Virtual Family Offices

Opening up elite finance services

Mr FamilyOffice
October 13, 2023

Virtual Family Offices: opening up elite finance services

It’s a familiar question - how much do you need to open a Single Family Office?

🚛 I can reveal the definitive answer: a truckload of cash

Establishing the infrastructure and staff for a Singe Family Office (SFO) demands a serious financial commitment. With the cost of running an SFO averaging around 0.5%-1% of AUM, full-service SFOs are reserved for the wealthiest of ultra-wealthy

So what alternatives are available that don’t compromise the quality of service?

Step forward: Multi-Family Offices and Virtual Family Offices

Multi-Family Offices (MFOs) have long been touted as the cost-effective alternative to SFOs

MFOs pool resources from a number of families to share costs. Managed by a primary family or a third-party organization, MFOs act as a one-stop shop, providing the full suite of family office services (advisory, tax, estate planning, legal, etc.)

But more recently there has been a new kid on the block: the Virtual Family Office (VFO)

What is a VFO?

A single family office with a core team of 1-3 people
Their primary role is to outsource and coordinate the activities of service providers and to ensure they are working collaboratively
They leverage technology to support collaboration between advisors

VFOs cherry-pick services from global service providers to support the family’s unique needs. Professionals are only used to the extent required, so there is no slack in the system. Often operating with no physical office, VFOs offer highly customized services to the families they serve

How many families does a VFO serve?

One. That’s my answer. Not everyone agrees

If the VFO is serving numerous families, that’s a multi-family office. Some MFOs market themselves as VFOs. Fair enough, ‘Virtual’ sounds cooler than ‘Multi’. But for me, a VFO serves one family

The professional service providers supporting VFOs undoubtedly work for different clients (families, individuals and institutions), but the VFO itself serves just one family

The Core Team

🎯 The nerve center for the VFO is the core management team. Typically, the team includes a family member

Their first role is to determine the purpose of the VFO, for example, wealth protection, growth, succession management, philanthropy etc.

The core team determines the structure, governance, and processes of the VFO

The core team ensures that all professionals are in sync and are providing a holistic solution to the family

Depending on the competencies of the core team, investment advisory can also be outsourced (and advisors can be replaced easily if they do not perform)

Often VFOs will work with specialist companies that vet and compare service providers, therefore streamlining the due diligence process for the VFO

What sets VFOs apart:

💰 Cost-effective: Lower overhead costs and reduced fees compared to traditional SFOs

🏆 Top talent: the family can work with the best professionals in their field from around the world, paying just for the services required. Sometimes MFOs are not able to secure the services of the very best professionals. SFOs can be insular, whereas VFOs are exposed to a range of ideas and the latest best practices

🌟 Diverse services: Comprehensive offerings across financial, legal, and lifestyle domains

🧩 Customizable solutions: Personalized services precisely aligned with the family’s needs and goals, eliminating the need to hire and fire employees to meet evolving requirements

📈 Scalability: Flexible structure allows for growth and adaptation as the family’s needs change. VFOs can be launched quickly and structures can be scaled at lightning pace

🌐 Integrated approach: Coordination between professionals by the VFO means a holistic approach to wealth management

🕵 Confidentiality: Unlike multi-family offices, the core team remains in-house and reports only to the family

The Tech

Tech is the driving force at VFOs

Financial planning software is used to design personalized plans aligned with the family’s goals

Portfolio management software is used to oversee asset allocation, rebalancing, and performance reporting

Real-time communication is facilitated by collaboration tools, enabling VFOs to interact with clients and professionals via video conferencing, instant messaging, and CRM software

Digital document management tools organize crucial documents, from estate plans to tax returns

VFOs prioritize cybersecurity, implementing measures like multi-factor authentication and encryption for client data protection

One of the biggest challenges of VFOs is safeguarding the family’s privacy - the tech should not have weak links

The VFO Revolution Continues

SFOs, MFOs, VFOs… in the end there’s usually a lot of overlap. Only the largest SFOs offer the full range of services in-house. SFOs, MFOs and VFOs often collaborate

But it’s clear that VFOs are rapidly transforming the wealth management landscape for high-net-worth families

So for as little as $30M, VFOs are helping families manage their wealth and create a legacy

Over to you

Do you work in a VFO? I’d love to hear from you

Next week: Family office profile - Inside an eight-figure Canadian virtual family office - the origin story, lessons in generational wealth, the tech

𝕏 highlights

Back to the more traditional family offices… the pros and cons of SFOs and MFOs

In defense of generational wealth:

📚 what to read

The Biggest Bluff by Maria Konnikova

Journalist and poker newbie Maria Konnikova spent a year learning poker with legend Erik Seidel as her mentor. A superb account of luck, uncertainty, decision making and obsession

📻 what to listen to

One of my go-to podcasts. My First Million, hosts Sam Parr and Shaan Puri brainstorm business ideas and discuss trends. High energy, super smart, positive and not too serious

📺 what to watch

Keeping it in the family. In this case a crime family. Untold: Crime & Penalties on Netflix tells the wild story of a mob-funded ice hockey team. How Jimmy Galante - the original Tony Soprano - gave his 17-year old son an ice hockey team