The different types of family offices
The decision on family office format is an important one from a cost and functionality perspective. Wealthy families need to consider the services required, their wealth status, the complexity of the family structure and the key rationale behind establishing a family office in the first place. Typically, the choice is between creating a single-family office or joining a multi-family office. However, in recent times, the virtual family office has also become more popular.
A single-family office (SFO) is a private entity created to exclusively serve the needs of a single family. The financial capital managed by the single-family office is the family’s own wealth. The single-family office is normally responsible for financial management services including investments, fiduciary trusts and estate management. More often than not, it offers a range of additional services which may include legal and tax support, property and household management, travel services and event management. Whilst this set-up provides a high level of privacy, confidentiality as well as customised and personalised services, it is the most costly family office option.
A multi-family office (MFO) is a good option for affluent families with less complex requirements and who are looking for a more cost-effective alternative to an SFO. An MFO is a business that primarily provides wealth management services to a group of affluent families. Many of these family offices were originally founded by a single family and have since opened their doors to other affluent families in order to share operating expenses and expand buying power and influence. However, private banks and investment firms have also become increasingly active in this space, now offering dedicated in-house family office teams. Most MFOs are commercial entities, selling their services to families and earning management fees in the process. With this structure, a family loses the personal touch—and with all assets under one umbrella—also loses the control and independence that they would enjoy with an SFO set-up. However, cost efficiency is usually a key deciding factor when choosing this format. There are also many other factors to consider when assessing the MFO route which will be further expanded upon in this guide.
The virtual family office (VFO) has become increasingly popular for families that are spread across geographies and require a less complex array of services. With family office technologies becoming more advanced and secure, VFOs represent a cost-effective option for receiving remote on-demand services.