Multi-Family Office Over Single-Family Office
India has 2 % of global millionaires as of 2019, states the latest Credit Suisse report. Total wealth in India increased four-fold between 2000 and 2019, reaching USD 12.6 trillion in 2019. This is expected to touch 16 trillion by 2024 – which is 5 years from now. It is fascinating to see this growth trajectory.
The concepts of Family Offices go hand in hand with the rise of Ultra HNIs and millionaires in the country. And with such estimated growth projected by Credit Suisse Wealth Report 2019, it is a good time for the 200 plus family offices in India. Family offices are being seen as the ideal way to protect and preserve assets for future generations amidst financial uncertainties that plague today’s economies.
Modern family offices are made up of two primary types—multi-family office (MFO) and single-family office (SFO). SFOs exist to fulfil a broad range of tasks on behalf of a single-family, while MFOs provide professional services to a group of families or individuals. While many families initially seek to create their own single-family office, the rising popularity of MFO’s gives them reason to consider opting for one.
Here the question arises – whether to go for the Single-Family Office (SFO) or the Multi-Family Office (MFO) when Ultra High Net Worth Families are looking to entrust their assets with wealth managers and advisors. One of the fundamental aspects to consider is detailed requirements of the UHNI families considering their history, present lifestyle and expected future, their financial ambitions, risk appetites and allied quantitative analysis.
Multi-Family office gives UHNIs access to experienced professionals with market credentials and overall affordability, while a Single-Family Office (SFO) could be relatively more expensive. This is largely due to the fact that SFOs caters to the monetary needs of one single wealthy family with bespoke services 24/7.
Here are some points, you can consider, while choosing between a MFO vis-à-vis a SFO:
Professional Expertise: While Single-Family Offices provide services based on trust and discretion, Multi-Family Offices bring in professional expertise and specialists which are economically viable. In house specialists in a Multi-Family Office provide the benefit of less dependence on external partners.
Talent pool & efficiency: Fast decision-making and reaction time is crucial within the family office environment. It is, therefore, more important to have specialist in-house expertise (e.g., legal counsel) to facilitate this. Add to this the collective overall experience of the talent pool is much higher in an MFO vs SFO, which is a significant advantage. Families who understand their service needs will find MFO offerings better suited to accommodate, adapt and integrate those needs at both the household and family levels. Due to the larger pool of experience, MFO’s are agile, more efficient and offer assurance without compromising on integrity.
Objectivity: Whether SFO or MFO, the office must possess a robust, objective, advisory capability to manage a family's fiduciary oversight. Experienced MFO professionals sharpen their advisory skills by serving a number of families with diverse needs, in an environment unencumbered by "selling a product". SFOs can struggle with resource constraints, limiting insight and ideas. Fee-only, fully independent MFOs are best-suited to help families broaden their thinking while reducing the risk of conflicting interests.
Peer to Peer Connectivity: Multi-Family Offices via their platforms enable UNHNIs to connect with peer group and communities which may share common ground. These peer groups may share interests in philanthropy, investments and more and hence this shared experience and collaborations tend to be better in Multi-family office as compared to Single-Family Offices.
Flexibility: Multi-Family Offices offer far greater flexibility in composing the professional team. They can become catalysts for evolving family relationships and can be crucial in liquidity, succession events. Many also recognise that choosing a MFO, whether for the short or long term, provides the best combination of access to experienced professionals, proven processes and overall affordability. These attributes help a family successfully navigate a transition – and beyond.
Setting up a family office is an elaborate affair, since all support activities such as IT and legal need to be procured and run from scratch. In a multi-family office, the firm is able to spread the cost of investments over a larger asset base and achieve higher cost efficiencies. However, a single-family office will require incremental investments in infrastructure and technology systems.
As India’s Ultra-High Net Worth Population burgeons, Family Offices – whether it’s SFO or MFO, will play an even greater role in preserving, nurturing and enhancing and transitioning wealth across generations.
