challenge such performance. Some of these disputes end up creating cleavages among Family members, and may result in deadlocks that are detrimental to the Family business and could threaten its continuity. The more reasonable approach could be to consider the dispute as being simply a professional dispute; the route cause behind it should be assessed in an objective way, as if the Manager in question was a total stranger to the Family. A common wrongful act by Family Office executives, who are members of the Family, is what we refer to in corporate law as “self-dealing”. This type of dealing consists of the Manager causing the Family business to transact with a related party, thus creating a conflict between the interest of the Family and the personal interest of the Manager. A typical illustration of this conflict is when a Manager reaps financial, or reputational benefits, on the account of the Family business and, consequently, the Family members.

Family Finances

The Family Charter provides also for the management of Family funds, as well as for the rules governing their spending and distribution. The Family Board sets the strategies for the achievement of the Family financial objectives within guidelines normally set by the Family. It also provides for the regular financial reporting to g members (annual, quarterly, monthly). This reporting helps keep all Family members abreast of the performance of Family liquid and non-liquid assets and help them plan their own individual finances and investments.

Settlement of Family Disputes

Disputes among Family members are inevitable, especially when they share the ownership, and/or participate in the management, of a Family business. A well thought Charter addresses all possible controversial issues that may arise within the Family and is, in this respect, a mitigator of Family disputes, and a reducer of their frequency. It helps settle such disputes to a large extent. These disputes normally arise as a result of unclear situations. All members of a Family may not agree on the way profits realized by the Family are to be disposed of.

A Family Charter usually addresses financial matters, such as the acquisition and preservation of valuable assets, the maximization of the return of such assets. If the management and disposal of these assets are regulated, the occurrence of disputes over them is automatically reduced. Having said that, neither a Family Charter nor any other type of documents may prevent or help avoid acute Family disputes.

It is only the will and determination of at least one, or one clan, or one branch of the Family members who are in dispute, that are likely to minimize the adverse consequences of the non-settlement of the disputes, not only between or among them, but mainly on the Family as a whole. This may require concessions to be made. These concessions will prove to be precious gifts to the Family.

The Charter sets out a whole procedure for the settlement of the Family disputes: how to initiate the process? Who, or which body, to submit the disputes to? Arbitration by an arbitration panel? Private arbitration? Or, in a worst case, litigation before a specific court? https://lb.linkedin.com/in/saba-zreik-13122a18

family business

Saba Zreik

Manal Consultancy

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How is a Family Charter drafted?

How is a Family Charter drafted?

Drafting a Family Charter

The drafting of a Family Charter is not a difficult task, as long as its author is fully aware of what to provide in it.

The best Family Charters are those that the largest number possible of Family members contributes to. Participating in the drafting of a Family Charter, or contributing to its contents, is an important step that is indicative that the participant, or contributor and, of course, all Family members who sign it off have the intention to abide by its provisions.

The Charter is the baby of those who bring it to life. They will cherish it. The best way to tackle this task is to select, from the items addressed in the above sections, and other items that are of relevance or concern to the Family, those to be dealt with in the Charter.

The first draft of the Charter shall consist of provisions to be submitted to the Family members and circulated to all of them, through the “head” of the Family, or its patriarch, or through any other member who launches this project, if a different person. The initiator shall preferably own the assignment to manage the whole process, unless another person is found to be more appropriate to assume this task.

Once all comments are received, a second draft may be generated and circulated, in anticipation of a meeting to which the largest possible number of Family members will be invited to attend, in order to sign off the execution copy of the Charter; if there is no final agreement, many subsequent drafts may be required in order to reach a real consensus.

All discussion sessions are supposed to be open ones; each attending Family member being allowed to bring in new ideas and raise issues, opinions, concerns etc. The person leading the discussions about the Charter should always keep the participants in focus and aligned, to the extent possible, with the interests of the Family in mind.

The main objective of the Charter is to set a roadmap, not only for the existing and participating, or even non-participating, Family members, but more importantly for the future of the Family and those of its future members who are not born yet.

Family members should be allowed and even encouraged, if they so wish, to seek outside professional advice on any particular matter to be dealt with in the Charter. While the size or length of a Charter does not necessarily suggest the weight that such Charter carries in terms of clarity, we believe that a great deal of details ought to be included in a Charter to make sure it is comprehensive enough and does address all concerns.

Amending a Family Charter

Family Charters are not set in stone and need to be looked at as living frameworks, to be updated, as and when appropriate. While they may stay with the Family for many years to come, a great number of the variables that they will have been drafted under or along are doomed to change over the years.

These relate to the evolution that the world and the Family, invariably and continuously, witnesses. These variables affect the regulations and laws, societies and social units with what it entails in repercussions on the Families and their businesses. Family Charters have to follow. This is why the drafting of the Family Charter ought to adopt great flexibility in order to avoid any deadlocks in their implementation or amendment.

Withdrawing from a Family Charter

There are various reasons for leaving the Family business. The most common one being the wish to be independent, using his/her share of the Family wealth to create and develop own business. There are other reasons such as disagreements with Family members, or with the way the Family Office is being managed, or the Family wealth invested

One other reason is the ipso facto retirement resulting from the death of a Family member and the unwillingness of his/her heirs to continue in the Family business, or to join the Family Charter, and this even if the latter does provide for such situations. The real question is, since getting out of a Family charter does not mean getting out of a Family, the conduct of which the Charter is supposed to govern, can a Charter be still enforced on the retiring member?

The simplest answers is that all provisions of the Charter, which are of a monetary nature, such as investment and divestment of Family funds and distribution of Family funds, should remain in full force and effect vis-à-vis the retiring Family member.

The only exception will be in the event, by mutual consent, or by application of the Charter itself or similar document/agreement to the same effect, the assets attributable to the retiring member are automatically liquidated. As for the non-monetary provisions, I do not believe that they can be enforced on the retiring Family member. In all events, it will be wise, if not already included in the Charter, to regulate a Family member’s retirement in an addendum to it. https://www.linkedin.com/in/saba-zreik-13122a18/?originalSubdomain=lb

family business

Saba Zreik

Manal Consultancy

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High net worth family charters, protecting family and wealth

High net worth family charters, protecting family and wealth

A Family Charter should not be looked at as a piece of literature to work on, perfect and store in a drawer. It has a specific use and it should address a minimum of critical and important matters of concern to the family.

What is the Role of a Family Charter?

  • A Family Charter will help reduce any future frictions among family members. It entices them to keep the bond on, and the business in the Family; and provide them with a taste of the ingredients that have been behind the success of the business in the past, hoping that they will follow suit and that the generations to come will perpetuate such success and secure a stream of income to the Family members year after year.
  • It is by all means a Guide; a guide that provides directions for Family members with respect to the Family business and assets, addressing all their aspects and suggesting roadmaps to follow for the achievement of the Family objectives.
  • It is also a Family Bonding Agent. The earliest a Family Charter is entered into by Family members the best. It is essential that they do that at a time when the least issues are pending among them, so that they feel relaxed when attending meetings and going through discussions to address all matters of concern, with an open spirit, realistic approaches and a determination to reach a consensus over all topics to be included in the Charter. It builds a bond among the Family members and enhances the solidarity that is so crucial to the perpetuation and consolidation of such bond.
  • Governance rules and principles are no longer the privilege of, or the requirements in, listed corporations. They are useful in unlisted corporations and even in private companies and also, why not, in NGOs, and Families. A Family Charter is a Family Governance Organizer. In fact, it is a genuine governance tool. It addresses aspects regarding the functioning of a Family, its meetings, decisions, etc… It is a framework for Family members’ inter-actions. A Charter set for the Family members is a forum to exchange ideas and opinions and take decisions over issues and matters of mutual interest and concern, in an orderly and conclusive manner. A proper governance in running the Family affairs yields excellent results; it encourages and instills transparency and openness in administering the Family assets.
  • It is also a Succession Planner. It helps Family members plan their way forward. What are the Family bodies? Who manages them? How will the Family manage its succession? How will the assets be devolved once a Family member passes away? Who will get what? Moreover, which branch of the Family shall, if any, be entitled to lead? How does the control of a Family operate?
  • It can also be a Complementary Arrangement to more formal documents. In the event all or some of the Family members have already entered into some types of more formal arrangements, regulating their common business or assets; such as articles of association of their jointly owned companies; or shareholders agreements, etc…they can provide in the Family Charter for all items that have not been addressed in such documents. A lot of small details may not be appropriately set out in organizational documents that are typically public documents, and/or documents that are required at public official departments. Family secrets are better kept in side documents to whom only a limited number of persons have access. Hence, the Family Charters are ideal venues to house such secrets.

What are the Contents of a Family Charter?

Family Charters may never be identical, due to the fact that they are reflective of contents and concerns that are not unique, and are sometimes very different depending on the families, their belongings, creeds etc…. Below are some of the items that may be included in Family Charters; each Family may pick and choose, amend, add and cancel as best fits its particulars and specifics:

  • Family Vision and Mission Statement: Setting out, from day one, the Family Vision and Mission Statement helps the coming generations to use them as guidelines so that the main focus set by the main settlor, to become with the years an ancestor, is not lost over the years. The Family Vision is a genuine compass to show the way to the Family members and, more importantly, to tell them every now and then how far off they are from the borderlines that the Mission Statement will have drawn, as well as from their destination.
  • Family History: It will be interesting and rewarding for the descendants in the Family to know where their ancestors came from, where are their roots. Therefore, the Family Charter may elaborate on the Family background, setting out, when possible, a Family tree and, where applicable, a list of those Family members who have left their prints in the Family, in their community and in their country. Family history is probably the most unique and distinctive feature of what Family members have in common; it is made of ancestry, legacy and heritage.
  • Family Values: Moral, economic and political values may be included in a Family Charter, such as: Faith, Solidarity among Family members, Solidarity towards the public at large, Philanthropy and Charity, Patriotism and Nationalism, Integrity and High Morals, and as many other values as the culture of the Family wish to have embedded for its members to live by. One of the real values that seems to be overlooked by Family members, which needs to be mentioned in their Charter, is the “Health and Safety”. Needless to say that the COVID-19 pandemic, that changed the world, rings a loud bell. Members of the Family ought to organize, in a scientific way, the care of their own health. H&S directives are best reminders of their importance when built in a Family charter. The healthier Family members are, the better their performance is.
  • Family Assets and Family Business: Family Charters deal extensively with Family assets. These are of many types, depending on the Family’s wealth magnitude and investment policies and strategies. A comprehensive assets portfolio typically includes productive corporate assets, non-productive corporate and non-corporate assets, liquid assets and any other type of movable and immovable assets. Family Charters address the assets matter in terms of their ownership, preservation and maximization. What assets to acquire? to keep? to protect and how? what assets to dispose of and when? Family Charters may also stipulate that some real assets may never be sold, but rather leased out in order to generate income to sustain Family expenses.
  • Miscellaneous: In addition to the above, the Family Charter may include other topics, such as guidelines for charitable and philanthropic endeavors; Family members’ health care; Succession Planning, grounds for the amendment of the Family Charter and procedural means and ways for effecting such amendment, as well as any other matter that a Family feels that it needs to be raised or regulated in the Charter. https://www.linkedin.com/in/saba-zreik-13122a18/?originalSubdomain=lb
family business

Saba Zreik

Manal Consultancy

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The History of the Family Office

The History of the Family Office

It is often assumed that the acclaimed American family, the Rockefellers, pioneered the family office in the late 19th century. However, history suggests otherwise. While today’s family offices are a modern phenomenon, they have always existed in various shapes and forms since ancient times.

The discussion around family offices has intensified over the last decade as an increasing number of affluent families take a structured approach to their wealth management. Yet, we are not likely to ever find a uniform definition that encompasses everyone’s notions of what these offices should do or entail. To gain a better understanding of the variety of services that exist and are likely to emerge in the coming years, we must first examine the earliest manifestations of family offices.

The Family Office in History

In the distant past, wealth and possession were almost always connected to rulers and the ruling class because they were the only ones with the power and means to amass vast wealth. But what is often forgotten is that their fortunes needed the kind of management and stewardship that we can see today.

A good example of this is Emperor August Caesar, who ruled the Roman Empire from 27 BC-14 AD. Considered to be one of the wealthiest people that ever lived, he ruled an empire that generated approximately 25% of the global GDP. A great portion of the empire’s assets was directly owned by Caesar or by members of his inner circle, including Marcus Licinius Crassus, one of Rome’s leading politicians at that time.

But Caesar is just one of a long list of extremely wealthy rulers that include Emperor Shenzong (1048-1085) of China’s Song Dynasty, Alan Rufus (1040-1093) the first Lord of Richmond, Mansa Musa (1280-1337) the king of Timbuktu who became unbelievably rich from the gold production in Mali, and Akbar I (1542-1605) the greatest emperor of India’s Mughal dynasty.

Though these figures hail from different times and lands, they are united by one common trait – they shared their wealth with a trusted inner circle comprised of high-ranking officials and local representatives, who took on roles that are reminiscent of family office staff members today. This inner circle managed his estate, industries and businesses within his jurisdiction, the military, as well as the ruler’s lifestyle through a well-organised group of appointees.

Due to their position of power, most of these close confidants were also able to amass great wealth for themselves, and they in turn employed a number of people to care for their family and possessions. The head of such a team was often referred to as a ‘majordomo’, the highest (major) person of a household (domūs) staff.

In modern terms, these arrangements could be referred to as ‘embedded single-family offices’, in which family business staff members also help to manage the private wealth of the family. While these set-up’s are clearly not exactly comparable to today’s modern single-family office, the structures and motives are not dissimilar. The differences chiefly exist in what made people wealthy and the strategic allocation of their assets.

The Turn of the 19th Century

American industrialist, philanthropist, and private entrepreneur, John D. Rockefeller Sr., is often referred to as a crucial figure in the history of family offices. As co-founder of the Standard Oil Company, he controlled approximately 80% to 90% of the worldwide oil industry by the end of the 19th century. His fortune stood at $1.4 billion at his death in 1937, accounting for more than 1.5% of the US economy. Equivalent to approximately $255 billion today, Rockefeller’s wealth is considered to be one of the greatest in history.

In 1882, Rockefeller established an office of professionals to organize his complex business operations and manage his family’s growing investment needs. This office would manage his wealth as an investment portfolio instead of singular business entities, and his assets were consolidated under the Standard Oil Trust. This institutionalised set-up is generally considered to be the first modern single-family office, although at the time it was never referred to as a ‘family office’.

Generational planning formed an essential part of Rockefeller’s wealth management, as did his enormous engagement in philanthropic causes. Most of the family assets were over time organised under trusts, of which the majority still exists today.

Although other well-known names in U.S. history soon followed his example, it was only in the late 20th century that single-family offices grew in number and multi-family offices began taking shape. It was also around this time that the institutionalised single-family office concept crossed the Atlantic and appeared in Western Europe. Today, the spread of family offices have reached developing markets throughout Asia, Russia, and the Middle East.

The Problem with a Uniform Definition of the Family Office

As the interest in both single- and multi-family offices increases, the importance of understanding what they are and what added-value they bring are naturally on the rise. Surprisingly, a great number of affluent families and financial services providers alike struggle to define what a family office is and what type of services it offers. The global financial services industry has also yet to provide a uniform and comprehensive designation.

There are basic definitions of the family office that are commonly used but oversimplify the complex reality of the industry, such as:

  • A structure that manages the investments of an affluent family.
  • An entity that supports affluent families with everything.

In reality, family offices and the families they serve are much more multifaceted and diverse in their typology. There are also considerable differences between single- and multi-family offices, which further complicate the possibility of one overarching definition.

What is a Single-Family Office?

Single-family office activities are, in most cases, much broader or considerably different from the two basic definitions mentioned above. They generally develop over time in response to the unique and particular needs of the founding family. Their support can stretch far beyond just managing the investments of the family, but, due to the costs involved, there are almost no single-family offices that support their founding family with all their needs. Quite a number of family offices support the family only with their non-financial needs, such as tax and legal services, philanthropy or lifestyle management.

Interestingly, single-family offices often do not carry the title of ‘family office’ and it is not uncommon that a family does not realise that the services they have lined-up fall under the umbrella of family office services. This includes business-owning families that require one or more members of their corporate staff to support them with a wide range of personal matters.  Such an ‘embedded single-family office’, without a dedicated structure, one nowadays especially finds in emerging markets.

It is just as difficult to assess the total number of single-family offices as it is to define what they are. Most global statistics do not account for embedded single-family offices nor do they count single-family offices that operate without an investment license, resulting in wildly different estimates that range from the thousands to over ten thousand.

With so many interpretations and types in existence, the only inclusive definition of a single-family office is the following:

  • A single-family office is a privately controlled (group of) staff employed within or outside a dedicated structure that supports an affluent family with the organisation, management, and maintenance of all or parts of their assets, needs, and wishes.

What is a Multi-Family Office?

A strong multi-family office trend exists today, with new providers opening up almost weekly around the globe. One would think that the services offered by a multi-family office would be similar to those provided by a single-family office, with the exception being that the same services are offered to a number of families as opposed to one. However, the more important difference is that multi-family offices are almost always commercially operated companies that aim to generate profit for themselves in addition to the families they work with.

Today most jurisdictions neither protect nor regulate the use of the title ‘family office’. Any company can call itself a multi-family office and offer multi-family office services without having any specific qualification or experience. In most cases, services offered by multi-family offices are strongly tied to the backgrounds and expertise of the founding partners. A former tax lawyer setting up a multi-family office will most likely focus on structuring assets, while a multi-family office established by former bankers will probably provide investment services. And although these two are drastically different, both can call themselves a multi-family office.

Taking these variations into consideration, we can propose the following definition of the multi-family office:

  • A multi-family office is a privately controlled and commercially operated organisation that employs staff to support a number of affluent families with the organisation, management, and maintenance of parts of their assets, needs, and wishes.

The Future

Now that we have a better understanding of how family offices are classified, what developments in this industry can we expect in the coming years? All wealth reports predict that global wealth and the number of Ultra High Net Worth individuals will increase considerably in the coming decade. Single- and multi-family offices will continue to grow in number, not only because there will be more affluent families, but because families now want to exert more control over their wealth. Succession and next generation planning will also become important topics of discussion, especially in emerging markets, meaning that also those families will begin to look for a holistic approach to wealth management.

Although many service providers might start calling themselves private investment offices or family business advisories, they will ultimately be offering the typical family office services outlined above. As a result of the growing popularity of the concept, a number of jurisdictions will begin to introduce regulations. Those will probably only be covering financial consulting and trust services.

Just like the family-owned business that they serve, family offices are unique organisations that are distinct from one another. At the same time, they all aim to deliver similar types of services to the same type of clientele. They may develop over time and maybe even adopt different names, but they are and will continue to support affluent families with managing and maintaining their wealth for future generations. https://www.linkedin.com/in/jan-van-bueren-0a522111

These archived articles are written by authors no longer participating in the Family matters on line project. These articles may still be relevant however. If you want more information please do not hesitate to contact us and we will try to put you into contact with the original author or another expert in family matters.

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How to select your Multi-Family Office

How to select your Multi-Family Office

The constantly increasing number of wealthy families has, over the past years, had a strong effect on demand for wealth management services like Multi-Family Offices. Ever more wealthy business owners and families that have sold their businesses are considering a family office to support them with their wealth management, instead of standard wealth management services.

What is a Family Office?

A family office is normally set up as a privately-owned legal entity (or structure) and supports wealthy families with the management, organisation and maintenance of their global wealth. Although a family office can be used or established anywhere in the world, you will find them primarily in Europe (mainly in Switzerland, Monaco, Luxembourg and London) and the United States. Families can decide to set up their own single-family office (SFO), or make use of a multi-family office (MFO):

  • An SFO supports only one family, its legal structure is owned (or at least controlled) by that family and its services are made to measure to meet the needs of that family;
  • An MFO comes in all sizes, serving any number of families, ranging from only a couple to over a hundred. The legal structure is in most cases owned by the partners who manage the MFO, and it is also they who decide which services the MFO offers.

As an SFO is not economically feasible for most families, the majority of families end up opting for MFO services. Generally it can be said that for an SFO to be viable, family assets totalling at least $ 200,000,000 are required.

Recent trends for multi-family office services

As demand for MFO services increases, it could easily be concluded that the growth of the MFO industry is the automatic result of that; however, the supply side of this development should not be underestimated. Due to, amongst others, regulatory developments, the consolidation of the private banking industry, overall cost pressures on wealth managers and the “general hype” around MFO services over the last years, quite a few providers are entering or have already entered the MFO market with the aim of getting in on the action. So it is clearly not only demand but also supply that is feeding this trend.

While a large number of providers is generally considered a good thing in a free-market economy, given that this generates a variety of benefits – such as decreasing prices and a more competitive choice for consumers – the same does not automatically apply to the MFO industry.

What range of services is offered by a multi-family office?

There is no industry standard for what range of services an MFO should offer, and most MFOs tend to operate discreetly, off the high street, without giving an insight into their activities and what they actually offer clients. Moreover, the use of the term “family office” is, in almost all jurisdictions, neither regulated nor supervised, and even when it is, only lightly. Lastly, MFOs originate from very diverse backgrounds and tend to offer completely different ranges of services as a result.

Most MFOs only provide a small core of services in-house and coordinate a small number of other services on your behalf. Almost no family offices provide a very wide range of services. For these reasons, the MFO industry is very opaque, which is especially problematic for families looking to use MFO services. Or, as it is also sometimes put, “If you’ve seen one family office, you’ve only seen one family office”.

How to select your Multi-Family Office

It is therefore important for families who are considering using an MFO to compare providers carefully. An important starting point in this process is the origin of the MFO and its founders. Although this does not apply to all MFOs, the majority of them tend to focus on one or a limited number of services, which are closely related to the background of the founders. When the needs of the family are as closely related as possible to the main competencies of the MFO’s founders, the chances of a successful relationship are at its highest.

In this respect, several main types of providers can be defined:

  • Former wealth managers. This type of MFO focuses primarily on asset management, asset allocation, consolidated reporting, risk management and managing relationships with banks. These are often established by a small number of former bankers, and more recently there have even been smaller private banks repositioning themselves as MFOs.
  • Law firms/lawyers. Generally, these focus on estate planning, succession planning, family governance and a wide range of legal issues. Their services are often also related to the structure of the family business. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is regularly provided in-house.
  • Tax consultants/tax lawyers/accountancy firms. These focus on tax-efficient structuring, establishing and managing international structures for family businesses and real estate, international relocation, estate and succession planning, and audit and administration. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is mostly provided in-house.
  • Private banks or MFOs owned by private banks. These have a strong focus on asset allocation and asset management.
  • Trust providers/trustees. These focus primarily on setting up and administering structures such as trusts, foundations and holding companies, and providing audit and administrative services; some of these MFOs also focus on issues related to yachts and aircraft. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is almost always provided in-house.
  • A Single-Family Office opening up for other clients. This is a difficult category to define, as the services offered are often closely related to the original needs of the founding family. Most of them have a focus on asset management, consolidated reporting and risk management, combined with a limited number of other activities, such as real-estate or private equity investments.
  • Others. The final small but broad category, which includes MFOs founded by real-estate or private equity experts, asset allocation experts, former investment bankers, or for example, by people with a focus on lifestyle management.

What questions to ask when selecting a multi-family office

As every wealthy family has distinct needs, families should carry out proper research on the providers they visit and ask the right questions to get the necessary insight into what they are offering. Otherwise, there is a significant chance that, further down the line, they will not be satisfied with the services their MFO of choice is providing them with. In another article we will deal with some of the practical questions that families should ask when searching for the right MFO. https://ch.linkedin.com/in/jan-van-bueren-0a522111