Is there a trend emerging of single family offices joining with other firms to become multi-family offices?
Ian: There is not yet enough evidence to call it a trend, but we have seen a number of single family offices (SFOs) either combining with other SFOs or joining a larger regulated trust company or bank to create a multi-family office (MFO).
Richard: In January 2013, we merged the SFO that we had run for ten years with a trust company headquartered in Jersey. We retained our client and all our staff and are now able to offer family office services to a select number of other clients by virtue of being regulated. So we have direct experience of this, and we are talking to a handful of other SFOs about doing the same thing.
What are the drivers behind this?
Richard: There are a number of potential drivers. From the client’s perspective, it may be a way of saving costs. This may be due to a reduction in investment income in the current low interest rate environment. It may also be a way for an SFO to benefit from an MFO platform, including access to colleagues with knowledge in other areas, access to networks of professionals, increased buying power and access to better IT and central HR and accounting functions.
For the staff in the family office, it may be a way of expanding the variety of work they do and reducing their reliance on a single client. It may also help with their overall career progression and help them to ensure that they do not become sidelined or out-of-date compared to their peers.
What are the key areas that these new MFOs need to focus on to attract new families?
Ian: There are several key areas that need to be considered:
- Independence: it is critical that their clients continue to receive advice that is independent and in their best long-term interests. Unfortunately, there remains a perception that some bank-owned MFOs are more interested in selling financial products than looking after their clients’ best long-term interests.
- Confidentiality: the MFO needs to be able to make the client comfortable with the level of confidentiality and privacy that they will receive. This may be achieved by locking down physical and electronic files and providing a separate area for the family office to operate from.
- Client service: clients will often still want to have some members of staff who are dedicated to them 100 per cent of the time, while accepting that other roles may not need to be. This way the client can receive the continuity of knowledge and service that they have become accustomed to, while potentially reducing the cost of full-time dedicated staff.
- Cost certainty: especially if the rationale for the move is a reduction in cost, the client will want to have a fixed fee (possibly for several years) for a fixed range of services.
- Flexibility: notwithstanding my comments above about fixed costs, one of the major advantages of having a larger MFO providing family office services is the ability to draw in additional staff quickly (and without the risks of employing staff) for transaction work, or, conversely, to reduce staff and fees in quieter periods.
- Regulation: it is almost inevitable that an MFO will be regulated, whereas many SFOs can avoid the need for regulation. Done well, the regulation is there to protect the client first and foremost, and the prescribed policies and procedures that the regulation requires are good business practice to achieve that protection. In larger organisations, the cost involved with retaining dedicated compliance staff who are not client-facing is already spread across a wide client base, so this is by no means a burden for the MFO.
What are the advantages to firms such as Bedell of joining with a single family office?
Richard: For Bedell, it provides another way of looking after its existing clients in an area where there is growing interest that is not tax-driven but rather service-driven.
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