The 5-Minute Guide to Multi-Family Offices (Full Guide)

The 5-Minute Guide to Multi-Family Offices

It’s time we talked about Multi-Family Offices (MFOs).

Single Family Offices (SFOs) are soaring in popularity, but they’re not right for everyone.

SFOs offer bespoke services and unparalleled personalization. But for many families, SFOs come with challenges: staffing, administration, compliance and - most fundamentally - cost.

Variously estimated at 1-2% of AUM, the cost of a SFO can be prohibitive. So wealthy families who still want access to family office services often opt to join multi-family offices.  

Commercial vs. Closed Multi-Family Offices

MFOs generally fall into two categories:

1. Commercial MFOs: These are profit-driven organizations that serve a broad range of families. Some are privately owned; others are divisions of financial institutions.

2. Closed MFOs: These offices are usually born from single-family offices that opted to bring in additional families. They cater to a limited group of like-minded families, leveraging shared values and goals.

Understanding these structures is key. Commercial MFOs can offer a wealth of resources, but they may come with hidden conflicts of interest if tied to financial institutions. Closed MFOs, while limited in scope, often provide a more exclusive and tailored service experience.

What to Look for in a Multi-Family Office

Independence and Objectivity 🧩
Ideally, an MFO should act as an independent advisor, free from conflicts of interest and with no pressure to promote in-house products. Look for offices that offer clear, transparent pricing and do not accept commissions from third parties.

Comprehensive Reporting 📈
Consistent and granular reporting is crucial. The best MFOs provide in-depth insights on asset allocation, investment performance, and risk exposure. This transparency helps you stay informed and in control of your family’s wealth.

Alignment of Interests 🤝
Your MFO should align with your family’s specific needs, values, and long-term goals. Look for MFOs that focus on alignment rather than those pushing products. Ask about their approach to integrating external experts and if they provide flexibility in selecting asset managers or investment options.

Defining Your Needs: Building a Solid Foundation

Before starting your search, you need to know what you are searching for. So first look inwards and assess:

• Asset Consolidation: Start with a holistic view of your wealth. Often more complex than it may first appear.

• Risk Management: Assess your existing geopolitical, legal, and diversification risks.

• Family Governance: What are the policies, structures and processes that guide decision-making and ensure transparency. Understand how you want to educate and involve future generations. 

Some families transition from private banking to MFOs to avoid conflicts of interest, improve cost transparency, and access services such as estate planning and philanthropic advice.

The more you know about your objectives, the better equipped you’ll be to evaluate whether MFOs align with your goals.

Common Pitfalls to Avoid 🚫 

Conflicts of Interest
If an MFO is tied to a financial institution, beware of conflicts. These firms might have obligations to promote specific products or services, potentially clouding objectivity. Make sure your MFO prioritizes external providers and transparency.

Overly Broad Promises
No one MFO can do it all. Avoid those that promise to handle every aspect without outsourcing or specialization. Your ideal MFO should work within a structured network of professionals, ensuring that the right experts are handling your needs.

The Cost of Flexibility
MFOs often market themselves as a "one-stop shops" for all your financial and lifestyle needs. However, such comprehensive solutions can come at a high cost. Make sure you’re only paying for services you truly need.

Assessing Service Quality and Capabilities

A high-quality MFO will be clear about their strengths and capabilities but also about their weaknesses. They should know when to bring in outside expertise.

Areas to evaluate include:

• Investment Strategy & Asset Allocation: Look for a team with a solid investment track record.

• Risk Management: They should offer a structured approach to managing your family's wealth in a way that aligns with your goals and risk tolerance.

• Reporting: Timely, consolidated reports that give a clear view of all your financial activities are non-negotiable.

• Personalized Services: Many MFOs often go beyond finance, offering concierge services, philanthropic planning, and multi-generational family governance.

Location Matters: Where Should Your MFO Be Situated?

About two-thirds of the world’s MFOs are in North America, with the rest mainly in Europe and Asia.

Ideal locations offer: 

🏛️️ Political and economic stability

🛡 Strong data protection laws ️

📜 Predictable tax and legal environments

Switzerland has long been regarded as a top MFO location due to its favorable legal framework, high privacy standards, and deep wealth management expertise.

Essential Questions to Ask

When selecting an MFO, here are a few critical questions:

1. Ownership and Structure: Is the MFO independent, or tied to a financial institution?

2. Client Base and Staff Expertise: How many clients do they serve, and what’s the experience level of their staff?

3. Technology and Security: What’s their data security protocol? Do they use advanced technology for financial tracking and reporting?

4. Transparency in Fees: Ask for a breakdown of fees—asset-based, performance-based, or hourly rates—you don’t want surprises later on.

Should Your MFO Perform Asset Management?

Many families assume that MFOs must handle asset management. However, independence from asset management can actually reduce conflicts of interest, keeping advisory services truly objective.

Some MFOs focus solely on controlling and overseeing asset managers, rather than managing assets directly. This separation is ideal if you want to maintain full objectivity. That said, some closed MFOs may offer asset management services with fewer conflicts, as their members share similar investment goals.

Additional Services to Consider

Aside from the essentials, MFOs often provide:

• Philanthropy and Impact Investing: Help in defining and implementing your family's philanthropic vision.

• Lifestyle and Concierge Services: From managing your travel and security to overseeing your household staff.

• Family Governance: Educating younger generations on wealth management.

If these services matter to you, confirm the MFO's experience in these areas and ask for examples of their past work.

Making the Final Decision 🎯

In the end, choosing an MFO is about matching your family’s needs with a team that offers the right mix of expertise, transparency, and alignment. So you need to evaluate each option carefully and don’t be afraid to walk away from an MFO that doesn’t feel like the right fit.

The best MFO for your family is one that grows with you and provides support across every aspect of wealth management.

Choose wisely, and you’ll have a partner dedicated to preserving and growing your legacy for generations. 🌱