Family Offices – What investors should know about them

Family Offices – What investors should know about them

The Family Office can help if the private wealth has become extensive and complex. Finding a suitable partner is essential. To enable successful, i.e. profitable, management of assets, Family Offices must meet specific quality requirements such as personal integrity, high professional standards and service orientation. Due to increasing complexity and internationalization, advice from independent external legal advisors is indispensable in order to guarantee high-level expertise. Mandating large law firms can be advantageous for liability reasons.

The Family Office concept

Depending on the context in which it is used, the term “Family Office” can have very different meanings. Some talk of it in a quite derogatory manner as “butler of the rich”, others as “high-level secretarial services”.  It is true that Family Office services are rendered in the context of mostly large fortunes. Here, the term Family Office should be understood as an organizational unit in which all services relating to the management of private wealth will be managed externally in a business structure.

Nowadays, Family Offices are in operation all around the world. Previously, Family Offices were common particularly in the United States and Europe. Today, Family Offices are also gaining increasing importance in Asia (Hong Kong, Singapore). In Europe, Switzerland must be regarded as the centre of Family Offices alongside London. Although there are no precise figures, 300 to 500 Family Offices are supposedly engaged in the Family Office business in Switzerland.

One assumes that all over Europe there are about 4,000 firms each with assets of at least 100 million USD under management. Of these, approximately 750 are organized as Single Family Offices, i.e. as corporations set up to render services for one particular family. The remainder are so-called Multi Family Offices, i.e. units in which the services are bundled for the assets of several individuals.

Where does the concept of Family Offices come from?

The stewardship itself is not a phenomenon of modernity. Rather, the roots date back to the 6th century when the major-domo took over the management of the assets for his dominion. The modern concept of Family Offices was developed in the 19th century. In 1838, the family JP Morgan founded the House of Morgan for the administration of the family’s assets. In 1882, the Rockefeller family set up a comparable entity.

Why have Family Offices enjoyed such a boom in recent years?

A major reason for this is the general increase in the concentration of wealth, followed by all needs arising from this in terms of the protection and growth of a large fortune.

At the same time, many wealthy investors had very negative experience with conventional investment advice from their banks during the last financial crisis. Consequently, they have been looking for independent investment advice and have found an option in the concept of Family Offices.

Additionally, this form of organization meets the increasing need of most investors for discretion. Not only externally, but also vis-à-vis the banks involved and investment providers, they do not want to disclose their financial circumstances fully and in detail. Here, a Family Office offers a shielding or at least filtering effect.

Finally, the legal and administrative requirements for investors have increased enormously in recent years. Firstly, because investors are increasingly focusing on real assets whose management is more complex than the mere holding of an indirect investment through a financial product. Secondly, this is a consequence of the generally increasing internationalization of investments.

What services offered by Family Offices can investors benefit from?

Classically, professional Family Office services include aspects such as asset planning, asset management, asset controlling, asset protection as well as legal and tax compliance.

The range of possible supplementary services is extremely wide and limited only by the individual needs of the asset owners. Such services can comprise administrative support, providing personnel, managing selective private matters, through to the complete lifestyle management of the asset holder.

At what point does a Family Office make sense?

In simple terms, working with a Family Office is always worthwhile if the private wealth has become so large and complex that neither the time nor the know-how for its self- administration are available.

However, the operational costs of running a Family Office can be significant. The reason is that the team of specialists is kept exclusively for the purpose of the asset owner. Therefore, as a general rule, the establishment of a Family Office only makes sense economically for really large fortunes. Fixed limits can hardly be defined, since the individual needs of the asset holder and the individual demands resulting from the asset structure vary to a large extent. As a basic rule, however, one can say that in Switzerland a fortune of between 400 and 500 million CHF is considered to be the minimum amount for setting up a Single Family Office.

But even without the full exclusivity of (and control over) a Single Family Office, wealthy investors can benefit from Family Office services by pooling their interests in Multi Family Offices. This form of pooling may include benchmarking, better investment terms or access to investment opportunities / high-profiling networks through higher investment volumes. In Europe, Multi Family Offices serve an average of 10 to 15 clients with total assets under management of some 25 to 50 million USD.

However, the success of this type of bundling depends to a crucial extent on the assumption that the specific client profiles are comparable to each other. Managing assets that are mainly invested in Asian financial market instruments will hardly generate synergies for managing European real assets.

Success factors – what makes a Family Office a good Family Office?

The decision in favour of a Family Office – whether a Single or a Multi Family Office – is a significant and mostly far-reaching decision. There are numerous companies that offer Family Office services. The problem is that “Family Office” is not a protected term and thus anyone can offer Family Office services without having any specific qualification or experience.

Based on the demands in terms of the successful, i.e. profitable, management of larger assets, the following skills are of particular importance.

  • Personal Integrity: A Family Office is not only an asset manager but also a close intimate of the client with a deep insight into highly personal matters. Thus, personal integrity and confidentiality are indispensable.
  • High Professional Standards and Expertise: Decisive for the quality of the consulting services is a high level of competence on the part of the Family Office employees such as attorneys, tax consultants, asset managers etc.
  • Service Orientation: One of the major reasons for holders of considerable assets to mandate a Family Office is severe time restraints. Given this situation, they expect a very high degree of flexibility from their advisors. Whether or not the collaboration turns out to be successful depends very much on each advisor’s ability to comply with the client’s needs and preferences.
  • Network: The quality of the services rendered also depends on how well the Family Office is networked to experts advising within comparable settings. Consequently, it is most helpful to have a network comprising advisors of other Family Offices, thus enabling the advisors to benefit from each other’s expertise or networks.
  • External Expertise: Mainly because of the increasing complexity and internationalization of investments, it is important that the Family Office consultants realize when it is advantageous or even necessary to mandate an external consultant. Smaller entities in particular cannot afford to employ several specialists within the same department.  In legal departments, for example, it would be very difficult for one single person to constantly monitor legal changes in all relevant fields and to react proactively to future changes. Here, large law firms that provide highly specialized services can be of assistance, especially those focused on private clients. These teams can offer all required legal advice on civil law, corporate law, tax planning, asset protection etc. They can contribute not only high-level expertise but are also very familiar with this market segment and its specific rules. Most effectively, they can provide solutions they have already developed for other clients in comparable situations and that turned out to be helpful. Finally, the advice of a large external law firm can be advantageous for liability reasons as well, since such law firms tend to have higher levels of insurance cover. http://www.heuking.de

Dirk W. Kolvenbach is a German attorney at law and Senior Partner with HEUKING KÜHN LÜER WOJTEK in Zurich and Dusseldorf. Further, he is the head of the Practice Group “Private Clients” and a renowned specialist in all Private Clients matters (e.g. succession, asset protection and transaction).

Dirk W. Kolvenbach

Dirk W. Kolvenbach

Heuking Kühn Lüer Wojtek
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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Do I need a Single or Multi-family Office?

Do I need a Single or Multi-family Office?

An increasing amount of high earning business owners and families who have sold their businesses are turning to family wealth management offices to support them, instead of standard wealth management services.

When families weigh up the question of whether to set up their own single-family office (SFO) or use the services of an existing multi-family office (MFO), they often overlook the matter of the jurisdiction in which that family office should be. This is actually an essential element that deserves serious thought.

There are quite a few questions that need answering before deciding on the jurisdiction for a family office:

  • In which jurisdiction does the family need support?
  • What are the family’s goals?
  • What should the legal form be?
  • Which of the family’s (corporate) entities need to be managed, and by whom?
  • Which assets need to be preserved and protected?

All these considerations apply when establishing an SFO or choosing an MFO. You also need to select a country that is politically, economically and financially stable, provides easy access to financial service providers, and offers a sound infrastructure, and where staff is highly qualified and experienced.

A common mistake families make is to choose or create a family office in the same jurisdiction as where they live. Although this can be very practical, for example from a communication point of view, this is often not the best choice when examined from a wealth-preservation perspective. Because one of the primary roles of a family office is to safeguard assets, and to be able to assist the family under all kinds of circumstances.

A family office for wealth preservation

This means that the family office needs to be able to protect the family’s assets and interests against geographical, political, religious, personal and economic risks, while remaining fully operational under any circumstances.

Therefore, it is only logical that the family office should be located in a secure jurisdiction. Because unstable and unsafe jurisdictions outnumber the stable and safe ones by far, the majority of family offices will need to be located outside the home jurisdiction of the families they serve. This does not necessarily mean that the entire staff or all services must be located in a foreign jurisdiction; roles such as local secretarial support, lifestyle management services and local real estate management can be (partially) based in the family’s original jurisdiction.

In addition to providing stability and security, the jurisdiction of the family office must also:

  • Be easily reachable
  • Be tax-efficient
  • Allow the office to manage the family’s entities efficiently (holding companies, trusts, foundations, etc.)

Finally, most family offices prefer to be located in a jurisdiction known for having a reputable financial centre. It considerably simplifies the activities of a family office when it is in the vicinity of stable private banks and financial specialists with solid reputations and lots of experience.

All the essential requirements highlighted above ultimately limit the number of best possible jurisdictions to only a few and that is exactly why you find so many SFOs and MFOs in Switzerland.

Switzerland, the traditional safe haven

Switzerland is politically, economically and financially stable. It has been a neutral country since 1815 and has not been involved in any war since 1848. As Switzerland’s political regime is a so-called direct democracy, it is one of the few countries in the world where the population can have direct influence on all (proposed) federal and local legislation.

Switzerland’s economy is extremely stable. Thanks to broad diversification and strong domestic demand the Swiss economy has been growing steadily and has not been particularly weighed down by the worldwide economic and financial crisis. Thanks to its constitutional debt brake, the Swiss government has been able to produce a budget surplus every single year since the start of the financial crisis in 2008 and as a result Switzerland nowadays has one of the world’s lowest government debt ratios and is one of the few countries left with a AAA rating.

Swiss financial infrastructure

As mentioned, close proximity to solid private banks is key, as one of the primary tasks of a family office is to manage your wealth.  Swiss banks have been world leaders in the wealth management industry for a very long time and some of the best-capitalised banks in the world are located in Switzerland. A Swiss private bank stands apart from local private banks thanks to its expertise and experience in investments and investment classes from around the world.

A Swiss private bank is not only knowledgeable about the securities traded on your local stock exchange, it also advises you on the securities traded on all other international stock exchanges (contrary to, for example, US-based banks).

Switzerland also has a very attractive corporate income tax system. Rates are relatively low and Switzerland has signed agreements for the avoidance of double taxation with many countries. On top of that Switzerland is also a signatory to the Hague Trusts Convention thereby recognising the existence and validity of trusts. All this is backed up by Switzerland’s reputable, trustworthy and solid legal system and its topflight specialists such as tax advisors, law firms, wealth planning specialists, notaries, audit firms, etc.

Moreover, the infrastructure in Switzerland is world-class. Geneva and Zurich have highly developed airports with flight connections worldwide, many direct, and both city centres can be reached within twenty minutes from their respective airports.

Family office staff

Last but not least, highly experienced, motivated, reliable and educated staff with financial experience can be recruited or found in Switzerland. But even more importantly, when you intend to establish a SFO, such staff currently located elsewhere in the world can also be persuaded to relocate to Switzerland as it is considered one of the best countries in the world to live in, due to its very high living standards.

One of the best locations for a family office

All these elements make Switzerland one of the best locations to use a multi-family office or to establish your own single one. Because a family office is not only there to manage your wealth, but also to safeguard and protect it when your home country turns out to be less stable than you had hoped or expected.

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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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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