FOs come in all shapes and sizes, as do the set of services they provide. They broadly fall into a few categories:
Embedded FO, or Family Business Office
Where the family has an operating business, the broader functions of managing the family’s diversified wealth and other affairs are embedded within the operating business. In practice that means that the FO is run by the owners with the support of staff who are employed by the operating business in other roles. For example, the CFO may also be responsible for managing some investments and estate or tax work, a EA/PA may co-ordinate the family holiday home or other concierge functions for the broader family.
This is how many FOs get started, certainly when there is an operating business, and it can work quite effectively. One challenge is that the costs of running the FO are absorbed in the operating business expenses and therefore not readily quantifiable. If the business is to be sold, then the accounts to not reflect its true value. Not having dedicated resources can also mean staff can be distracted or have competing priorities for their time.
Single Family Office (SFO)
In this model, the FO functions are all done by a dedicated entity and team separate from any operating business. If there is an operating business, the SFO might share resources (e.g. the same physical office), but it would have dedicated staff and may pay its fair share of rent. This way, there is a clear understanding of the true cost of managing the family’s affairs, the the resources employed to do this are dedicated to that role.
Because having a team to do this comes at a high fixed cost, this model is generally only considered suitable for a family where the size and complexity of the wealth can justify the expense. Even so, this model can have key person and knowledge concentration risks.
Virtual Family Office
This is something of a variation of the single family office. Rather than employing a full in-house team to do everything, some functions are outsourced to external professionals such as accounting, legal and wealth management firms. This can help mitigate some of the risks outlined above, and also reduce the fixed costs making the model more suitable for certain levels of wealth.
Multi Family Office (MFO)
A multi family office is an organisation that provides the set of FO services to other families. In many cases, multi family offices grow from single family offices: a family establishes an office for themselves, which brings a degree of professionalism, systems and processes, and the decide to spin this out as a business where they are the initial client, and they offer these same services to other families. Some MFOs are born from a few founder families combining to get economies of scale and share resources, and then expanding and offering their service to others. This can be a more efficient model for families and mitigates a number of the business risks associated with doing it yourself. What comes with that is a loss of control – the MFO offers what it offers, but if you want something more specialised, it may not be possible.
MFOs themselves offer a wide spectrum of services. Many offer deal syndication or aggregated access to deal flow and call themselves MFOs, but they are really just boutique investment platforms.