When is one wealthy enough to join a multi-family office?
We are regularly asked by wealth creators about the appropriate time to set up their own family offices. The answer is not as simple as the question. There are numerous factors to be considered and having a net asset value as the only measurement might be misleading. Nonetheless, the AfrAsia Bank “Africa Wealth Report 2021” indicates that most families initiate single family offices when their wealth reaches USD100 million.
There is an alternative, a best of both worlds, whereby families with wealth of USD10 million (according to the AfrAsia Report), join multi-family offices. This option enables families to enjoy similar benefits to those of single family offices through economies of scale making them affordable.
More importantly though, each family should consider its own complexity and whether it has the skills and experience to manage its wealth and family governance structures.
What is a single family office?
A single family office looks after the needs of a single family, taking into account that the number of individuals in a multi-generational family could vary from only a couple to hundreds of members. Family offices are intended to serve multiple generations concurrently. A family should consider establishing a single family office only once the complexity of the family and/or the complexity of its wealth become too burdensome for the family to handle.
These complexities have various causes. It may be that the assets have become too complex to manage, that conflict between family members has become untenable, or that upcoming generations are eager to start taking responsibility alongside the current generation. The family then appoint professionals who are able to provide support and assistance where necessary.
In general terms, some of the functions professionals in a single family office will attend to are:
- Finances and cash management for the business and for individuals in the family.
- General legal assistance, including compliance and anti-money laundering processes and procedures.
- Investment services and advice for both the business and individuals in the family.
- Fiduciary services such as the management of trusts, companies and foundations.
- Family and corporate governance, including arranging family meetings, branding, and dealing with privacy issues and cyber security. A vital aspect is ensuring that the corporate governance of the family business dovetails with the governance structure of the family.
Why a single family office may work for you:
- Privacy: The family office is run by a few handpicked professionals. The family thus deals with “their people” rather than with unknown corporate staff.
- Control The family remains firmly in control of its destiny rather than being subject to corporate influence. The family can make decisions as it wishes and can respond quickly when necessary.
- Dedication The selected professionals are loyal to the family and are not distracted by corporate goals, performance measures etc.
- Common interest The dedication of these professionals means they have a shared interest with the family. The direction the family choses, after consultation with them, is their only goal.
- Bespoke The family is able to create an office that caters to its specific needs, its culture, its desires and its objectives. Each single family office is unique.
What is a multi-family office?
A multi-family office is an organisation such as Turnstone. It provides all the professional services of a single family office but instead of serving only a single family, it provides services to a number of families. Depending on its capacity, a multi-family office can deal with anything from 2 families to hundreds of families.
Some multi-family offices concentrate on specific services such as investments, banking, insurance, fiduciary services or finance and cash management. However, any focus on a single function rather than a wider and more comprehensive offering is likely to unsettle client families and leave them dissatisfied. A singularly focused multi-family office may open families to risks and leave them vulnerable.
A successful multi-family office does not have a particularly strong focus on any specific functionalities but rather manages the risks of client families by providing holistic, balanced services that are sufficiently flexible to match the needs of each of the families they serve.
Why a multi-family office may work for you:
- Privacy The privacy of a family is protected provided the multi-family office deals only with a handful of clients. The professional nature of reliable multi-family offices ensures that privacy of family information remains paramount.
- Resources A multi-family office is able to provide a wider range of professional services because of economies of scale. Specific professional services families may need from time-to-time may be readily available within a multi-family office.
- Scope of service Multi-family offices employ a wide range of professionals. Each professional is an expert in his/her field and is required to stay up to date with prevailing industry standards. A client family benefits from the collective knowledge and advice available, enabling it to make decisions quickly and effectively.
- Objectivity The professionals working in a well-rounded multi-family office provide advice that is independent and not biased towards any specific brand or product type. Their experience gained from dealing with other families is transferable.
- Cost Whereas a single family office becomes viable from an asset value of about $100m, multi-family office solutions can be viable from an asset value of around $1m upwards. Shared services and economies of scale make a multi-family office an attractive solution.
Written by Roelf Odendaal, Managing Director of Turnstone Multi-Family Office (firstname.lastname@example.org) and co-author of Family Wealth Guide: The practical guide for wealthy families and family offices.