We are often asked to explain the concept of Family Office, what it is and who it is for. In this article we have focused on both the Single Family Office (SFO) and Multi Family Office (MFO).
What is a single family office?
A SFO is a controlled legal entity which manages the assets of a family or an individual with the sole purpose of protecting and growing the overall wealth. This legal entity can be of different legal forms, depending on the jurisdiction concerned. The entity may also hold other legal entities for specific purposes. There is no single model of SFO – each is, by its nature, highly tailored to meet the family’s needs.
History of SFOs
SFOs originated to manage the wealth of royal families in Europe, and the first SFO in the United States was registered in 1838 for J.P. Morgan. There has been an exponential growth of the SFO and MFO in the past 15 years as a result of the concentration of the assets in the hands of fewer individuals. It is estimated that there were 14 million HNWIs worldwide in 2019 and often they find the SFO a good solution for the management of their wealth.
Why establish a SFO?
Each family’s circumstances are different but common themes include the organisation of wealth, clarity in succession planning, avoiding issues in the event of family conflict, the complexity of the management of certain assets, confidentiality, particular projects, higher profits, philanthropic endeavours and the separation of personal and business assets.
Location and form
When deciding on where to base the SFO, a number of factors are usually considered. These include the residence of the principal of the family, the allocation of the assets, the tax implications, legal considerations, the costs, the objectives and the safety, as well as the need to locate the SFO in a financial centre where the ecosystem efficiently supports the daily operations.
Expert advice should always be sought on jurisdiction and form.
Staff
The management of a SFO requires highly experienced personnel in various fields. These include strategy, marketing, risk, investments/finance and law – to name just a few. It is essential that the principal has confidence in the people who will conduct the operations and that the interests of the staff are aligned with his/hers. A SFO can have numbers of staff that vary from 1 to 50 employees or more. The most common profiles hired are CEO, CFO, CIO, COO, investments analysts, information technology specialists, lawyers, accountants.
With the SFO, all of these people are within the reach of the principal(s). There are of course also many services which are often managed by the SFO but outsourced.
Services
Services provided by the SFO are wide-ranging depending on needs, aspirations, and visions. Often the core business activity of an SFO will include investments, but a family office can provide a wide array of other services such as:
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Financial Planning:
Investments
Risk analysis
Performance review
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Strategy:
Formalisation of Family vision and mission
Determining if FO is a cost or profit entity
Business development
Project management
Market intelligence
M&A
Reputation management strategy
Web visibility and social media strategy
Insurance assessment
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Wealth Planning:
Next generation wealth transfer
Family governance
Wealth protection
Assets evaluation
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Legal tax:
Legal advisory
Tax advisory
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Philanthropic management
Donation strategy
Trusts or Foundations formation
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Life management
Immigration & citizenships
Heirs education
Properties, memberships, holiday
Physical security of the family
Fleet management (cars, planes boats, etc.)
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Record keeping and recording
Consolidation reporting
Performance reporting
Tax preparation and filing
Coordination with tax authorities
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Administration
Human resources management
Manager selection
Accounting
Audit
Bills payments
Costs review
Bank accounts opening
Translations
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Tech
Edge (please refer to Technology section)
Data security and risk assessment
Minimum AUM for a SFO
There is no minimum, but certainly the creation and maintenance of a SFO must make financial sense. For many, having a SFO is a lifestyle choice.
Costs
This varies hugely depending on the size and remit of the SFO. Often the most significant costs will be the rent, if you intend to rent an office space, and the staff. Along with these there are costs for the creation of the SFO, for consultants, for business travel, for software, for licenses. It has been cited that the costs can roughly equate to 0.8%-2% of AUM. For some this is well worth the money. Other clients may prefer an option such as JTC’s Private Office, which can offer flexible services that are required at a lower cost.
Technology:
With technology advancing at an incredible speed, transforming all businesses of the world, family offices have to keep pace, and they can benefit from technological advancement to bring value to enhance their services. Robotic, process automation, cloud computing, cognitive technologies, big data and apps could significantly improve the way family offices do business, and they will involve initial costs. An important function for family offices is the consolidation of data. For this reason, at JTC Group we have invested in our own software, Edge. Edge is a secure, integrated technology platform that gives clients peace of mind that during their lifetime, or after their death, their finances and affairs will all be organized. JTC’s goal is to simplify the lives of our clients, with often complex interests in different locations around the world, and to save them their most valuable asset, their time.
How does a MFO differ from a SFO?
In brief, the services provided by a MFO can be the same as those offered by a SFO. The MFO can be a lower cost option because the resources can be shared by the clients of the MFO. Another difference is that a SFO does not bill, because the services are rendered to the principal, whereas the MFO has external clients to be billed. As a curiosity, Zurich seems to be the city in the world with the highest concentration of MFOs. Successful MFOs are often those with an extensive international network. The services provided by the MFO may in some cases be less personalised – but this is not necessarily the case and will depend on the quality and efficiency of the MFO.
At JTC Private Office we have full capacity to cover the services described in the article typically covered by SFO and MFO. To find out more please get in touch.
