For ultra-wealthy families, the single family office has traditionally been a preferred method for managing the family's money and affairs. But as Campden FO discussed in its spring issue (How safe is planet SFO?), recent market turmoil has caused families to question this approach: Is it too costly to sustain? Can they attract and retain the talent they require? Who in the family is willing to devote the time to oversee the effort?
At the other end of the spectrum, major financial institutions have been shaken to their core. Excessive levels of risk-taking have resulted in massive losses. Wealthy families realise they have been competing with the proprietary trading desks of many of these institutions and they wonder if the products sold by these firms are priced and structured in their best interest. Can these big financial institutions be trusted? Should they leave these institutions or redefine how they use them?
Interestingly, for both ultra wealthy families and the professionals serving them, the solution may lie somewhere in the middle.
Multifamily offices offer the scale and resources not available within a typical single family office but without the conflicts and distractions embedded within many large-scale financial institutions. They also appeal to those professionals seeking a stable environment devoted to the best interests of their client families, while offering the prospect for ongoing career development within a dynamic environment.
The complexity of traditional asset classes and alternative strategies in today's world is more demanding than ever to evaluate and manage. It requires a range of investment market experience, research inputs and analytic tools few families can afford to assemble on their own.
Recent scandals highlight the challenge and the critical importance of independent due diligence – it takes time and resources. And this is before one considers the infrastructure required to support the basic needs of portfolio management and performance reporting. The human, systems and compliance cost demands are rising, as are service expectations.
Quite often, families with a history of entrepreneurship and a continuing shared interest in a business see their family office as an extension of that spirit. Overseeing a family office and selecting staff adds another dimension of trust that is hard to replicate elsewhere. But as family leadership transitions to another generation, families are thinking about more robust, alternative approaches that will serve them well for the next generation.
And this is where multifamily office boutiques offer a compelling alternative. There will always be trust concerns when a family considers moving outside its own office. But it is less of a concern when dealing with boutique firms serving a limited number of compatible families, where their size and organisational structure provide a greater level of intimacy and client attention. Boutique multifamily offices provide deeper resources, and when combined with personal involvement by the principals of the firm, they resemble a single family office operating as a more robust professional practice.
Additionally, the question of single family versus multifamily office does not have to be an absolute. Families can use multifamily offices to better handle complex investment, wealth transfer and family planning challenges. The single family office can essentially become a client of the multifamily office. For some families this approach provides the best of both worlds.
There is no single right answer – families should always evaluate all of their options and go with the relationships and structure that make them most comfortable. But the tide of market forces is favouring alternative solutions between the extreme of small single family offices and large scale institutional solutions.