Ed Lazar is president of Threshold Group, a MFO based in Gig Harbor, WA.
Louise Adams is the head of a large, global SFO based in London.
Ed Lazar and Louise Adams go head to head on the topic of whether families should choose a MFO or a SFO. Do economies of scale trump privacy, or does having a bespoke solution beat being part of a group every time? Over to you to decide...
Go for a MFO
Financially successful families eventually face the difficult choice between creating their own single family office (SFO) and partnering with a multi-family office (MFO). While capabilities and cost are certainly important, the SFO versus MFO decision also requires qualitative analysis of family culture, current and future lifestyle, and independent and objective fiduciary oversight. These three issues, which often surface during a life-changing event like the sale of a business, certainly come into play during any debate over the sustained value of family office solutions.
Often a family's future is redefined at the time of a significant liquidity event. Wise family leaders will pursue a holistic, enduring yet flexible solution for family needs. Many also recognise that choosing a MFO, whether for the short or long term, provides the best combination of access to experienced professionals, proven processes and overall affordability. These attributes help a family successfully navigate a transition – and beyond. Here are six key points to consider:
1. Cultural fit While a SFO may ensure families are "number one", it may require settling for less in other ways. While SFOs guarantee a level of customisation no MFO can match, MFOs often are better positioned to assess what a family really wants and needs. MFOs have experienced professionals, processes and culture to determine those wants and needs better, faster and cheaper than a SFO, while delivering a high level of personalisation. Of course, finding a "values fit" between a family and the MFO is essential to any long-term relationship.
2. Involvement and control "How involved do we want to be?" Make no mistake, building and maintaining a SFO is operating a business with your family as clients. A quality MFO will minimise or eliminate the need to hire and manage top-tier talent, rent space, lease technology, while improving inter-household privacy. Control may be greatest with a SFO, but MFOs allow the family and each household significant control and flexibility in designing their service team, scope and experience, both now and as needs change. MFOs can become a catalyst for evolving family relationships, delivering an important message that all households within the family have a voice. Thoughtful family leaders may conclude their time, skills and influence are best exerted in leading their family rather than their family office.
3. Resources SFOs are known for family-employee relationships based on intimacy, discretion, tenure and loyalty. MFOs add breadth and depth of professional capability, with subject matter expertise few SFOs can economically justify. The best MFOs will expand a client-family's resources by connecting them discreetly with peer families that may share common experiences. When families grow interested in philanthropy, investments or learning how to ready children for wealth, MFOs provide a community of resources that SFOs have difficulty matching.
4. Scope of services New liquidity requires cash be put to work, so investments often are given top (but myopic) priority. Families discover, however, that priorities grow and evolve. Household and family investment needs require integration with estate and income tax planning, which generates needs for philanthropy, special projects, and continuous learning about wealth management topics. It is extremely difficult and expensive to hire, train and integrate in-house (or through quarterbacking a team of outside advisors) the talent diversity necessary to provide a family with an optimal level of integrated planning in all of the above areas. Families who understand their service needs will find MFO offerings better suited to accommodate, adapt and integrate those needs at both the household and family levels.
5. Objectivity Whether SFO or MFO, the office must possess a robust, objective, advisory capability to manage a family's fiduciary oversight. Experienced MFO professionals sharpen their advisory skills by serving a number of families with diverse needs, in an environment unencumbered by "selling a product". SFOs can struggle with resource constraints, limiting insight and ideas. Some MFOs' allegiances to investment products, including their own, can cloud objectivity. Fee-only, fully independent MFOs are best-suited to help families broaden their thinking, while reducing the risk of conflicted interests.
6. Cost SFOs typically don't make economic sense for families with assets below $300 million. The leverage and scalability of MFOs allow a greater breadth and depth of integrated resources, at a more affordable, flexible cost model. Because value-for-fees is paramount, many families find greater benefit at lower cost when they work with a MFO whose talent and infrastructure are leveraged to serve more than one family.
SFO – complete privacy
Picture the scenario; it's late at night and you get a call advising you that there has been a serious burglary at the house of a family member. Alternatively, you have a family member with particularly complex tax affairs and very specific investment criteria.
Would you really want to outsource the resolution of these two events to a firm of accountants, lawyers or a private bank who purport to run a "family office"? Or would you prefer the freedom to instruct the best the world has to offer and know that a cutting-edge bespoke solution will be formulated all in the greatest confidence?
The seriously wealthy family cannot ensure its cohesion, privacy, security and, above all, wealth preservation without its own single family office, staffed by hand selected specialists operating in a customised and dedicated environment.
A full service SFO offering everything from concierge to investment management and tax, trust and legal services gives the family an undeniably heightened level of security in that everything is being done in their best interests in an environment of complete privacy. It also enables them to concentrate on running their businesses, preserving their wealth and planning for future generations without distraction and brings cohesion and unity in an increasingly fractured world.
Family control and governance is greatly enhanced by the SFO within the confines of which family members and their advisors know they have the freedom to express their views in a cloistered environment without fear of ideas being re-marketed to other clients. Furthermore, freedom of manoeuvre for the employees of an SFO is far greater; not for us the concern of which family receives priority today. The SFO family member also knows we are working solely for their family and their family's aims and goals without the distraction of split loyalties, third party pressure and aged debtors.
Admittedly SFOs do not suit all families and take considerable time, not to mention financial, commitment from the family. However, once they are established and have the right people in place, the family can choose the appropriate level of ongoing involvement which can be extensive or minimal and is often delegated to a supervisory board of family members and external almost non-executives. There is also far greater independence and flexibility with an SFO and no need to squeeze the family's needs and requirements into someone else's business model whose primary imperative is profit, however this is dressed up as "meeting client needs".
For the SFO, if a private trust company is required it is incorporated in the appropriate jurisdiction; if a particular investment vehicle is needed, it is developed. Yes, the administration and running of these activities will probably be outsourced but the family still drives what it wants and where.
The services provided by an SFO can be as wide or restricted as is necessary. The greatest satisfaction for staff often does come from the unexpected, and having the freedom to act, and often think, on one's feet is intellectually stimulating, challenging and ultimately unrivalled. Few if any MFOs can provide such job satisfaction and it is often apparent that many MFOs, despite their claims, are in reality really offering only investment management services.
The SFO world has really developed and changed over the past five years. Gone are the old Dickensian "private offices" staffed by trusted advisors. These have been replaced by the highest quality offices employing diverse professionals who exercise significant buying power on behalf of their employers, who only want the best of everything (and are prepared to pay for it) from complex tax driven corporate structures to idyllic, worry-free family holidays.
The modern SFO is now a broad-based professional services firm with enough brain and buying power to rival any MFO. Long may they survive and prosper.