Selecting a family office
When it comes to centralizing the management of a family’s wealth, families with assets in excess of $US 250 million are likely to set up their own single family office and hire top experts internally.
Under this $US 250 million threshold, families of substantial wealth are more likely to use the services of a multi-family office to benefit from economies of scale (top experts come at a high price) and to get access to the best expertise available. We have asked Jan van Bueren and Thomas Ming, multifamily office experts to help us better understand multi family office service providers and how to select them. Jan and Thomas are the founders of FOSS Family Office Services Switzerland which was set up to support families in their search for and selection of a multi-family office.
Who are the multi-family office service providers?
There are a large number of professionals offering multi-family office services. A considerable number of providers have a private banking background, but there are also providers with for example a legal, accounting, or trust background. Within our database we hold the details of providers with all types of backgrounds, so not only limited to financial service providers.
What are the typical services they offer?
Typical services which are offered are wealth management, asset allocation, consolidated reporting, lifestyle management, wealth planning, real estate services, direct investments, and tax and legal services.
The services offered by multi-family offices are often strongly tied to the expertise of its founding partners. A former tax lawyer setting up a multi-family office will primarily focus on structuring assets, while a multi-family office established by former bankers will primarily provide investment services. Hardly any multi-family office offers ‘all’ services. It is therefore important for families to follow a thorough selection process and to at least visit and analyse several providers before choosing a multi-family office to work with.
Who are they for?
Multi-family offices are commercially operated and used by affluent families to support them with the organisation, management and maintenance of parts of their assets, needs and wishes. On average the wealth of families using multi-family office services ranges from GBP 15 million to GBP 350 million. Above this amount most families, although not all, will prefer to use some type of single-family office set-up. It very much depends on the actual composition of a family’s wealth if a multi-family office is the right solution.
What would you say is the minimum a service provider should have in house (expertise, manpower etc.) to call himself a multi-family office?
In almost all jurisdictions everybody can establish a multi-family office and start offering family office services to the general public without a licence. Only in case financial services are part of the offering, this part of the services is mostly regulated.
Among others because of the lack of regulation, a really wide range of different services is offered under the title ‘family office services’. We are not of the opinion that a multi-family office should by definition offer a wide range of services. It should just be very transparent to its clients about what it really offers and in which it is specialised, and what type of service is out of scope. Also the necessary number of staff is not set in stone, as that very much correlates with the number of clients served.
A multi-family office ‘only’ offering lifestyle management can still be perceived and cherished by clients as their family office. Two former private bankers stating that they can assist with a wide range of services such as real estate, family governance, private equity, wealth planning, etc. might look from the outside like a true multi-family office but often turns out to be nothing more than an external asset manager, who in its turn refers specific tasks to external specialists.
Where are they most likely to be found?
Outside of the USA the highest number of multi-family offices is located in Switzerland. These family offices are focusing on both Swiss and international clients and new players are regularly entering the market. Also the UK is home to a considerable number of multi-family offices. In most Western-European jurisdictions you find some family offices, but the difference there is that those are primarily focussed on local families.
Since several years family offices are also a trend in Asia. Although single-family offices have so far been in focus, also multi-family offices are being increasingly established. Most of those are found in Singapore and Hong Kong and are so far primarily focusing on investment services. In relation to the amount of wealth in Asia, their number is still relatively small.
How many multi-family offices are there globally? in Switzerland?
Within our multi-family office database we have so far gathered the details of over 450 Swiss based multi-family offices. We believe to have captured the absolute majority of providers in Switzerland.
It is very difficult to give an estimate how many family offices there are globally. We estimate that there are approximately 12,000 single- and multi-family offices globally. But such an estimate is very much depending on which definition one uses.
When selecting a multi-family office, does the jurisdiction it is based in matter?
Yes. This is actually an essential element that deserves serious thought.
A family needs to select a country that is politically, economically and financially stable, provides easy access to financial service providers, and offers a sound infrastructure, and where staff is highly qualified and experienced.
A common mistake families make is to choose or create a family office in the same jurisdiction as where they live. Although this can be very practical, for example from a communication point of view, this is often not the best choice when examined from a wealth-preservation perspective. Because one of the primary roles of a family office is to safeguard assets, and to be able to assist the family under all kinds of circumstances.
What are the main risks to avoid when dealing with a multi-family office? How regulated are they?
Families should foremost make sure that they really understand their own needs and try to establish what their latent needs are. Especially when investment management is involved, which is mostly the case, they should be aware that there are two main types of multi-family offices;
- family offices that manage the assets themselves (this is the majority), and
- family offices which only select, control and monitor external parties to manage the assets of the family.
These two types are fundamentally different.
Multi-family offices are less regulated than private banks and families need to understand that it is not impossible that they at some point might not be satisfied with the investment performance of the multi-family office of their choice.
You focus on the Swiss market, can you tell us a bit more about the specificity of multi-family offices in Switzerland and why you only focus on this market?
There are several reasons why we have started our activity with a focus on the Swiss market. After the USA, Switzerland is home to the highest number of multi-family offices. What sets the Swiss multi-family office industry apart from most jurisdictions is the fact that a very high number of those providers is focussed on international clients from outside the jurisdiction, instead of Swiss clients. And finally, just because we happened to live in Switzerland.
Now that we have left the start-up face of our service, we have also started to add foreign multi-family offices to our database and are also giving affluent families advice on the selection of a suitable multi-family office in their home jurisdiction.
Do you have plans to extend your reach?
Yes. We are currently also adding European based multi-family offices to our database. And where we originally only offered multi-family office selection services, we are now also advising on the establishment of single-family offices.
How did the idea of setting up a selection service for families came about? How are you structured?
This was one of the needs we came across in our role as wealth planners of one of the larger Swiss private banks, Union Bancaire Privée, UBP SA (UBP). For UBP we deal on a daily basis, with complex international wealth planning issues for internationally oriented affluent families, corporate structures, private placement life insurance, international relocation schemes and structures such as trusts and family foundations.
Once we realised in 2011 that there were more families who found the multi-family office market exceedingly non-transparent and looking for objective support in that respect, we have developed FOSS’ dedicated service.
FOSS is an integrated part of the wealth planning department of UBP in Zurich. It gives us an opportunity to reach out to affluent families, not (yet) client of UBP, looking for guidance and expertise.
Can you take us through the process a family will go through when using your services?
We have a 4-stage process:
We first analyse and map, based on a unique evaluation process, the specific needs of the family with regard to a family office (single or multi). Than we draw up a shortlist (of 3 or 4) of the most suitable high-quality family offices that offer the exact services which that family is searching for. Our database is actually instrumental for that.
Subsequently meetings with the selected family offices are organised by us and we visit each one jointly with the family (representatives). During these visits we focus on selecting the multi-family office with the philosophy, services and accompanying cost structure that best fit the family’s needs. Afterwards we jointly analyse the meetings, and ultimately it is our client whom select the right/best family office the family.
Could you give us an example of a family you have helped?
Yes, but only in a nutshell. We are currently supporting a family looking for a multi-family office able to cope with corporate finance advisory as well as financial asset advisory. What makes this particular case interesting is that there are in fact not so many multi-family offices that are able to deal with this last requirement and we managed to screen the market and guide the client to a suitable solution.
What final advice would you give to a family looking to hire a multi-family office?
Make absolutely sure that you really know what your needs are, and always visit a number of multi-family offices before you make your final choice. Families should realise that the provider their best friend is cooperating with, is not automatically also the right provider for them.