The family office sector is a coveted space as trillions of dollars under management soar across the globe. Increasing numbers of firms labelling themselves as “multi-family offices” have been popping up to grab their share of the market for the better part of the last decade. Yet, one must question whether these entities are what they say they are or if they are just private banks and traditional wealth managers “borrowing” the label to enter this lucrative arena.
Indeed, the line between wealth managers and multi-family offices can be fuzzy, especially since there is no clear asset size delineation to aid in their definition.
Knowing how to spot the difference is critical for ultra-high net worth individuals who require unique services and higher levels of sophistication and expertise that can only be afforded by actual family offices. What’s more, it’s vital to differentiate between a seasoned family office and one that’s only just begun. Evaluating these four factors can assist in identifying these distinctions.
According to Alvarium Investments partner Jose Remy, anyone calling themselves a family office should be offering independent advice. Thus, genuine multi-family offices offer numerous experts dedicated exclusively to the benefit of their clients.
Deep, personal relationships are forged with family members over years as trust is built, affording family office consultants a unique understanding of the structures that define wealth separation and succession plans and insight into family relationship dynamics and politics. This innate knowledge, along with the family’s values, vision, mission, and objectives, is used to inform all operational and investment decisions.
This is not always the case within banks and traditional wealth management operations where staff turnover is significant; the incentives to win assets is often an overriding factor, and conflicts of interest may arise. All of which makes lasting relationships and trust a scarce commodity.
Dedicated, best-in-class managers
Seasoned multi-family offices offer the best-in-breed managers for every asset class. This is no easy feat, yet the multi-family office leaders are poaching talent and hiring out of the institutional world according to their clients’ needs.
Inquiring about the specific services and products a multi-family office offers and liaising with the advisors responsible for these often provides insight into the degree of professionalization, sophistication, and experience of the operation in question.
It is essential to understand which services are offered in-house and which are outsourced and to whom. While certain services like formal legal work are often outsourced, traditionally, the larger and more sophisticated the multi-family office, the more services will be offered in-house. When it comes to certain rare exceptions built on outsourcing models, the reputation and quality of the third-party service providers to whom work is outsourced can be a reliable indicator of the quality of these multi-family offices.
When meeting with either in-house or outsourced advisors, they should be able to explain not only the technical aspects of their various solutions but also the achievable results.
True family offices are uniquely positioned to implement ongoing performance management and exercise control over their operations and various providers. Thus, if an asset manager fails to produce the expected yield, it will be easily detected, and their mandate reduced or removed.
This is a factor that is a source of conflict for many self-proclaimed MFO providers who have a fiduciary obligation to their beneficiaries but run organizations targeted at winning assets under management. What’s more, this conflict may exert additional pressure to place funds in-house rather than considering more suitable market solutions.
Direct deal capabilities
Capacity for direct deal capabilities is a critical differentiator between self-proclaimed “multi-family offices” and the real deal. Real multi-family offices invest time and resources in cultivating relationships and identifying and evaluating private equity partners and independent sponsors.
The due diligence required to do this is far more involved, resource-intensive, and generally less metric-based than merely selecting a competent asset manager. Yet this is a critical aspect of operation as it enables legitimate multi-family offices to ensure that clients are afforded real opportunities that everyone has not already passed on and that align with their objectives.
The world’s major banks and the greater wealth management industry are evolving to better understand and meet today’s wealthy families’ complex needs. Still, only truly independent organizations who employ dedicated, expert advisors in various fields with decades of tenure in developing relationships that enable the understanding and satisfaction of their clients’ needs without conflict or compromise, can genuinely be called multi-family offices.
By: Francois Botha
Read original article here