Families seeking dedicated and holistic wealth management support are often presented with the choice between a Single-Family Office, which is managed and maintained for the exclusive benefit of an individual family, or a Multi-Family Office, which acts as wealth advisor and manager to multiple families.
Each offers potential benefits depending on one’s needs and preferences. Before a decision is made, we advise the careful consideration of several factors.
Independence and Objectivity
At first blush, it can appear that a Single-Family Office, free from influence by financial institutions or other outsiders, will be most independent. However, there are risks involved. Without careful governance controls, investment decisions may be unduly influenced by friends, advisors or family members with limited qualifications. The result is diminished objectivity, which can fuel potential conflicts and dampen investment performance.
Multi-Family Offices may in fact offer greater independence in these areas. However, some do have a dominant “anchor family” that disproportionately influences the wealth management process. Careful governance controls are thus necessary to ensure the appropriate prioritization on each individual client family.
Finally, while Multi-Family Offices are regulated, the term “Multi-Family Office” is not, and thus it is widely used by asset managers seeking a wealthy clientele. Such unscrupulous firms may lack experience, qualifications and independence. A diligent selection process is essential to ensure quality and objectivity.
Succession and Continuity
A significant challenge with Single-Family Office management is the reliance on a small number of key personnel, who may not sufficiently document their activities and procedures. Succession of advisors is too often left unaddressed until too late, and the departure of key personnel can be extremely disruptive to the family.
Multi-Family Offices generally employ more rigorous operational protocols, and their focus on providing consistent management across several families helps ensure a sufficiently long-term focus. In either situation, attention should be paid to operational redundancies and succession planning should a trusted employee become unavailable.
Single-Family Offices sometimes struggle with the retention of highly-qualified and dedicated staff. Ambitious individuals generally have an intrinsic need for visible career progression and intellectual stimulation, which may not be quite as abundant in a Single-Family Office setting.
Larger organizations typically offer greater opportunities for career development, and exposure to various planning situations can foster the development and sharing of best practices with all clients, which can collectively improve results and outcomes.
Control and Governance
Single-Family Offices undeniably offer the highest level of control and freedom. They are unconstrained by regulatory burdens and provide the family with total authority over who is hired and how work is performed.
However, leading and managing yet another organization can drain time and resources from other critical priorities. Further, a Single-Family Office may attract employees who do not feel comfortable offering competing viewpoints for fear of hindering their careers. This can cause erosion of essential diligence and governance processes.
Multi-Family Offices are regulated by financial authorities and thus are less likely to succumb to these risks, though they do necessarily limit the family’s control over operations and processes.
Privacy and Security
Many wealthy families value privacy and anticipate that the greatest privacy will be afforded by a dedicated Single-Family Office. This can be true, especially if the family is successful in retaining a stable of trusted and competent advisors.
However, insufficient operational security and oversight can lead to personnel risks, namely misuse of funds or a lack of adherence to industry standards. Under-investment in digital privacy and security can also expose the family to data or identity breaches.
A Multi-Family Office may bring more experience to bear in managing personnel, data security and critical infrastructure issues. Thorough questioning on this front should be a key part of the diligence process.
Running a Single-Family Office is typically an expensive proposition, both financially and administratively. A family with a smaller pool of wealth (under USD 1 billion) can typically expect to spend on the order of USD 1.5 to 2 million to establish their Single-Family Office, with an average annual outlay of about 1% of assets per year for administrative overheads.
The shared nature of a Multi-Family Office provides economies of scale and potentially widens access to investment opportunities. Employees at Multi-Family Offices may also offer diverse skillsets in areas of specific interest, providing a balance of flexibility and customization of service.