Multi-family office

I. Introduction – Multi-Family Office Mania

• The term “Multi-Family Office” (“MFO”) is becoming commonplace in the financial services market.

• Many financial institutions now claim that they are MFOs or that they provide MFO services.

• According to Bloomberg Wealth Manager Magazine, the MFO industry grew to $170 Billion of assets under management in 2003. That is a 17% increase over the prior year. In 2004, the increase was 26.6%

• MFOs manage an estimated 10% of the wealth of all ultra-high-net-worth-families.

II. What is a Multi-Family Office (MFO)?

A multi-family office is most often a commercial enterprise established to meet the investment, estate planning, and in some cases the lifestyle and tax service needs of affluent families.

MFOs are often created in in one of three ways: (1) a single family office opens its doors to additional clients or merges with another single family office, (2) a MFO is created as a start up by a team of advisors (typically with some combination of investment, tax and or legal professional credentials) or (3) an existing financial institution (most often a bank or brokerage firm) creates a MFO subsidiary or division.

Many MFOs are registered investment advisors, some are trust companies and a handful are accounting or law firms.

A MFO often has 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 utilized by clients. MFOs usually follow a “service delivery model” holding themselves out as an objective provider of advice that places 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 information about their clients investments, tax situation, estate plan and family dynamics. With this information the MFO can assist in structuring and administering the clients’ financial universe in an optimal fashion.

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.

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). Large account sizes combined with low client-to-employee ratios allows a great deal of focus and attention on each client family. Meetings with clients often occur many times a year.

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 counseled on investments, taxes, estate planning, and philanthropy from an early age. MFOs often coordinate and moderate family meetings for their client families.

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.

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). The bulk of the research done for the individual investor relates to 401ks and IRAs. For a better understanding of this consult:

"Tax Aware Investing" by Doug Rogers and any of the whitepapers or Journal of Wealth Management articles by David Stein or Craig Arnott.

III. Benefits of a MFO

A. Objective financial advice

B. Creative solutions to financial issues

C. Clearinghouse for financial, investment, tax and estate planning ideas

D. Services are typically “all you can eat” for asset based fee

E. Advice from professional team with diverse backgrounds

F. Coordination of other advisers

G. Proactive advice – a function of low client to employee ratio and frequency of meetings

H. Delivery of “best of breed” money managers, custody, insurance, loans, etc.

I. Negotiated cost savings with other financial providers (e.g. investment management, custody, trading costs)

J. Integration of client’s estate planning, income taxes, investments, philanthropic goals and family situation

IV. Common Services Provided by MFOs

A. Trustee Services

B. Coordination of Professionals

C. Cash Management

D. Global Asset Allocation and Investment Strategy Consulting

E. Comprehensive Performance Reporting

F. Investment Manager Selection and Monitoring

G. Portfolio Management

H. Estate Planning

I. Philanthropic Planning

J. Life Insurance Analysis

K. Debt Structure and Analysis – Bank Financing

L. Tax Return Preparation

M. Foundation Management

N. Entity Administration (FLPs, CLTs, CRTs, Installment Sales, etc.)

O. Aircraft Consulting

P. Risk Management & Asset Protection Consulting

Q. Fraud Detection/Accountability

R. Real Estate Management

S. Family Business Advisory

T. Family Counseling/Family Meetings

U. Sufficiency and Retirement Planning

V. Document Management and Recordkeeping

W. Bill Payment Services

X. Personal Financial Statement Preparation

V. Some Current MFOs

• Apogee Family Office http://www.apogee360.com/
• Meristem http://www.meristemmfo.com/pov-wos.php
• Pitcairn Financial Group http://www.pitcairn.com/
• Rockefeller & Company http://www.rockco.com/
• Sentinel Trust Company http://www.sentineltrust.com/
• The St. Louis Trust Company http://www.stlouistrust.com/
• TAG Associates http://www.tagassoc.com/
• Whittier Trust Company http://www.whittiertrust.com/
• MaxCap Partners LLP http://www.maxcap-partners.com/

VI. Bibliography

• Family Office Exchange on MFOs: http://www.foxexchange.com/public/fox/mfo/mfo.asp
• Sara Hamilton, “The Multi-Family Office Mania”, Trusts & Estates, November 2002 (http://www.qgltd.com/PDFs/familyoffice.pdf)
• Kieran Beer, “Higher Ground”, Bloomberg Wealth Manager, September 2004
• Robert Frank, “How to Bank Like a Billionaire”, The Wall Street Journal, June 10, 2004 page D1. (http://webreprints.djreprints.com/1005380530169.html)

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