Multi-Family Offices: A Cost-Effective Solution for Wealthy Families
- Anatoly Iofe
- Sep 16, 2024
- 5 min read
As the financial landscape for affluent families has grown more complex, multi-family offices (MFOs) have emerged as an increasingly popular alternative to the traditional single-family office (SFO).
While SFOs have long been viewed as a luxury for only the wealthiest families - typically those with several hundred million dollars or more—a multi-family office offers many of the same highly personalized services at a fraction of the cost. This makes MFOs a compelling option for families with substantial wealth but who may not meet the threshold for their own dedicated office.
A Brief History of Family Offices
Family offices have deep historical roots, dating back to 15th-century Italy, where wealthy families like the Medicis relied on trusted advisors to manage their wealth and affairs. Over time, the concept evolved, particularly in the late 19th century, with the rise of industrial titans such as the and Vanderbilts in the United States. These families established family offices to oversee their sprawling fortunes, investments, taxes, and philanthropic efforts.
Initially, the role of family offices was to manage investments and tax matters. However, in the 20th century, family offices expanded their scope to include estate planning, wealth preservation, family governance, and even lifestyle management. This evolution mirrored the growing complexity of wealth management needs for ultra-high-net-worth families.
What is a Multi-Family Office (MFO)?
A multi-family office serves multiple affluent families, providing a full spectrum of wealth management services. These include tax and estate planning, risk management, investment strategy, trustee services, and even concierge offerings like travel arrangements and luxury asset management. By pooling resources across several families, MFOs can offer these services at a lower cost than a traditional single-family office, while still delivering a high degree of customization.
Services offered by a multi-family office typically include:
Investment Advisory: Custom investment strategies, often including access to exclusive private investment opportunities.
Tax Planning and Compliance: Optimization of tax strategies across multiple jurisdictions.
Estate Planning: Facilitating wealth transfer across generations while minimizing tax exposure.
Philanthropic Strategy: Advising on charitable giving, setting up family foundations, and managing philanthropic goals.
Family Governance and Education: Educating younger generations on managing wealth responsibly.
Concierge Services: Luxury asset management, lifestyle planning, and personal services.
Multi-Family Office vs. Single-Family Office: Key Differences
The fundamental difference between an MFO and an SFO lies in whom they serve and how they operate.
Single-Family Office (SFO): An SFO serves only one family and is tailored entirely to that family’s unique needs. This allows for complete privacy, full control over investments, and highly personalized services. However, the cost of running an SFO is significant, often reaching several million dollars annually. For families with a net worth exceeding $250 million to $500 million, this investment can be justified, but for others, the cost may be prohibitive.
Multi-Family Office (MFO): An MFO, on the other hand, serves multiple families, allowing them to share the cost of services. By pooling resources, families still receive personalized attention but at a much lower price point. This structure makes it an ideal choice for families with $20 million to $300 million in investable assets. The services offered by an MFO are often just as comprehensive as those of an SFO, but the shared structure provides greater efficiency and access to a wider array of services.
Why Choose a Multi-Family Office?
One of the most significant advantages of a multi-family office is its economies of scale. By serving multiple families, an MFO can offer a broader range of services than a traditional wealth management firm. For example, MFOs often aggregate investments across families, providing greater leverage, buying power, and access to top-tier investment opportunities that might otherwise be out of reach.
Another key advantage is the diversity of expertise available within an MFO. Whereas a single-family office typically works in isolation, MFOs benefit from the experience of managing multiple complex family situations, which can lead to better problem-solving and innovation in wealth management strategies.
Pros and Cons of a Multi-Family Office vs. Single-Family Office
Multi-Family Office (MFO)Pros:
Lower operational costs due to shared resources.
Access to a larger pool of talent and a more diverse array of services.
Enhanced investment opportunities through aggregated buying power.
Cons:
Services are shared, meaning less exclusivity and control compared to an SFO.
The advisory team is working with several families, and not concentrated on your family exclusively
Single-Family Office (SFO)Pros:
Highly personalized service, dedicated solely to one family.
Complete privacy and confidentiality.
Full control over investment strategies and other decisions.
Cons:
High costs, often only justifiable for families with $250 million+ in net worth.
Risk of insular thinking and a lack of external perspective.
How Much Wealth Is Needed for a Multi-Family Office?
While single-family offices are generally reserved for families with several hundred million dollars in net worth, a multi-family office is accessible to those with $20 million onwards in investable assets. The ability to pool resources and share costs makes MFOs a practical option for families who want the sophistication of a family office without the significant financial burden of running one.
Common Fees and Costs of a Multi-Family Office
MFOs typically charge fees based on the level of customization and services provided. Common fee structures include:
Asset-Based Fee: Many MFOs charge a percentage of assets under management (AUM), ranging from 0.5% to 2%, depending on the complexity of the family's financial situation.
Performance-Based Fee: Some MFOs charge a fee based on the investment gains they generate for the family.
Hourly Fees: For specific services like estate planning or tax advisory, MFOs may charge hourly.
Retainer Fees: A flat annual fee, covering ongoing financial planning and wealth management.
Transaction Fees: Fees associated with executing trades or making investments.
Administrative Fees: To cover account management, communication, and other operational tasks.
Getting Started with a Multi-Family Office
Choosing the right multi-family office involves ensuring that the firm aligns with your family’s vision and values. It’s essential to select an MFO that is a fiduciary, fully transparent, and committed to acting in your best interest. The MFO should have the depth of talent and resources necessary to meet your long-term financial goals.
In conclusion, a multi-family office is an excellent option for affluent families seeking sophisticated wealth management without the exorbitant costs of a single-family office. With a wide range of services and expertise, MFOs can help families grow, protect, and pass on their wealth to future generations while offering cost efficiency and strategic flexibility.
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Sources*:
*These organizations are not affiliated with IFG. IFG does not endorse, support, or recommend any information that is not provided by its affiliates or representatives.
Disclaimer:
Information provided is for informational purposes only, and does not constitute an offer or solicitation to sell, a solicitation of an offer to buy, any security or any other product or service. Accordingly, this document does not constitute investment advice or counsel or solicitation for investment in any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
