With the number of ultra-wealthy families on the rise, so too are their expectations and the options for managing their wealth. A family office may be the best solution for these families, but important choices must be made. Is a single-family office the right solution? Or is the family better served by hiring a multi-family office? Or is getting the best of both possible?
For advisors serving these families, there is a significant opportunity to provide value-added, unbiased advice that can help families shape their family wealth management strategy for decades to come.
Family Offices Continue To Grow
Families of significant wealth want to preserve and grow their wealth, manage and reduce risk, and free up time for the things important to them and their families. There is a clear trend that more families are seeking an alternative to traditional wealth management firms and private banks.
Wealth-X, a wealth information and research firm, has forecast that the global ultra-high-net-worth population (defined as individuals with over $30 million) will rise to 360,390 people by 2022 and control $44.3 trillion, an increase of $12.8 trillion over the next five years.
As global wealth has increased, the number of family offices serving those families has also increased, both in numbers and in importance. According to the family office research and data firm FINTRX, there are as many as 5,000 family offices worldwide, including both single and multi-family offices. Meanwhile, according to Cerulli Associates, multi-family offices are the fastest-growing high-net-worth channel in the investment management space, expected to influence $1.23 trillion in assets by 2022.
For families considering establishing their own family office or engaging a multi-family office, there are several considerations for making a decision.
Key Differences
Although there is no officially established functional definition of “family office” (aside from a definition in the Investment Advisers Act of 1940 saying when a family office is exempt from SEC registration) most agree about the two main types: single-family and multi-family. Each can serve important and similar functions, but there are key differences, including legal and regulatory considerations, for each.
A single-family office, which as its name implies, generally serves only one family, provides a range of services depending on the needs of the family, but it is usually centered on investing or accounting. These offices are generally not registered with the SEC as an investment advisor.
Multi-family offices, on the other hand, are generally organized as registered investment advisors or trust companies, or sometimes structured as accounting or law firms serving multiple families. A general definition of this type of office is an RIA with a dedicated focus on serving ultra-wealthy clients with a minimum of $25 million in investable assets. Such an office provides family office services in addition to asset management.
There is also one inherent difference between single and multi-family offices that often goes unstated and overlooked: the profit motive.
Single-family offices are not focused on driving revenue or adding new clients as a business. They mostly operate as a cost center for the family, providing services that may not be economically reasonable for a multi-family office to perform—for instance, concierge services, travel services and household employee management. The role of the single-family office is to provide value through its complete alignment with the family on their mission, values and goals.