But even though this has been a role provided traditionally by single-family offices, there is an opportunity for MFOs as well. If the latter can become a trusted advisor and act as a client’s gatekeeper, it can be tremendously valuable, not only by taking meetings with potential providers, but by conducting due diligence and vendor management. It helps make the families very loyal clients.
Service Needs
How the family intends to invest their wealth is also key to determining which type of family office is appropriate. There are dozens of services that can be performed by a single-family office, a multi-family office or both: aggregated reporting, general ledger accounting, bill paying, philanthropic planning, household management, household employee management, tax accounting, tax planning, estate planning, estate document drafting, alternative investment due diligence, private investment due diligence, family dynamics planning, family education, risk management, property and casualty insurance, lending, life insurance planning, and more.
Guiding families through myriad options is important and must be made in the context of the individual family’s needs.
For example, a family may decide that a single-family office structure is the most appropriate model if they make only private investments. These types of families may not have any investable assets, and multi-family offices may not have the ability to make them profitable. (Note, however, that some multi-family offices, including CPA firms, offer services not based on AUM.) Single-family offices created by private investing families usually hire an experienced “deal” professional as a CEO or CIO to head the family office. They, in turn, hire due diligence professionals to evaluate the private investments, accountants and other professionals to serve the family’s needs.
On the other hand, if the family has sold a family business or experienced some other type of liquidity event, they are in a much different position. They need to invest their assets. In this situation, a multi-family office could be a great choice, acting as the family’s outsourced CIO. Multi-family offices can more likely attract the talent to manage the portfolio of assets and will have the additional services important to managing this wealth over generations.
Every family is different, as are their needs, as are their family offices, which should be customized to the needs of each. Every family is encouraged to take the time to educate themselves and define what success looks like before making such an important decision.
Eddie Brown is the National Managing Director and Head of the Schwab Advisor Family Office. Paul Ferguson is the Managing Director of the Schwab Advisor Family Office.