Five pitfalls of multi-family office selection
Published in the Execute Global Magazine, July 2015
The number of wealthy families around the globe keeps continuously growing. This development is clearly affecting demand for wealth management services as families are increasingly turning to multi-family offices (MFO) to manage their wealth.
Families which consider moving from standard wealth management services to dedicated MFO services mostly overlook the pitfalls coming along with that process. In this article we focus on five pitfalls coming along with selecting the MFO best suited to a family’s wishes.
1. From wealth management to family office services
What amount is necessary to start using MFO services? Instead of asking themselves this question, a family should discuss why a MFO would really be needed, which goals are pursued, and which type of MFO is in the best position to realise those?
Families are looking for a provider without any conflict of interest. However, as a client you need to be well aware that, contrary to single-family-offices, the majority of MFOs try to make money just like your current wealth manager.
2. The MFO jurisdiction
A common mistake families make is to choose an MFO located in their home country. This is often not the best choice when examined from a wealth-preservation perspective, as one of the primary roles of an MFO is to safeguard assets.
This means that the MFO needs to be able to protect the family’s assets against geographical, political and economic risks, under any circumstance. Therefore the MFO should be located in a secure and stable jurisdiction such as Switzerland.
3. Types of family office services
Establishing the actual needs of the family is an essential element in the process of selecting an MFO. Starting point is the family background. Based on that, the primary goal of the MFO should be established.
Core services can then be selected. It also needs to be checked if the MFO will accept to cooperate with advisors already used, or if it would be better positioned to take over their services?
4. Which provider provides what?
There is no industry standard for what an MFO should offer, and the term “family office” is, in most jurisdictions, neither regulated nor supervised. As a result every MFO has a different service offering, often quite limited in scope.
Most only provide a small core of services in-house, strongly connected to the background of the founder(s). It is therefore essential for the family to understand which services are offered in-house and which are coordinated with external providers.
5. Family office staff
There must always be a professional and personal compatibility between the family and the staff of the MFO. This need for a special relationship is one of the main reasons why families should not just follow a recommendation from someone they know: the families in their circle might also be wealthy but they all have different characters and needs.
So, selecting an MFO is quite challenging. Families can overcome those challenges without much trouble if they are well advised and take the process seriously.
Jan van Bueren is Global Head Family Office Advisory at the Swiss private bank Union Bancaire Privée (UBP) and Co-Founder of UBP’s award-winning family office advisory service - FOSS Family Office Advisory.
Thomas Ming is a Senior Family Office Advisory at the Swiss private bank Union Bancaire Privée (UBP) and co-founder of UBP’s family office advisory service - FOSS Family Office Advisory, located in Zurich.