Multi Family Offices (MFO) are growing their share of the wealth management pie, but they are yet to conquer the Single Family Office (SFO) space entirely. Although SFOs are looking to MFOs to provide optimisation – control is still sacred to them
The increase in the demand for wealth management service provision is incontestable. One of the most obvious areas for potential development within the Multi Family Office (MFO) space where Single Family Offices (SFO) or other individuals are accessing shared service provision and enjoying the benefits of the MFO’s scale, critical mass and resulting reduced costs.
Joan Malloy, managing partner and director of family strategy at Greenway Family Office comments: "In terms of the future we see that the cost of maintaining a FO for successive generations – where the wealth has dispersed – is becoming overwhelming. The shared family office concept is an obvious solution to this."
Indeed the attractions of a MFO model, where costs are shared by multiple families in order to be able to access the whole gambit of wealth management solutions and services at a lower cost, and crucially, without sacrificing the personal touch, are pretty obvious.
But figures and anecdotal evidence shows that SFOs are still resolutely attached to certain aspects of their business and hold a 360 degree oversight dear to their hearts. As a consequence outsourcing is happening, but only where there is a clear need and it makes business sense to do so. Wholesale outsourcing does not seem to be on the cards at this time.
A recent benchmarking survey by the Family Office exchange interviewed over 110 families. It found that just 8% of family offices are outsourcing their services to MFOs.
Sara Hamilton, ceo at Family Office Exchange comments: "SFOs are definitely outsourcing to experts more often than in the past, but they are creating partnerships with these experts to get the best service and advice possible rather than delegating completely to the outside resource. They still do most of the oversight work for each service internally.
"There is a lot of talk about this increasing trend among the MFOs, because they are now seeing family offices as a potential new market segment, but there are only a small number of family offices who have learned how to make the most of the expertise available in industry leading MFOs," she says.
Overall wealth management demand
That the MFO model is growing is not in doubt. But this seems less of a trend from SFOs to MFOs and more a reflection of the overall global growth in net worth and the resulting upswing in demand for professional wealth management and related services on a best-of-breed pick and choose basis.
Isabella Cagnazzo Fonseca, Research Director, Wealth Management at Celent comments: "The MFO model has several best practices that can be credited for its success in the market: Well-balanced mix of in-house versus outsourced services, transparent pricing and fully disclosed fees, best-of-breed investment and service selection process, top quality of personnel and additional resources overall."
Indeed finding that expertise and resource can be tricky when demand for wealth management provisions is increasing globally. MFOs are happy to point out that it is increasingly hard to find managers and other expertise for a SFO.
Chris Trokey, managing director at Genspring, a MFO comments: "MFOs are able to cross pollinate to create synergies, pass on the benefits of economies of scale and can keep their staff busy servicing multiple clients."
Indeed the FOX benchmarking survey found that outsourcing, where it was happening, was most successful with integrated planning at 77%; investment planning/strategy/manager selection at 69%; accounting, reporting and tax compliance at 69%; and owner education at 31%.
On the integrated planning front some MFOs have started out as a SFO and then opened their services to others, while some have started as high end investment management firms that have expanded their service offerings beyond traditional asset management to provide the customized, comprehensive solutions of a pure multi-family office.
In either case they are able to see the bigger picture that an SFO has set out and be able to advise on a holistic basis – taking decision making out of silos and freeing the SFO’s staff to work with a multi-disciplined team.
Malloy comments: "The SFO has just its own perspective – we can support and enhance this by offering exposure to ideas and experience and then moving to tweak and enhance what is already in place with the benefit of our wider perspective."
An area where this can be especially valuable is within the whole succession planning and next generation box. These areas, thinks Trokey, are especially well placed to be outsourced. "Governance, education and philanthropy tend to be measured around set meetings at set times- they are critical but not ongoing activities and so ideal to be placed elsewhere," he says.
Indeed many SFOs are still at first or second generation stage where the focus has been very much on maintaining and generating wealth rather than planning for the future. In this respect an MFO with more experience and able to provide both future proofing perspective and professional advice can be a real value added for the SFO.
Malloy comments: "Governance and intergenerational planning is something that is often neglected and SFOs typically engage their accountants and lawyers to deal with it – they are both facts-led when what is needed is communication and facilitation to bring everyone concerned into the planning and provide a positive outcome for all."
But it is within the investment sphere where the MFO’s economy of scale, breadth and depth offers the most obvious attraction.
Adam Wethered, director and co-founder at Lord North Street, which has recently merged with Sandaire, comments: "To use a private investment office or a MFO we are looking at a wealth level of £200 – 300 million. To have a SFO with the same capability we are talking billionaire level. That level requires a truly bespoke service level and a high degree of interaction."
And Catherine Weir, global head of family office at Citi Private Bank adds: "Typically actively-traded markets can be outsourced to a larger entity with a dedicated dealing room and the resource to keep a close eye on the market and move quickly. The illiquid markets like private equity and real estate can be handled in house."
A MFO can also aggregate clients’ assets to reach managers with very high minimum investment levels or to create a bespoke offering all together but at a lower cost than were each individual client acting independently. In recent years, co-investment clubs between MFOs and SFOs, for direct investment in assets like real estate have also gained traction.
But if MFOs are trying to offer the whole gambit of services to SFOs then are they competing with the private banks who are also offering the same holistic, integrated planning and 360 service offering line?
Many would point to the fact that MFOs are not based on providing shareholder value or selling product. But private banks have reinvented themselves away from the ‘share of wallet’ and sales-orientated perception to try instead to offer a holistic service that does not focus solely on investments.
Fonseca comments: "Pure multi-family offices are owned by a number of families and evolve from single family offices that extend their services to other families. Family offices constitute the most bespoke of any type of financial services firm and have the tendency to promote trust and keep family information away from public sources, and this encourages clients to adhere to such services."
In this context then the inherent appeal of a MFO is that they can be agnostic and provide a bit or a lot of something that a SFO might require. It allows for a cherry picking, best of breed approach that is so popular. Diversification of both advice and services is very much on the menu in the wealth management world
Trokey comments: "The MFO has everything on a ‘there when you need it’ basis. Not only can the MFO dig wide and deep but it can also provide the high degree of personalisation and relationship management that the very wealthy seek."
But ultimately MFOs will not render private banks extinct nor attract every single SFO. They are but a part of a growing wealth management puzzle.
Wethered comments: "In qualitative terms families want simplicity, cost effectiveness and transparency, best advice as well as minimize risk and cost. They now want to work in a collegiate way with a series of best of breed experts to bring logic plan and structure to their affairs. That is the attraction of the MFO."
And Fonseca adds: "Most clients approach family offices because they need unbiased, personalized, and trustworthy solutions. There will definitely be collaboration, while still being different from each other. In the aim to keeping costs acceptable to the next generation, as well as bringing new and younger ideas to the table, families need to find a model that works for them."