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Wealthy business owners and families are increasingly considering setting up a single-family office (SFO), or using multi-family office (MFO) services for their wealth management needs. As an SFO is not economically feasible for most families, they often end up opting for MFO services.
Regulatory developments, the consolidation of the private banking industry, cost pressures and the hype of MFO services over the last few years have meant that quite a few providers are entering the MFO market. However, there is no industry standard for what range of services an MFO should offer. Moreover, in most jurisdictions there is no legislation regulating the use of the term ‘family office’ nor is there robust supervision of family offices. MFOs originate from very diverse backgrounds and tend to offer completely different ranges of services as a result hence the phrase: ‘if you’ve seen one family office, you’ve only seen one family office’.
It is, therefore, important for families who are considering using an MFO to compare providers carefully. An important starting point in this process is the origin of the MFO and its founders. Most MFOs tend only to focus on one or a limited number of services, which are often closely related to the background of the founders. When the needs of the family are as closely related as possible to the main competencies of the MFO’s founders, the chances of a successful relationship are highest.
The different types of MFOs
In this respect, several main types of providers can be defined:
- Former wealth managers. This type of MFO focuses primarily on asset management, asset allocation, consolidated reporting, risk management and managing relationships with banks. These are often established by a small number of former bankers and, recently, smaller private banks have been repositioning themselves as MFOs.
- Law firms / lawyers. Generally, these focus on estate planning, succession planning, family governance and legal issues. Their services are often also related to the family business structure. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is provided in-house.
- Tax consultants / tax lawyers / accountancy firms. These focus on tax-efficient structuring, establishing and managing international structures for family businesses and real estate, international relocation, estate and succession planning, and audit and administration. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is provided in-house.
- Private banks or MFOs owned by private banks. These have a strong focus on asset allocation and asset management.
- Trust providers / trustees. These focus primarily on setting up and administering structures such as trusts, foundations and holding companies, audit and administrative services; some of these MFOs also focus on issues related to yachts and aircraft. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is provided in-house.
- An SFO opening up for other clients. This is a difficult category to define, as the services offered are often closely related to the original needs of the founder family. Most have a focus on asset management, consolidated reporting and risk management, combined with a limited number of other activities, such as real estate or private equity investments.
- Others. A small but broad category includes MFOs founded by real estate or private equity experts, former investment bankers, or by people with a focus on lifestyle management.
Every wealthy family has distinct needs, and families should carry out proper due diligence on the providers they visit and ask the right questions to get the necessary insight into what they are offering. Otherwise, there is a significant chance that, further down the line, they will not be satisfied with the services their chosen MFO is providing.
Jan van Bueren & Thomas Ming are Co-Founders of FOSS Family Office Services Switzerland & Senior Wealth Planners in Zurich at Union Bancaire Privée, UBP SA.
For more information go to: www.switzerland-family-office.com