The term ‘family office’ is one that until recently has been much more common on the other side of the Atlantic. However, its popularity has started to grow in Britain and Europe over the last year or so in response to a growth in demand for highly confidential, highly independent, detail oriented management services for wealthy families.
In my experience, this demand is being driven by a desire for greater diversity within families’ asset portfolios and a corresponding loss of trust in large banks and investment houses. Both have been driven by the financial insecurity of the last decade, which continues to define the nature of modern financial services, despite signs of recovery. A single large investment fund is much rarer than it used to be, with money spread across several asset classes: property, luxury goods, small commercial investments and so on.
So the term is becoming more popular as demand for the service grows. Has this been matched by a growth in family office providers in jurisdictions such as the Isle of Man? Not exactly.
We have not really seen a huge growth in multi-family office providers, in terms of new specialist companies or genuine restructuring of existing financial services businesses. Instead, what we have seen is simply a growth in the number of financial institutions and intermediaries claiming to offer ‘family office’ services, as one of the items in their portfolios of services. Whilst my role at a true multi-family office might bias me, I truly believe that in most instances this is not to their advantage. Allow me to explain.
A family office service is about more than just providing the right mix of concierge, administration, and advisory services; there are some important institutional criteria to be considered. First, absolute independence is essential. If you have interests other than those of the family to consider, then you are not offering a genuine family office service. Institutions in which staff are incentivised to win assets under management or have product sale targets are incapable of this degree of independence.
Second, family office services require an in-depth, even intimate understanding of a family and its different dynamics, politics, and concerns. The level of detail to be considered is far beyond that which many financial institutions are used to handling. High staff turnover makes this entirely unachievable; relationships in this service area should be measured in decades, not years, so your relationship managers need to have jobs for life.
Third, confidentiality is supremely important to most wealthy families. Whilst all financial service providers should offer strong client confidentiality, there is a perception that complete confidentiality is more difficult to ensure with larger organisations. Small organisations built around tight-knit teams are, in my experience, perceived by clients as better able to control access to information.
Together, these key issues rule out many financial institutions and intermediaries from offering a ‘true’ multi-family office (MFO) solution. Large organisations will find it particularly difficult to deliver services within these parameters, as they are more likely to have their own product portfolio within the business or group, it is more common for them to work to AUM targets, and they frequently have higher staff turnover than smaller companies.
So, how should intermediaries respond to the growing prevalence of MFO services? My first recommendation is simply this: don’t pretend to be something that you are not. If your company has its own financial products that compromise the independence of your advice, or if you are unable to offer stability in the point of contact, don’t set yourself up for failure by claiming to be a family office. As I said before, it is a lack of trust in large institutions that has led to a lot of this consolidation of diversified assets under the management of family offices, and you will only exacerbate this by setting expectations that your business is not set up to meet.
For such intermediaries, I would suggest that rather than placing yourselves in competition with genuine multi-family offices, by claiming the moniker for your own advisory services, you should instead work on developing relationships with effective and established MFOs who may be in a position to resell your products. Build relationships, not competitors, and drop the term from your own marketing collateral. Impress these detail-oriented businesses with a pro-active management approach. This will bear greater fruit in the medium term than a short-sighted desire to win assets through the improper use of a term simply because it is growing in popularity.
For those companies that do not have any built-in conflicts of interest and can reasonably claim to offer a true MFO service, my advice would be to invest heavily in staff retention. The current increase in interest is a great opportunity for you, but you need to be planning for the long term or you too will be setting yourselves up for failure. Tie your best relationship managers to the business in whatever way you can. Furthermore, if you do find success in this model, be careful about growth: you need to ensure that increases in your headcount do not impact on the personal nature of your service offering and are not perceived as compromising the degree of confidentiality you can guarantee.
There are some MFO businesses, such as Boston, which began as single family offices and expanded into a multi-family offering. These businesses generally have the right culture, infrastructure, and independence to be successful in this very specialised niche service. There may be some other independent CSP or legal and accounting intermediary businesses that are able to make a successful transition to a true MFO experience, if they follow the principles above. However, I predict that private banks and investment houses who dress up their advisory arm as a family office service are creating more problems than opportunities for themselves in the medium to long term.