The Definitive Guide to Multi-Family Offices
Wealth management can be complex and challenging for everyone, but especially so for ultra high net worth (UHNW) individuals and families.
These individuals and families often need support that goes beyond what a traditional investment firm can offer. They need sophisticated guidance and counseling to achieve their goals, supported by a multidisciplinary team that can provide advice across the intersection of investments, income tax, estate planning, and an individual’s or family’s customized goals and objectives.
This can vary from where and how to invest (free of conflicts of interest), advice on leveraging tax-advantaged investments, educating the next generation, income tax management, philanthropic advice, estate planning counsel, understanding cash flow and spending, what trusts or pools of capital to track distributions from, to many other areas that often feel daunting for families. In this definitive guide to multi-family offices, we’ll show you how UHNW families like yours can leverage multi- family office services to do all of that, and more.
The Types of Family Offices
Most UHNW individuals and families reach a point where they find that they have outgrown the services offered by their private bank, or they have found that managing multiple advisors (investment, CPA, attorneys) is challenging, realizing they need an infrastructure and highly skilled team to serve as the quarterback for their family. Many turn to family offices to fulfill those requirements, which offer a more personalized and comprehensive approach to their increasingly complex wealth management needs.
If you’re a recently exited entrepreneur, or you’re looking for a more holistic solution for managing your financial affairs that goes beyond what you are currently doing through various professional advisors, you might consider one of two types of family offices: a single family office (SFO) or a multifamily office (MFO). Choosing the right option for you will depend on a host of considerations including the amount of your investable assets and your unique goals and objectives. A few variations follow:
Single Family Office
A Single Family Office (SFO) is a private investment firm created specifically to service the needs of a single UHNW family. A single family office offers a higher degree of personalization through a dedicated team focused solely on the family’s affairs. However, establishing a SFO can be costly, with expenses generally over $1 million.
The amount of investable assets required to set up a single family office can vary widely based on the family’s goals and objectives. For instance, is the family concerned about confidentiality preferring to manage all of their administrative affairs out of the office and oversee external advisors, or is the family looking to manage all investments in-house including alternative investments? A SFO where the majority of investments are managed out of the office, would typically require at least $500-$750 million of investable assets to staff the appropriate resources in-house.
Alternatively, for families who outsource investment management but who want to manage performance reporting across multiple advisors, file tax returns, support aircraft and private homes, among other administrative needs, having at-least one dedicated full-time member in an office can make sense for as little as $150-$200 million of investable assets.
Multi-Family Office (MFO)
A Multi-Family Office (MFO) is a firm that serves two or more UHNW individuals and families. Although no such term (MFO) exists by operation of law, Wikipedia has a description that we feel describes the concept quite well:
“A multi-family office (MFO) is an independent organization that supports multiple families to manage their entire wealth. Multi-family offices typically provide a variety of services including tax and estate planning, risk management, objective financial counsel, trusteeship, lifestyle management, coordination of professionals, investment advice, and philanthropic foundation management. Some multi-family offices are also known to offer personal services such as managing household staff and making travel arrangements. Because the customized services offered by a multi-family office can be costly, clients of a multi-family office typically have a net worth in excess of $50 million.
A multi-family office (MFO) is a commercial enterprise established to meet the investment, estate planning and, in some cases, the lifestyle and tax service needs of affluent families. MFOs can be created in one of three ways:
A single family office opens its doors to additional clients or merges with another single family office
As a start up by a team of advisors (typically with some combination of investment, tax and or legal professional credentials)
An existing financial institution (most often a bank or brokerage firm) creates an MFO subsidiary or division.”
At Pennington, we believe MFOs can be a good solution for individuals or families with investable assets ranging from ~$30 million up to $1 billion, and often higher. By serving more than one family, multi-family offices are able to offer…