Did you know there are multiple option for your family office types? This isn’t a one-size-fits-all approach. Your family is unique and your needs are your own. It doesn’t matter if Jim has been your business partner for years, because his ultimate goals may be different from yours. Don’t just do what others do because they’ve done it! In this article, we will explore some ways you can engage with Family Office service providers and help you consider which may be better for you at this time.
Here are the family office types we are familiar with:
- Single Family Office (SFO)
- Multi-Family Office (MFO)
- Virtual Family Office (VFO)
Further, there are layers within each of those, such as:
- Insource or outsource
- Administrative or fully comprehensive
- Brick and mortar or virtual
Family Office Type: Single Family Office (SFO)
Establishing and running an SFO can be expensive due to the dedicated resources and expertise required. It’s typically a viable option for ultra-high-net-worth families. Your level of need will be the determining factor. Consider that when you open your SFO, you are running a company with employees. Likely, you will need to offer benefits, need insurance coverage, HR & IT support, buy software and all the other things that come with running a company. Depending on which of the roles you want in house, the payroll can generate management expenses that can add up quickly.
Family Office Type: Multi-Family Office (MFO)
Client Base
An MFO serves multiple affluent families or individuals, often pooling resources and expertise to provide cost-effective solutions. Clients are likely not related to each other.
Cost Sharing
By serving multiple clients, MFOs can spread the costs of operating a family office across many families. Typically, this is a more cost-effective option than an SFO. Consider the fee structure. Sometimes, it’s an “all-in” or by the service you need. Or, it could be a wrap fee based upon the investable assets they manage on your behalf.
Expertise
MFOs typically offer a wide range of financial services, including investment management, estate planning, tax optimization, and more. They often have a team of experts with diverse skills to serve their client base effectively.
Less Customization
While MFOs aim to tailor their services to each client’s needs, there may be some limitations on the level of customization compared to an SFO, as they serve multiple families.
Family Office Type: Administrative Family Office (AFO)
Combination
An AFO is a blend of both SFO and MFO characteristics. It likely serves multiple affluent families but rather than a full “in house” team, the AFO consists of a team of professionals who collaborate together to create a structure and process designed specifically for the family. The Administrative Family Office is also sometimes referred to as a Virtual Family Office.
Customization and Control
AFOs offer the family a puzzle-like approach. When a specific service is needed, the AFO finds the right person to fill the role and oversees the process for however long they are needed. When the project is complete they can drop off the team. Therefore, you pay for expertise only when you need it. The AFO creates an ecosystem allowing for the family to keep their wealth management, legal, and accounting teams if desired, or can replace/find each piece as needed.
Cost
Next to the SFO, an AFO usually provides the most transparent cost structure. AFOs typically have all provider’s fees as a pass-through to the client. The AFO is the quarterback running the plays and streamlining the communication.
Privacy
AFOs can maintain a level of privacy based on the family’s desires. The AFO can act as a blocking entity where, like an SFO, the actual family name is unknown. When needed, they can be more public.
Ultimately, the choice between an SFO, MFO, or AFO depends on the specific needs, resources, and preferences of the family or individual. SFOs offer customization and control but can be costly. MFOs provide cost-effective solutions for multiple clients but may have some limitations on customization and lack of transparency on fees. AFOs offer a blend of both, creating custom solutions for each family without the burden of overhead. Each structure has its advantages and trade-offs. The decision should be based on careful consideration of individual circumstances and goals.
Remember, as your family changes, your family office services will need to be flexible and resilient enough to change with you. Don’t be afraid to ask your team to expand, shrink or just change altogether. Whatever structure you choose to utilize, you are still in control.
