This article considers the benefits and drawbacks of the single and multi-family office model, drawing on insights from a new white paper by Agreus.

Designed for individuals with $100-$400 million in assets, single family offices can cost well north of $1 million a year to maintain – they are expensive by even the wealthiest of standards, but the bundle of wealth management services the model offers is as bespoke as it gets.

However, even some families who can justify setting up an SFO will consider a multi-family office platform to consolidate and cut costs, Agreus, the global family office advisory and recruitment firm, said in its latest paper on the sector.

The paper – entitled Do You Really Need A Family Office? - lays out the advantages and drawbacks of both models, which may be of interest to industry professionals advising wealthy families in this respect. As highlighted by Jon Carroll of Family Office Metrics, the two structures have distinct business scopes and purposes.

Carroll described the SFO scope as “total” because it oversees all aspects of individual family members' lives, whereas an MFO scope is more “targeted,” with its typical primary focus on investment management and then other services added as needed.

Meanwhile, from a business perspective, SFOs don't have a “profit motive” per se and can therefore take a “long view.” By contrast, MFOs must make profits to survive and are more vulnerable to short-term market forces, investor preferences, cash flows and performance, he said.

Before going into the advantages and disadvantages of SFOs and MFOs, it is also worth noting that the concept of the “virtual family office” is gaining ground. VFOs allow various experts to collaborate and provide “holistic” wealth management through a single platform, but not under the same roof. It is essentially a “scaled down,” more heavily outsourced-focused single family office, Richard Wilson, chief executive and founder of Family Offices Group, previously told Family Wealth Report.

Single family office

Agreus' paper highlights that one of the most apparent benefits of an SFO is that its close-knit environment can help foster better communication among family members by acting as a hub for everyone to raise any issues they may have.

Meanwhile, SFOs also offer the “highest level of privacy and confidentiality,” the firm said, as families have greater control over choosing who they want to manage their wealth.

This in turn also enables better oversight and creates a tighter team bond, which is crucial as a “high level of trust is necessary from both parties,” it added. “They [SFOs] also prove their worth if it is essential for internal affairs or disputes to be kept within the family and away from the public eye.”

However, one of the reasons why SFOs are so expensive is because the family has to acquire all of the components themselves – including staff, premises, technology and software – and then adapt each of them to reflect changing circumstances.

Similarly, SFOs can be “disbanded” - as Agreus puts it – and altered at any time, which could result in recruitment difficulties. Click here to download the paper.

Multi-family office

One of the main points covered by the report on the MFO front is that, by opting for this model, a family looking for a more customized service can still receive it at perhaps a fraction of the cost because the infrastructure, staff and technology are already in place and shared between several other families. This, Agreus' paper said, is probably one of its biggest benefits.

Other instances in which an MFO model might be more suitable include when: the family has significant wealth but might not be able to sustain their own set-up; they require specific expertise relating to a particular asset class or type; their wealth isn’t particularly “active;” and if they are more time-restricted.

Additionally, MFOs can bring “unparalleled expertise” as staff have to meet the unique and often complex needs of several families, instead of only catering to one. Indeed, it’s therefore a route that may require the family to relinquish some control over their wealth – but this may also prevent family disputes.

“Arguably, the largest challenges facing multi-family offices are managerial, but this can be avoided with clear and regular communication with your main point of contact,” Agreus said, adding however that they are “a lot more stable” because they are a separate company. “They carry on even when families come and go.”

Conclusion

In its report Agreus noted that each family office is unique, indeed because every family is unique, and therefore "there can never be a specific cost or guideline structure when looking to set one up."

But above all – in the words of Carroll - “family office clients will pay a premium for quality.”

And, although there are notable differences between the SFO and MFO model, “experienced advisors can minimize them,” he said. “Professionals serve family office clients best in both models by focusing on three attributes of service that are most important to people who already have everything by emphasizing the quality, control and security of their specific offering to the client.”

Meanwhile, Carroll added that, because family office clients want “absolute control” over their affairs, the most successful advisors will be those who can provide “top-tier, easily accessible reporting.” Specifically, those with the ability to provide reporting based on independent market sources – combined with reconciled data – have a “huge knowledge, communication and information advantage.”

Perhaps most crucially, though, family office clients want security and they highly value the “sleep at night” factor. Advisors can achieve this by employing regular third-party validation of success measures to reassure clients, Carroll said.