Introduction

A family office or a single family office (SFO) is a private company that manages the wealth of an ultra high net worth individual family, managing the investments, trusts and affairs for the individual family. The company's financial capital is the family's own wealth which has often been accumulated over several generations of the family. There is no standard for how a single family office should be structured as the entity is driven by the needs and preferences of the underlying family. For example, some single family offices are lean enterprises that focus exclusively on investing with a skeleton crew while others are robust organisations with in-house staff, numerous vendor relationships and a broad platform of services.

A traditional family office is a business run by and for a single family. Its sole function is to centralise the management of a significant family fortune. Typically, these organizations employ staff to manage investments, taxes, philanthropic activities, trusts, and legal matters. The purpose of the family office is to effectively transfer established wealth across generations. The family office invests the family's money, manages all of the family's assets, and disburses payments to family members as required.

The office itself either is, or operates just like a corporation, with a president, CFO, CIO, etc. and support staff however the office can be run by an individual. The officers are compensated per their arrangement with the family either on a fixed hourly fee for the services delivered or a fee as a percentage of the assets under management or a combination of the two, usually with overrides based on the profits or capital gains generated by the office. Often, family offices are built around core assets that are professionally managed. A more aggressive and well-capitalised office may be engaged in more services such as private equity placement, venture capital opportunities and real estate development across the world.

Services Offered by Family Offices

Traditional family offices provide personal services such as managing household staff and making travel arrangements. Other services that are also typically handled by traditional family offices include property management, day-to-day accounting and payroll activities and management of legal affairs. More recently, family offices have begun to provide family management services, which include family governance, financial education, philanthropy coordination, success planning and retirement planning. Many other services are provided such as coordination of professionals, life insurance analysis, tax return preparation, foundation management, entity administration, fraud detection/accountability, family business advisory, bill payment services, document managementand global asset allocation.

The Transformation from Single to Multi-Family Offices

The family office concept has its roots back in the sixth century from royalty. Then, a major-domo would speak, make arrangements, or take charge for the affairs of the royal family and its wealth. Later in the sixth century, the upper nobility started to use these services of the major-domo as well. This created the concept of administratorship that has since prevailed.

The modern concept and understanding of family offices was developed in the nineteenth century. In 1838, the family of JP Morgan founded the House of Morgan, which managed the families' assets and in 1882, the Rockefellers with their enormous wealth founded their own single family office, which has prevailed until today and like many other single family offices has become a multi-family office.

Many family offices have started their business as single family offices, where the family owns the family office and the family office only serves the owner family. Instead of covering the entire operative costs, many owners of single family offices decided to offer its services to other families as well. This concept is called multi-family office or multi-client family office. Only a few multi-family offices have founded their business independently, without a large family backing it. In addition, the development of the multi-family office came as a result of the growing number of wealthy families, many of whom were unable to afford their own single family offices, as well as the rapid developments in technology within the financial markets which required greater sophistication and skill in financial advisors in the 1980s and 1990s. Attracting and retaining such talented employees became more difficult. These changes, combined with the consolidation of the financial services industry, significantly diminished the role of the bank trust departments that traditionally served the wealthy families. These trends resulted in an increased need and cost for family office-type services. To defray such costs, many families opened their family offices to non-family members, resulting in the multi-family office.

Introduction

A multi-family office (MFO) is similar to a single family office except that they look after multiple clients (families). Other differences are the fewer services that they offer due to the magnitude of families being served as well as the fact that they can be an existing company compared to one made specifically by an individual family.

Benefits of Multi-Family Offices

Many MFOs have the following benefits:

  • Objective financial advice
  • Performance-based remuneration structures
  • Co-investment oriented model
  • Creative solutions to financial issues
  • Cross-fertilisation of ideas resulting from solving issues for multiple families
  • Advice from professional team with diverse backgrounds
  • Coordination of other advisers
  • Proactive advice and attention - a function of low client to employee ratio and frequency of meetings
  • Delivery of 'best of breed' money managers, custody, insurance, loans, etc.
  • Negotiated cost savings with other financial providers (e.g. investment management, custody, trading costs, insurance)
  • Integration of client's estate planning, income taxes, investments, philanthropic goals and family situation
  • The families' net worth does not have to be as high as with a single family office

Specialisms of Multi-Family Offices Depending on Founders

Most MFOs tend to focus on only one or a limited number of services, which are often closely related to the background of the founders:

Former wealth managers - This type of MFO focuses primarily on asset management, asset allocation, consolidated reporting, risk management and managing relationships with banks. These MFOs are often established by a small number of former bankers. Recently, smaller private banks have been repositioning themselves as MFOs.

Law firms or lawyers - Generally, these MFOs focus on estate planning, succession planning, family governance and legal issues. Their services are often also related to the family business structure. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is handled in-house.

Tax consultants, tax lawyers or accountancy firms - These MFOs focus on tax-efficient structuring, establishing and managing international structures for family businesses and real estate, international relocation, estate and succession planning, and audit and administration. Again asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is handled in-house.

Private banks or MFOs owned by private banks - These MFOs focus on asset allocation and asset management.

Trust providers or trustees - These MFOs focus primarily on setting up and administering structures such as trusts, foundations and holding companies; and audit and administrative services. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is handled in-house.

An SFO opening up to other clients - This is a difficult category to define, as the services offered are often closely related to the original needs of the founder family. Most have a focus on asset management, consolidated reporting and risk management, and combined with a limited number of other activities, such as real estate or private equity investments.

Others - This small but broad category includes MFOs founded by real estate or private equity experts, former investment bankers, or people with a focus on lifestyle management.


MFOs can be created in one of three ways:

  • A single family office opens its doors to additional clients or merges with another single family office
  • As a start up by a team of advisors (typically with some combination of investment, tax and/or legal professional credentials)
  • An existing financial institution (most often a bank or brokerage firm) creates an MFO subsidiary or division.

Characteristics of Multi-Family Offices

MFOs tend to have the following characteristics:

Independence - MFOs typically do not sell traditional products that a family might typically encounter from a brokerage firm and generally are not compensated for the products utilised by clients. MFOs usually follow a 'service delivery model' holding themselves out as objective providers of advice that place the interests of their clients first.

Breadth and Integration of Services - MFOs provide a wide array of services and typically oversee their clients' entire financial universe. MFOs will have full access to information about their client's investments, tax situation, estate plan and family dynamics. With this information the MFO can assist in structuring and administering the clients' financial universe as optimally as possible.

Professionals with Diverse Skills and Deep Specialties - MFO professionals provide a wide array of advice and assistance to their clients. MFOs also have to be able to provide specialty knowledge on certain topics such as: income taxation, estate planning, and investments, based on the employees' education and previous employment.

High Touch Services - MFOs have high average account sizes (usually in the tens of millions) and low client to employee ratios (around 3 to 1 range). These large account sizes combined with low client-to-employee ratios allow a great deal of focus and attention on each client family. Meetings with clients often occur many times a year on a regular basis.

Multi-Generational Planning - MFOs typically work with an entire family - the patriarch/matriarch, their children and grandchildren. Planning encompasses the family's goals, which typically includes passing wealth down to lower generations in a tax efficient manner. Children and grandchildren are clients and are counselled on investments, taxes, estate planning, and philanthropy from an early age. MFOs often coordinate and moderate family meetings for their client families thus planning optimally.

Outsourcing - MFOs do not typically provide all services in-house. It is common for some of the investment management to be outsourced to independent money managers. Custody and tax return preparation are also commonly outsourced. However, some family offices may employ people so that no outsourcing is required.

Focus on Taxable Investor - Most MFOs have a myopic focus on taxable investors as the bulk of their client's assets are subject to short and long-term capital gains. This is unique to very high-net-worth families. Most investment research (academic and financial service industry) is geared toward the institutional investor and foundations (with very different tax concerns than individuals and families).

Inspired by the founding families of Niveda, our core focus at the Niveda Group is in real estate. This is due to the tangibility of this asset class (as a security), the regular income that is earned from it (in the form of rent), and the returns that are generated from the development of the real estate. Real estate is a major asset class in all of our client families' portfolios, and accounts for 50% to 95% of their overall wealth. For this reason, Niveda has a hands-on approach in the following areas relating to real estate:

The finance division at Niveda provides the broader diversification to our client families into sectors besides real estate itself. These sectors include venture capital, private equity, listed equities and fixed income, and asset-backed lending. These investment activities are conducted through the following entities relating to finance:

Whilst all of our operations at the Niveda Group are primarily structured for the families that we look after at Niveda, we regularly have institutional investors and external family offices that also join us in individual investment opportunities when there may be a strategic role for them.

At Niveda, what makes us different is our alignment with all our client families and investors:

  1. Co-Investment - We always co-invest into every investment opportunity that we share with our client families.
  2. No Upfront Fees - We do not charge any deal origination fees to our client families.
  3. No Ongoing Management Fees - We believe in our reward coming in the form of a performance fee or profit share once we have exited out of the investment opportunity.

If you would like to learn more about Niveda's investment philosophy and the services that we can offer you, please contact us via phone or e-mail.