Understanding multi-family offices: A complete guide

In the realm of wealth management, the term "multi-family office" has been gaining significant traction. But what exactly is a multi-family office (MFO), and why are HNWIs (high net worth individuals) increasingly turning to them?

In this article, we'll explore the concept of MFOs and the services they offer.

What is a multi-family office?

An MFO is a wealth management firm that provides a wide range of services to multiple families. Unlike single-family offices (SFOs), which serve only one wealthy family, MFOs pool resources to serve several families, often leading to cost efficiencies and access to more sophisticated services.

By using an MFO for wealth management, you can get a very personalized service without the heavy responsibility of running an SFO yourself.

You can read more about different family office structures in our article: The family office structure: A comprehensive guide.

An overview of multi-family office services

MFOs offer a long list of services aimed at preserving and growing family wealth across generations. Here are some of the key multi-family office services:

Investment management: Crafting bespoke investment strategies to align with the family's risk tolerance and financial goals.

Estate planning: Ensuring that wealth is transferred smoothly and tax-efficiently to future generations.

Tax services: Providing comprehensive tax planning and compliance services.

Philanthropy: Assisting families in achieving their charitable goals through structured giving strategies.

Lifestyle management: Services that go beyond financial management, such as managing luxury assets or personal concierge services.

Many people wonder what the multi-family office minimum net worth is. The simple answer is that most MFO clients have a net worth of more than $25 million. However, this highly depends on the country, and it can be significantly lower in some countries.

The rise of multi-family office wealth management

Multi-family office wealth management has become a cornerstone service for HNWIs seeking comprehensive and sophisticated financial solutions. The growing popularity of MFOs can be attributed to several factors.

One of them is cost efficiency. By serving multiple families, MFOs can share the costs of high-end services and technologies, making it a cost-effective option for many.

MFOs also give HNWIs access to a high level of expertise in many areas as they often employ specialists across various domains, from tax advisors to estate planners, providing a one-stop-shop for all wealth management needs.

Despite serving multiple clients, MFOs also offer highly personalized services tailored to each family's unique needs and goals. This level of customization is a significant draw for families looking for bespoke wealth management strategies.

Moving on to various types of fee structures used in MFOs.

Understanding multi-family office fees

Multi-family office fees can vary widely depending on the range and complexity of services provided. Here are some of the most common multi-family office fee structures:

Flat fees

Some MFOs charge a flat annual fee for their services. This fee is often determined based on the estimated amount of work required to manage your family's wealth effectively.

Flat fees provide predictability, making it easier to budget for these expenses. However, they can be relatively high, especially if you don’t fully utilize all the services offered.

Asset-based fees

Many MFOs charge fees based on a percentage of the assets under management (AUM). This approach aligns the MFO’s interests with those of the family, as the office earns more when the family’s assets grow. Asset-based fees can range from 0.5% to 2% of AUM annually, depending on the size of the assets and the services provided.

Service-based fees

In some cases, MFOs might charge fees based on specific services rendered. This could include fees for financial planning, tax advisory, estate planning, or other specialized services. Service-based fees provide flexibility, allowing families to pay only for the services they need.

Performance-based fees

A less common, but increasingly popular, fee structure is performance-based fees.

Under this model, the MFO charges a fee based on the performance of the investments they manage. If the investments perform well and exceed a certain benchmark, the MFO takes a percentage of the profits.

Hybrid fee structures

Many MFOs use a combination of the above fee structures to create a hybrid model that best suits their clients' needs. For example, they might charge a lower asset-based fee coupled with performance-based incentives or flat fees combined with service-based charges for specific tasks.

This flexibility allows MFOs to tailor their fee structures to provide the best value for their clients.

The role of technology in multi-family office private services

A critical factor in the effectiveness of MFOs is the use of advanced multi-family office software and multi-family office fintech solutions.

These tools facilitate seamless management of financial data, offering real-time reporting, streamlined operations, and enhanced transparency. They are invaluable for managing complex portfolios and tracking investments.

The future of multi-family offices

The future of MFOs is set for significant change, driven by digital advancements, the Great Wealth Transfer, and shifting client expectations. As 30% of global wealth is expected to change hands within the next decade, MFOs must adapt to stay competitive.

Digitalization is key, with next-gen clients demanding seamless tech integration for real-time access and personalized advice. However, combining technology with human insight will be crucial as the human aspect remains vital in building and maintaining strong client relationships.

Sustainability and ESG factors are also crucial, as the next generation prioritizes impactful investments. MFOs that offer sustainable investment options and comprehensive ESG reporting will attract and retain these socially conscious clients.

Client education and communication also are becoming more important. MFOs will need to invest in educating their clients about complex financial topics and maintaining open, transparent communication to build long-term trust.

At Aleta, we’re dedicated to sharing our knowledge with both wealth management professionals and HNWIs in our knowledge hub. Under the “Academy” theme you’ll find a series of articles specifically aimed at explaining concrete investment terms and metrics.

Competition in the MFO sector is growing. To be considered one of the best multi family offices, MFOs will need to differentiate themselves through innovative service offerings, superior client experience, and a strong focus on client-specific needs.