- Single-family offices can act like a supercharged concierge for wealthy families.
- Multifamily offices seek to emulate many single-family office traits.
- There are distinct differences between the two in terms of control, business models and other important features.
When seeking a way to help them best manage their wealth and other key issues in their lives, the Super Rich (those with a net worth of $500 million or more) often see a single-family office as the answer.
Why? A single-family office is a type of advisory firm that is set up specifically to serve one single family, as the name suggests. It is structured to address a potentially enormous number of needs that an extremely affluent family might have—from a wide range of investment solutions to lifestyle concerns (such as sourcing private jets). Essentially, a single-family office can serve as a sort of supercharged concierge for the members of a family—taking care of whatever needs taking care of!
Not surprisingly, these single-family offices have been noticed with some envy by wealthy individuals and families who aren’t at the Super Rich level of affluence. This has helped drive the growth of so-called multifamily offices—which, as you might have already guessed, aim to help multiple affluent families with their financial and other needs. In many ways, multifamily offices seek to emulate or replicate the advantages single-family offices can provide to the Super Rich.
Over time, even some Super Rich families began to see that multifamily offices were appealing—particularly because they generally involve fewer oversight duties for a family than do single-family offices.
These and other trends have created an expansion in the multifamily office arena.
Comparing the two
One way to better understand these two types of family offices, and what they do and do not provide, is via a side-by-side comparison of their many characteristics and features (see Exhibit 2).
Both types of family office have the same agenda: They strive to deliver superior results to wealthy families in a wide range of areas. High-performing single-family and multifamily offices do a good job at achieving this goal. But a single-family or multifamily office that doesn’t have the resources, expertise and systems in place to perform at a high level will not be able to deliver the superior outcomes required by the wealthy.
Moving beyond the goal of a family office, the differences between single-family and multifamily offices become apparent.
Single-family offices are all about family first. A high-performing single-family office is bespoke—that is, it’s designed specifically to address the needs, wants and preferences of the one family it serves. A high-performing single-family office is exclusively in the service of the family and is designed and structured to deliver whatever solutions can benefit the family. In contrast, a multifamily office is a commercial enterprise designed to serve multiple clients. A successful multifamily office makes money—an outcome that may not be as important to a single-family office.
The family served by a single-family office has complete control over that office in terms of personnel, operations and so on. With a multifamily office, control by any one family involved is limited. The high-performing multifamily office will take extensive steps to accommodate clients, but there are a number of clients as well as protocols to follow.
Single-family offices have fixed and variable costs. The fixed costs include the personnel hired to work with the single-family office, often some amount of technology and any related expenses. The variable costs are for external expertise brought in to help with certain needs and issues. In contrast, from the perspective of a client, multifamily offices have all variable costs—which is the same with any provider.
Not surprisingly, given its focus, a well-run single-family office is extraordinarily responsive to the needs, wants and preferences of the family. Such responsiveness is a core mission. High-performing multifamily offices are also quite responsive—but there are usually some limitations because of the business model of serving multiple families.
Use of external experts
Single-family offices may retain certain experts “in house”—the family office hires them as staff. One common example is investment managers. But increasingly, single-family offices are acting as coordinators of external experts. This approach can help ensure the “best of the best” are working for the family. It can also mitigate costs, if that’s an issue for the family. In contrast, many multifamily offices tend to have more specialists in-house, as the offices can profitably distribute the expertise across many clients. That said, we see high-performing multifamily offices also making more use of external experts—particularly when the needs and demands of clients become increasingly complex and diverse.
Conflicts of interest
In theory, single-family offices are conflict-free—they serve one family and no one else. While practice rarely matches up perfectly with theory, in this case it is very close. While there may be some occasions when there are conflicts of interest, they are usually immediately disclosed.
Multifamily offices are more likely to have conflicts of interest. This is a result of the office needing to balance client requirements with running a successful business. For example, the selection of an external expert for a client can be influenced by the business that specialist sends to the multifamily office. As long as there is complete transparency about such an arrangement, there shouldn’t be a problem with it.
Assurance of confidentiality
Single-family offices are somewhat better positioned to maintain confidential information than are multifamily offices. There are various ways to enhance privacy, from restricting access to information to using retained intermediaries to installing exceptional cybersecurity defenses. Still, as more external experts are engaged, the ability to assure confidentiality can diminish.
Multifamily offices can implement most of the same controls as can single-family offices. Nevertheless, there could be more “holes,” such as employees having access to client information that goes beyond what they need to know to do their particular jobs. And here again, the use of external experts can lessen the likelihood that private information remains fully private.
Support for a family dynasty
A pronounced trend among the Super Rich is to create family dynasties, in which family wealth is maintained for many generations (often five or more). We see single-family offices playing a substantial role in helping transfer the family’s values and perspectives on the world across the generations—as well as being instrumental in making sure the family fortune is maintained for future generations.
Multifamily offices, on the other hand, are not likely to be quite as effective in supporting a family dynasty. One of the principal reasons for this is that, for the most part, once a new generation takes control of the family fortune, the advisors of the previous generation are soon replaced. While the multifamily office can be quite effective in helping transfer wealth to the next immediate generation, that is usually where the office’s role ends.
The benefits and features of family offices were once available only to the wealthiest of the wealthy. Today, however, many family office-like services are increasingly part of wealth managers’ offerings. That means you may be able to get a multifamily office experience without needing to sign up with an actual multifamily office.
For example, there are a growing number of virtual family offices—wealth management firms that, thanks to state-of-the-art technology and other factors, are able to provide clients with access to experts who may also do work for multifamily offices. The nature of a virtual family office also enables more families to benefit from some of the types of synergies that are achieved in single-family and multifamily offices. When done well, virtual family offices can offer a broader array of high-impact, bespoke solutions in an extremely coordinated manner.
It’s yet another development that is enabling a greater number of affluent families to tap into solutions and expertise that were once unavailable to them.
Securities offered through LPL Financial. Member FINRA / SIPC. Investment advisory services offered through NewEdge Advisors, LLC, a registered investment adviser. NewEdge Advisors, LLC and Congruent Wealth, LLC are separate entities from LPL Financial.
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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