A Multi-family office (MFO) is a firm that manages investments and trusts for multiple wealthy families. 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 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.
Definition of multi-family office
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.
multi-family offices 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 multi-family office subsidiary or division.
Many multi-family offices are registered investment advisors, some are trust companies and a handful are accounting or law firms.
Characteristics
Multi-family offices tend to have the following characteristics:
Independence: multi-family offices typically do not sell (traditional products that a family might typically encounter from a brokerage firm) and generally are not compensated for the products utilized by clients. Multi-family offices usually follow a “service delivery model” holding themselves out as an objective provider of advice that places the interests of their clients first.
Breadth and Integration of Services: multi-family offices provide a wide array of services and typically oversee their clients’ entire financial universe. Multi-family offices will have full information about their clients investments, tax situation, estate plan and family dynamics. With this information the multi-family offices can assist in structuring and administering the clients’ financial universe in an optimal fashion.
Professionals with Diverse Skills and Deep Specialties: multi-family office professionals provide a wide array of advice and assistance to their clients. multi-family offices also have to be able to provide specialty knowledge on certain topics such as: income taxation, estate planning, and investments.
High Touch Services: multi-family offices have high average account sizes (usually in the tens of millions) and low client to employee ratios (around 3 to 1 range). Large account sizes combined with low client-to-employee ratios allows a great deal of focus and attention on each client family. Meetings with clients often occur many times a year.
Multi-Generational Planning: multi-family offices typically work with an entire family – the patriarch/matriarch, their children and grandchildren. Planning encompasses the family’s goals which typically includes passing wealth down to lower generations in a tax efficient manner. Children and grandchildren are clients and are counseled on investments, taxes, estate planning, and philanthropy from an early age. Multi-family offices often coordinate and moderate family meetings for their client families.
Outsourcing: multi-family offices do not typically provide all services in-house. It is common for some of the investment management to be outsourced to independent money managers. Custody and tax return preparation are also commonly outsourced.
Focus on Taxable Investor: Most multi-family offices have a myopic focus on taxable investors as the bulk of their client's assets are subject to short and long term capital gains. This is unique to very high net worth families. Most investment research (academic and financial service industry) is geared toward the institutional investor and foundations (with very different tax concerns than individuals and families). The bulk of the research done for the individual investor relates to 401ks and IRAs.
Benefits of Multi-family offices
Multi-family offices may have one or more of the following benefits:
•Objective financial advice
•Creative solutions to financial issues
•Clearinghouse for financial, investment, tax and estate planning ideas
•Services are typically “all you can eat” for asset based fee
•Advice from professional team with diverse backgrounds
•Coordination of other advisers
•Proactive advice – a function of low client to employee ratio and frequency of meetings
•Delivery of “best of breed” money managers, custody, insurance, loans, etc.
•Negotiated cost savings with other financial providers (e.g. investment management, custody, trading costs)
•Integration of client’s estate planning, income taxes, investments, philanthropic goals and family situation
Typical services provided
•Trustee Services
•Coordination of Professionals
•Cash Management
•Global Asset Allocation and Investment Strategy Consulting•Comprehensive Performance Reporting
•Investment Manager Selection and Monitoring
•Portfolio Management
•Estate Planning
•Philanthropic Planning
•Life Insurance Analysis
•Debt Structure and Analysis – Bank Financing
•Tax Return Preparation
•Foundation Management
•Entity Administration (FLPs, CLTs, CRTs, Installment Sales, etc.)
•Aircraft Consulting
•Risk Management & Asset Protection Consulting
•Fraud Detection/Accountability
•Real Estate Management
•Family Business Advisory
•Family Counseling/Family Meetings
•Sufficiency and Retirement Planning
•Document Management and Recordkeeping
•Bill Payment Services
•Personal Financial Statement Preparation
• The term Multi-Family Office (“MFO”) is becoming commonplace in the financial services market.
• The industry grew to $170 Billion of assets under management in 2003, a 17% increase over the prior year; in 2004, the increase was 26.6%
• Multi-Family Offices manage an estimated 10% of the wealth of all ultra-high-net-worth-families.
