As the members of the wealthy family realise they are not able to execute all the routine wealth management activities by themselves, the service of the family office comes into question.
Embedded Family Office (EFO) is the most common type of family office across the globe. Most families and their employees do not even realise that they are operating it. Since the EFO exists within a family’s operating business, or overall family enterprise, it is very popular with the older generation. Some of its employees share the dual function of serving both the business and the family. EFOs serve an important function to support the family system efficiently, while the family focuses on managing and driving the business.
An embedded family office leverages the skills, expertise, and capacity of staff in the core operating business and can range from a single senior staff member providing advice to more than 20 employees actively supporting the family owners. For some families, an embedded family office is ideal, supporting the family’s wealth and endeavours in a cost-effective way while leveraging the infrastructure of the business.
Virtual Family Office (VFO) are becoming more prevalent and attractive. As technologies become more sophisticated and secure, much of the world is working remotely. Technology-enabled virtual family offices are typically easier to implement as they leverage digital technology and automation tools. Because linked to the newest fintech, especially the generation of Gen Z and millenials are choosing the VFO. The VFO has proven to be a viable option for administration, accounting, reporting, document management, and communication, especially if diverse teams and families are working around the globe. Virtual family offices allow families to outsource all or part of their family office and provide wealth owners with real-time reporting, analysis, and support.
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Single Family Office (SFO) may be the best solution as the family business grows. The SFO is fully dedicated to the family. This model allows the family to fully separate its personal dealings from the business and can make it easier to eventually sell or go public with their legacy operating entity. An SFO can also provide a high degree of privacy and confidentiality and can handle more customised tasks and requests.
The SFOs can also specialise in a particular wealth management service. For example, the family can have an accounting SFO, providing comprehensive portfolio management and accounting solutions, or an investment SFO, handling primarily the investment management and focusing specifically on investment advisory with a skeleton crew.
Multi-Family Office (MFO) is great for families that are low on the spectrum of complexity and can be a cost-effective model. MFO means outsourced services. With this structure, the family loses the personal touch of having a full-time staff to support their wealth and personal needs. MFO also typically relies on managing investments for the family and deriving management fees to subsidise the additional services. It is necessary to emphasise that if they want to avoid conflict, all generations of the family must agree on this type of FO.
The hybrid model is being chosen if none of the options listed above fully meet their needs. In the hybrid model, wealthy families can outsource aspects of their family office while still maintaining an embedded family office for select functions. This model can be the best for families. They can maintain the relationships and status quo of their embedded FO while lightening the load by outsourcing services such as bill payment, bookkeeping, and reporting, or complex and specialised investment functions.
