Are you a high net worth individual frustrated by the complex web of financial compliance your wealth has generated? Is your high net worth family confused about how to handle the unique issues your wealth creates? Do you need help managing the competing financial priorities in your life?
The smart thing to do is to find advice and assistance.
There are three distinct alternatives to consider: a Personal Assistant, a Single Family Office, and a Multi Family Office. The choice you make will depend on your unique circumstances.
First, the Personal Assistant…
A Personal Assistant is an employee hired to assist a family with the daily administrative duties essential to running a business and/or to assist with varied tasks more personal in nature.These routine tasks can include: appointment scheduling, correspondence, note taking, travel arrangements, event planning, bill paying, household management, and “concierge” type services.Typically a personal assistant’s skill set is secretarial and administrative in nature, and the position does not always attract individuals driven to expand the scope of their responsibilities. A personal assistant might operate inside a family’s home.
Generally, a Personal Assistant is not prepared to handle the accounting functions required or the financial complexities a high net worth family faces, but this choice is an inexpensive solution for those below the financial threshold that is reasonable to pursue a structured family office. One of the biggest concerns of a having a Personal Assistant handle financial affairs is the possibility of misappropriation of funds that can occur due to a lack of internal controls and appropriate layers of accounting checks and balances. Drawbacks include the lack of knowledge in finance and experience with accounting necessary to provide the employer with a sense of security regarding whether funds are being handled appropriately or whether accounting records and financial statements are accurate.
Next, the Family Office structures…
A Single Family Office (SFO) is a private business run for a single family. The Single Family Office is responsible for the financial services as well as services provided to meet the personal needs of the family.The Single Family Office’s financial capital is the family’s own wealth.A Single Family Office traditionally provides such services such as day to day accounting, management of legal affairs, property and household management, and often travel and event arrangements as well. The staff required to meet these demands typically include a CFO, an Investment Manager, a Bookkeeper and a Personal Assistant.The largest drawback of a Single Family Office is that it can easily cost over one million dollars to operate, so the family’s net worth usually needs to exceed one hundred million dollars.
A Multi Family Office (MFO) is similar to a Single Family Office with two major exceptions. A Multi Family Office is not usually owned by the families it serves and the services provided are primarily financial in nature.Participation in a Multi Family Office is less costly than a Single Family Office due to the fact that families share in the expenses and can contract for only those services they require.This reduces the wealth threshold required to consider a Family Office to a net worth of ten million dollars or more for it to be a suitable option.
Multi Family Offices typically provide an additional menu of services including tax planning and compliance, estate planning and compliance, risk management, objective financial counsel, trusteeship, foundation management, and coordination of financial professionals and advisors. Some Multi Family Offices are also known to offer lifestyle management services including property and household management, travel and event planning and coordination. The larger staff of a Multi Family Office, more knowledgeable and experienced, can provide a higher level of service, customized products and solutions to their family clients.Multi Family Office staff, although shared with other family clients, is assigned appropriate tasks based on their skill set; compare this to having a personal assistant handle financial issues beyond their scope.To allay the financial burden on clients, some Single Family Offices have begun allowing other non family members to participate in the Family Office, thus transforming into a Multi Family Office. Multi Family Offices are often times associated with an investment firm, legal firm or accounting firm.Obviously, the services that they provide are selective to each Multi Family Office and their expertise will be more geared towards those associations.
All family offices are structured a bit differently, no matter if they are a Single Family Office or a Multi Family Office, and no two offices are exactly alike.It is important to consider the different services offered when examining, comparing and selecting the Family Office right for your situation. For example:
1) What concierge and professional services do they offer?
2) What is the breadth of experience of the staff and how many staff members are available?
3) What are the internal controls?
4) Who is responsible for your family and how does their personality fit with your family?
5) What other resources do they have available to assist your family?
6) What are the costs?
As is with all things in life, there are pro’s and con’s associated with each Family Office structure.Please consider the following:
Breadth & Integration of Services: In a Single Family Office, there is typically only one or two professionals responsible for providing services, financial or otherwise for the family. In a Multi Family Office, especially one associated with an investment firm, legal firm or accounting firm, has a larger staff available to provide experienced assistance with a family’s financial, legal and investment needs, and deliver more customized client services.
Comprehensive Financial Oversight and Daily Management of Assets: Depending on the complexity and volume of assets and financial transactions a family has, a Single Family Office may not be able to provide a complete and accurate view of the family’s financial situation or actively manage all the family’s assets on a daily basis.However, multiple professionals in a Multi Family Office are available to monitor and record the assets, transactions, and other activity, making it much more likely that proper overview and management will be provided.
Confidentiality: Confidentiality can be accomplished through both types of Family Office structure.The Single Family Office employee(s) should be informed of confidentiality requirements and required to sign a Confidentiality Agreement.If the Multi Family Office is associated with a professional services firm, this is easily accomplished through a Confidentiality Agreement. If the MFO is associated with an accounting firm, the staff also falls under the confidentiality rules and regulations of all Certified Public Accountants.
Creative Solutions to Financial Issues and Cross Fertilization of Financial Ideas: These are more apt to occur through a Multi Family Office structure. Not only does a MFO have the broader depth of an experienced professional group, but due to the large number of families they work with, the professionals are more aware of current trends, creative solutions, and new ideas that can be utilized by other families.Single Family Offices are limited to the one or two employees and the family’ other trusted advisors to come up with financial solutions, which can be difficult as they represent only one family.
Experience and Specialties: The broader array of professional advisors in the Multi Family Office is enhanced depending on associations with other types of service providers such as investment, accounting and legal firms. The client family obtains more professionals with a greater depth of experience and specialties in legal and/or financial areas than a Single Family Office could provide.
Independence and Objectivity: Independence and objectivity can be had with a Multi Family Office, as well as a Single Family Office. Generally a Single Family Office provides services to only one family and their entire base revenue comes from that family’s wealth and not from referrals or additional product offerings. A Multi Family Office, especially one in association with a professional services group, has additional sources of revenue.
Internal Controls, Segregation of Duties and Protection from Misappropriation of Funds: The importance of internal controls should not be minimized. The larger staff of a Multi Family Office easily accommodates segregation of duties, layers of checks and balances, and strong internal controls to prevent misappropriation of funds which could put the family’s lifestyle and that of their future generations at risk.A Single Family Office can provide only a limited amount of internal controls and segregation of duties due to the limited number of staff available. In a Single Family Office, familiarity amongst employees, as well as between employees and certain family members can also contribute to a breakdown of controls and can easily lead to misappropriation. This is a non- issue for Multi Family Offices that are owned and operated by outside professionals; however, not all MFOs are properly structured so internal controls and integrity is perhaps the most important issue for families when considering the services of a Multi Family Office.
Negotiation Power and Leverage for Services: A Single Family Office does have some negotiation power and leverage to use when securing services and/or purchasing on behalf of their family. However, in a Multi Family Office significant leverage comes from the buying power of the combined wealth of multiple families, as well as the possibility for the service providers to receive additional opportunities to service additional families.
Concierge Services and Exclusive Use by the Family: A Single Family Office is designed only for the individual family and that design can encompass all scopes of concierge services. A Multi Family Office is designed for multiple families and it must consider and select those concierge services that it is willing to perform for the families.Each Multi Family Office is different and special consideration should be made by the family when addressing these concerns.
Expense and Wealth of Family Required: A Multi Family Office has a large cost advantage over a Single Family Office due to the fact that the financial threshold for participation is much lower when the expense of running the Family Office is shared between multiple families.If the Multi Family Office is associated with an accounting, investment or legal firm, the cost might be even lower as the overhead is shared as well. It is also important to recognize that although a Multi Family Office can assist families with a lower net wealth, a family with sufficient wealth to easily afford a Single Family Office may find that for ALL the reasons stated above, a Multi Family Office is still the superior alternative for them!
In conclusion, every high wealth individual or family must take into consideration the attributes that they require from a Family Office to determine what structure best fits their family’s financial situation.Obviously, a Single Family Office is designed with a single family and their needs in mind, but the expense is high and the quality and breadth of services can be limiting. If a family is considering a Multi Family Office structure instead, they need to do some due diligence and recognize that each MFO can differ greatly based upon their professional associations and the menu of services that they provide. Because one Multi Family Office is not a good fit for your needs, it does not mean that another might not be. Last but not least, the working relationship is still a very personal one, and as part of their research and due diligence a high net worth individual or family should interview the service provider and professionals that will be handling their account before making their decision. This will give them the best opportunity to find the right fit the first time around!
Daszkal Bolton LLP has significant experience serving the complex needs of high net worth individuals and families seeking to achieve their financial goals, protect their assets, and enhance their wealth. If you would benefit from Family Office services, please contact Jennifer Lynch Ridgely, Principal–in–Charge of Daszkal Bolton Family Office by phone at 561.367.1040. In a brief consultation she can discuss your family’s financial needs and suggest the best way to proceed.