Unveiling the Single Family Office
A Single-Family Office is a customised wealth management solution designed exclusively for the benefit of a single wealthy family. The size and complexity of an SFO can vary widely depending on the specific needs of the family, ranging from a small, close-knit team of 2-3 individuals to an extensive staff of over 200.
Families who choose the SFO route generally prioritise elements such as privacy, control, and a direct hand in overseeing their wealth. They are willing to bear the costs associated with establishing and maintaining such an office, which include salaries, benefits, overhead, and technology expenses.
Exploring the Multi-Family Office
Conversely, a Multi-Family Office operates as a commercial entity providing comprehensive wealth management services to multiple families. MFOs provide a comprehensive, outsourced solution that relieves families of the complexities and responsibilities associated with managing intergenerational wealth.
Typically, MFOs limit their clientele to ensure personalised attention and holistic services. They are a cost-effective alternative because costs are shared among multiple families, and they are subject to strict regulations that ensure security, technological advancements, and rigorous reporting standards.
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Evaluating Costs
The financial impact of establishing and operating a family office can vary significantly depending on the size, complexity, and range of services offered. Smaller SFOs typically incur costs of approximately 1% of the family’s total active assets, while larger SFOs can take advantage of economies of scale, resulting in lower costs as a percentage of assets.
Conversely, MFOs typically structure their fees based on assets under management (AUM) and the level of services provided. They may charge a minimum fee to cover costs for families with lower AUM. It’s important to note that the tax deductibility of both SFO and MFO fees and operating expenses is a factor to consider, as it can impact the overall financial landscape.
Tech Strategy in Family Offices
Technology is another important cost consideration for family offices. SFOs must make ongoing investments in technology to keep pace with the rapid advancements in the field. MFOs, by virtue of their larger size and regulatory obligations, have a greater capacity to adapt to evolving technological needs. They offer families a “plug and play” solution, freeing them from the burden of managing and monitoring technology infrastructure. In addition, MFOs implement robust cybersecurity measures to ensure the security and privacy of client data. Today, there are digital wealth management platforms on the market that are a great solution for both SFOs and MFOs in terms of cost and cybersecurity.
Investments: Deal Flow and Expertise
Investments are a cornerstone of wealth management. SFOs leverage their networks for unique opportunities and can pursue patient strategies not available to traditional funds, and they can take direct control of companies without additional fees.
MFOs, on the other hand, have access to a broader range of investment opportunities, particularly in illiquid asset classes such as hedge funds, private equity, venture capital, and real estate, due to their size and assets. They offer specialised investment teams with expertise and due diligence to negotiate favourable terms. Families considering MFOs should align their investment philosophy with that of MFOs.
