Pioneered by the Rockefellers, single-family offices have always been the preferred choice for affluent families as a centralised means of managing their wealth. Single family offices constitute a dedicated team of personnel, handpicked by the family itself, that can plan, structure, and execute their specific wealth management needs. Apart from investment planning and execution, they also offer services like tax regulation and compliance, real estate investing, accounting and reporting, and other concierge services.
The key issue with the single family office model lies in its astronomically high operational expenses which could even reach up to a certain per cent of the family’s annual net worth. The multi-family office model solves this by pooling resources and distributing operational costs among all its clients. This allows multi-family offices to capitalise on economies of scale and provide a more diverse, scalable, and uninterrupted range of services by allocating larger sums to acquire state-of-the-art infrastructure and develop the very best research and wealth experts that the industry has to offer.
A single family office vs a multi-family office: How they compare
As the responsibility of family wealth shifts to the new generation, the inheritance is often divided into smaller, fractional interests to make the transition easier. This has made multi-family offices the preferred choice for this new generation of UHNWIs due to their lowered costs and the advisory nature of their employees that are far less likely to be influenced by family biases and legacy issues as compared to a single family office. For example, the new generation has a notably higher risk appetite and is likely to be more open to investment opportunities in the private equity/venture capital sector which was often shunned by the last generation.
Hybrid or multi-single family offices are becoming an increasingly common occurrence as modern single family offices transition to a multi-family office model. As their name suggests, multi-single family offices are a consortium of single-family offices where certain services are handled by a multi-family office rather than being outsourced. This trend is also influenced by landmark regulatory changes in tax laws that have made it favourable for single family offices to work in conjunction with multi-family offices in a capacity that simply wasn’t feasible before.
How can single family offices retain their position in the market?
Despite the rapid growth of multi-family offices in the last decade, it is important to note that single family offices are still the preferred choice for many of the world’s ultra-wealthy. The reason? They offer a far more controlled environment for personalised wealth management with a level of confidentiality and exclusivity that often cannot be matched by multi-family offices. However, a recent EY study highlighted some critical focus points that single family offices must consider moving forward to ensure that they don’t fall behind during this turning point in the private wealth management industry.
- Adapting to a changing regulatory landscape – The unprecedented geopolitical and public health uncertainties have prompted many jurisdictions to make regulatory changes to their tax policies. This means that single family offices must be agile in adapting to these new policies without compromising their revenues and operational standards as expected from their clients and stakeholders. The shift to remote working conditions also creates additional tax complexities that SFOs must consider while penning their operational strategies.
- The age of technology and digital transformation – Disruptive technology solutions have a huge impact on the modern global economy and digital transformation has become one of the most formidable disruptive forces in the market. This creates numerous opportunities in the private wealth management sector. Modern single family offices must realise this and adopt a “digital-first” strategy for their operations, be it AI-powered automation for risk management or implementing superior cybersecurity solutions.
- Maintaining the risk-reward balance – Despite being one of the most fundamental operations of a family office, many single family offices still lack organised risk management frameworks. It is also important to note that “risk” includes both financial and reputational risks for the ultra-wealthy. Hence, it is vital that institutional-grade risk management norms are adopted by single family offices in a way that is tailored to the risk appetite of their clients.