Today’s family offices come in several shapes and sizes. Here’s our guide to the nine different types.
Can a multi-family office have a personality? We certainly think so. With every family having their own unique needs, it stands to reason that the multi-family office (MFO) they use will be structured to reflect them. But it wasn’t always this way.
In the early days, the arrangements were simple. Back in the sixth century, when the first family office was said to have been founded, monarchs appointed a steward who managed their wealth. Later, the old English aristocratic families, for example, began to establish their estate offices to exercise control over their land and other assets. In the 19th century and things became more complex still when J.P. Morgan and the Rockefeller family both founded the first modern family offices to manage their vast wealth.
The next iteration was when single family offices began working with other families, mostly as a favour – they had the resources so other not-as-wealthy families asked if they could also manage their money. Today, the new breed of MFO comes in many shapes and sizes, providing a broad range of services from the fairly straightforward to the highly complex.
Whether you take the view that the family office is an institution dating back 1,500 years or just 150, there is no question that they have evolved to the point where today there is a type of MFO to suit most families. Below is our attempt to categorise the principal types of MFO we see in the market today, based on how they serve their clients.
How they are born: Most often they start as a family office focused on managing the affairs of a single family. They directly hire experts as an alternative to engaging larger firms or paying hourly fees (lawyers, accountants, investment bankers, traders, and so on). At a certain point, they are either asked to manage the affairs of other families or they realise that the economies of scale of defraying the fixed costs among a larger asset base makes logical sense.
Operating model: These family offices often started as a small team that focused on investments or general concierge services. As the team grows, or the family wealth grows, more experts from different disciplines are added to the team.
Key solutions: Investments (discretionary), concierge.
How they are born: Constructed by design, they are usually founded by a group of bankers leaving their firm and striking out on their own. They can have a specific geographic or sector focus, which they may have not been able to deal with at their previous firm. They will look to their existing client base to allow them to manage their investible assets through a third-party authority arrangement. This means they do not have to change the custodian or on-board new client families at their firm. Their growth will come from hiring additional bankers from other large financial institutions.
Operating model: Individuals are regulated but the firm is not licensed to hold client money, so they are dependent on other financial institutions to provide them with back office services.
Key solutions: Investments (advisory), credit.
How they are born: Acting as an independent financial adviser or as a part of a firm, some investment advisers are re-branding themselves as an MFO. They can offer an open-architecture model with access to the whole market, but their business model might also be tied to a specific wealth solution or fund family. In North America in particular there have been a large number of investment advisers, either independent financial advisers or registered investment advisers, who are rebranding themselves as MFOs. Even some large investment houses will allow their advisers to run under their own brand (for example, The Reed Private Office) where they will offer investment services as an anchor service.
Operating model: Investment advice and some wealth planning solutions through a parent firm.
Key solutions: Investments (advisory, discretionary or funds).
How they are born: Technically not an MFO, these fintech companies offer technology-based solutions. They work more as information consolidators from custodians, banks and other financial services providers, thereby offering operational efficiency. Acting as an intermediary for other MFOs, they can leverage their position to offer their own unique service, accessing families directly through the advisers and offering complementary services beyond investments.
Operating model: Largely fintech but can provide access to other non-investment related services.
Key solutions: Consolidated reporting, concierge, insurance.
How they are born: The purest form of MFO focuses on being completely advisory, offering assistance on family governance, investment oversight, financial planning and estate/legal matters. They are relatively uncommon as there needs to be a philosophical transition from fees being earned through services being offered to a fixed fee for advice and oversight. While this may be the most transparent format, it can be more difficult to find clients and sell the proposition.
Operating model: Consolidating asset-based information, they can supervise the family’s overall financial affairs and their advisers.
Key solutions: Advice and oversight. Not solutions directly provided unless a gap exists in existing solution set.
How they are born: Some of the largest independent MFOs, which are commercially successful, have created a complete ecosystem where they provide almost all of the financial solutions and advice that clients would desire, for example legal, tax, real estate, governance, philanthropy, funds, private equity, investment clubs. While the model may feel more expensive than traditional investment-only models, they offer bespoke services to complex, international families and bring cost savings through an integrated team under one umbrella. Some of their clients will be the largest families in the world.
Operating model: Development of own solutions including funds and trust. Operate middleware technology to use omnibus custody platform. Availability of complete financial solution set from an orchestrated collection of financial partners under one roof.
Key solutions: Investments (discretionary and advisory), fiduciary and corporate administration, direct investments, legal, philanthropic advice, property acquisition and management, alternative asset expertise, insurance.
How they are born: Trustees who are closely intertwined with a family’s affairs can transform themselves into an MFO. This makes sense as they are legal owners of the assets and become the solution source for all aspects of the trust. When you look at the definition and origin of the family office (a third party taking responsibility for a family’s wealth), this meshes well with the origin of the common law trust.
Operating model: Act as fiduciary to beneficiaries for a defined portion of a family’s wealth. In many cases, they become very close to the family and wealth that they become a trusted adviser.
Key solutions: Trust and corporate administration.
How they are born: Some MFOs prefer to keep their offering simple by providing administrative services to the family. This may include bill payment, day-to-day banking, and simple credit and concierge services. They generally earn their fees through banking services. As they deal with the families, sometimes on a daily basis, they can build a very tight relationship. As they can be saddled with the mundane, it may become difficult to be seen as a solution provider for complex needs.
Operating model: Concierge-type services and day-to-day banking.
Key solutions: Banking, credit, foreign exchange.
How they are born: Some of the largest MFOs in the world, based on assets under management and administration, have been either created or purchased by large financial institutions. They can either offer an open-architecture set of wealth solutions or be closely tied to the solutions that the parent bank offers. In some cases, they have full independence but there is an innate pressure to offer tied solutions.
Operating model: Operate in a similar way to the high-net-worth department of the large financial institution that owns them.
Key solutions: Investments (advisory, discretionary), credit, banking, trust.
There are many reasons why working with an MFO makes sense. For families that have significant and complex wealth but also a desire to keep headline costs as low as possible, joining with other families to establish an MFO, or to work with one that already exists, can create economies of scale. As we have illustrated, the range of financial institutions that offer multi-family office services is broad; they can offer anything from basic investment management or business administration services to an all-encompassing suite of concierge, banking, investment management, business administration, philanthropy, financial planning and legal services. With modern MFOs coming in so many shapes and sizes, choosing among them will perhaps be the most difficult part of the selection process for any family.
This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.
The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Royal Bank of Canada.
Clients of United Kingdom companies may be entitled to compensation from the UK Financial Services Compensation Scheme if any of these entities cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. The Channel Island subsidiaries are not covered by the UK Financial Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands) Limited in Guernsey and Jersey are covered by the respective compensation schemes in these jurisdictions for deposit taking business only.
We want to talk about your financial future.