One of the most common questions facing families is: what kind of family office do I set up? Typically, the choice is between setting one up yourself – a single family office (SFO) – or getting services from a multi family office (MFO). But just as family offices come in all shapes and sizes, another option – the virtual family office – is becoming more popular and worthy of consideration for many families.
Where to start? The set of FO services offered by MFOs and private banks can read like the lavish menu at a Chinese restaurant and leave us overwhelmed with choice (just the beef fried rice for me, thanks. OK, an egg roll too). They can be a useful prompt for the sorts of services your family might need. Other resources that compare the pros and cons of different types of FOs can also be helpful.
But as Lewis Carroll beautifully put it in Alice in Wonderland, “if you don’t know where you want to go, then it doesn’t matter which path you take”. So the most important starting point is “why?” and please don’t say “because John also just had a liquidity event and he setup a FO”. That is surely the worst reason to setup a family office, yet sadly a common one.
The questioning should be around “what complexity in my family would a set of family office services solve?” which can lead to “what are our goals as a family?” which can lead to “what does it mean for us to be a family?” and “what are our shared values and purpose as a family?” That is when we get to the good stuff. These questions are more difficult than SFO vs MFO vs VFO, but once you have the answers, finding the appropriate form for your family office will be so much easier.
Architect Louis Sullivan said, “form follows function” and this applies equally to FOs as it does to buildings. After all, a FO is a structure intended to last for generations, so it should be built with the long-term family goals in mind.
Once you set your goals, go back to the menu of services and identify which of them meet a genuine need within your family. Don’t go to the supermarket without a shopping list, and don’t shop for FO functionality without a set of requirements. Then, think about how these functions are best resourced. Not just now, but in a generation. Don’t setup a role for someone (especially a family member) that ends up being a millstone around their neck. The intent of a FO is to help the family navigate complexity, not provide family members with jobs nor turn them into wealth manages.
One of the most important considerations is risk, and particularly with a FO (which are often relatively small), key person risk is paramount. This is where virtual services can be so helpful. While you may need a CIO or investment professionals or concierge, you (a) may not need then in units of whole people, and (b) need to consider what happens if they leave. Fractional services provided by specialists can be very effective. As an example, you can build a VFO with 0.2 of a CIO (i.e. virtual), an analyst, and an EA who co-ordinates outsourced/virtual admin, lifestyle, and reporting services. A lean and robust structure like this can leave you as the part-time CEO, giving you the most valuable thing of all: time to do what you really want.
Conversation Starters:
Why does your FO exist? In what ways does it meet the needs of your family? When did you last complete a risk assessment of the FO? When did you last review the extent to which the FO is delivery on the goals of the family?
Further reading:
Do You Need An SFO, MFO Or VFO?
Health really is wealth for UHNWs, Julius Baer family office survey finds
Is It Time To Rethink Your Single-Family Office?
When is the right time to establish your family office?
The Rise And Rise Of The Family Office: An Analysis
There Is No Such Thing As A Family Office – Part 1
New Family Offices Can Teach Old Ones a Data Trick
Here is more reading on Family Office.
