Over the last few years, there’s been an boom in the number and variations of multifamily offices. While industry professionals and the wealthy seem to readily embrace the term, its overuse means that there’s no standard for MFOs and it’s increasingly likely that all manner of providers deploy the label with different intents.

In an attempt to shed light on the growing mystery of MFOs, we surveyed 89 self-identified multifamily offices. Each organization we spoke with was represented by a senior executive and partner in the operation, oversaw a minimum of $500 million and offered money management services as a core capability.

Motivating Factors
We first asked each organization about its motivations to function as an MFO and the responses made it clear that commercial viability and growth are key factors. Ninety-one percent of senior executives reported that increased profitability was central in their decision to operate as an MFO versus other business models. While there are always exceptions, delivering a broader cross-section of products and services to extended family units usually results in more sources of revenue and significantly greater overall and per-client profitability.

 The ability to source and work with wealthier clients was cited by 88.8% of the respondents. The high-net-worth and ultra-high-net-worth communities and their associated ecosystems have already embraced the family office construct as one that will help them address their financial concerns while delivering responsive, high-touch service. Thus, a financial provider that positions itself as an MFO can develop a powerful narrative that resonates with both target clients and their influencers and yields new, well-heeled clients at a quicker pace than other business models.

At the same time, about 70.8% of those surveyed noted that being an MFO enabled them to build a stronger rapport with clients. The very nature of MFOs requires involvement in a variety of scenarios—some commonplace and straightforward, others unexpected and problematic—on behalf of their clients in order to help these providers understand more about each individual along with his or her personal priorities and concerns. These opportunities create a foundation for more solid and interdependent relationships, which can be especially important if investment performance is substandard for a period of time.

Very clearly, there are solid pecuniary reasons behind the escalating adoption of the MFO model. One of the core tenets of business is to make money and multifamily offices are no exception.

The Menu Of Services
There’s an extensive list of possible services that multifamily offices can deliver to their clients and, if you believe the promotional materials and websites of the firms and professionals competing for the attention and business of the financial elite, nearly all offer a comprehensive menu of services. However, the results of our survey revealed a very different reality. We asked each of the senior executives about the services they and their respective organizations provided in the previous two years—whether it was through in-house expertise or by sourcing and monitoring the results of a third party—and found that very few have actually provided the broad spectrum of possibilities (Figure 1).

Aside from investment management, there were no other services offered by more than 70% of MFOs in the previous 24 months. In fact, a relatively short list of seven related financial services were the only offerings provided consistently by more than half of the MFOs. Beyond portfolio management, the most common types of services were planning related, with an emphasis on estate, charitable, financial and succession. To a lesser degree, MFOs offered retirement plans, alternative investments and life insurance—with considerable variation in the range and sophistication of solutions. It’s worth noting that our long-term research with wealth holders indicates high levels of interest in alternative investments and the benefits associated with life insurance and advanced planning strategies that incorporate life insurance, so those firms that fail to offer these services do so at their own risk.

More telling are the broad variety of services available to wealthy and ultra-wealthy clients, which are offered inconsistently by MFOs. About four out of 10 respondents provided bill-paying services. Slightly fewer have engaged in one-off projects that are often bespoke, rarely replicable assignments. About one-third delivered trust and trustee services, usually in conjunction with a bank, and almost 30% provided philanthropic advisory services that deal with the “who” and “why” of charitable giving as opposed to the legal strategies and techniques, which tend to be the domain of estate planners.

More than 25% of the multifamily offices delivered accounting services, most often dealing with personal, as opposed to corporate work. Somewhat fewer provided asset protection planning. While there is generally a strong connection between estate planning and asset protection planning, the latter is focused solidly on creating a legal barrier between the affluent client and potential litigants and creditors.

Credit was provided by a little more than one-fifth of the MFOs. These organizations are either tied to banks or have made arrangements with funders. Slightly fewer provided currency management—usually for wealthy foreign or transnational clients. The same percentage of MFOs delivered income tax planning and tax preparation, usually with an affiliated accounting firm.

One-fifth of the MFOs delivered educational programs. Increasingly, such programs are in demand by the wealthy on behalf of their children and grandchildren. Such programs regularly cover a number of topics, including financial literacy, money management and process-oriented skills.

Business management was provided by about one-sixth of the respondents. This is a function of their high-stature clientele. The same percentage facilitated the selection and oversight of concierge health-care services. Universally, this service is outsourced, as is family/personal security, which was organized by still fewer MFOs.

Only 12% of surveyed MFOs provided private placement life insurance or private placement variable annuities. The significant tax benefits associated with these products are garnering a lot of attention among the very wealthy, which will draw the interest of more and more multifamily offices.