For generations, families with significant wealth have created family offices to manage their financial affairs. And throughout history, the primary objective of a family office has remained the same: to help families manage complexity, preserve wealth across multiple generations and ensure a lasting legacy.
Understanding family office structures
Before determining which structure is the best fit for your family office, it’s important to understand the differences, advantages and disadvantages of each.
Single-family office
A single-family office is built exclusively for one family, typically one of significant wealth. This structure is appealing to families who value a high level of confidentiality for financial and personal affairs, complete control over decision making and dedicated focus on preserving the family’s legacy.
However, this structure requires high operational costs with a significant investment in infrastructure. In addition, single-family offices may face the risk of stale intellectual capital without a significant investment in continuing education and a cultural commitment to this process. Single-family offices may also create additional limitations on capacity, restricting scalability and flexibility. There are also the potential HR issues such as litigation from internal staffing complexities and potential weak internal controls due to a lack of segregation of duties with thin staffing.
Multifamily office
By contrast, a multifamily office provides services across multiple families. This structure leverages shared resources for cost efficiency, greater bandwidth and access to a broad pool of intellectual capital. Multifamily offices often invest heavily in technology, training, software and reporting systems. They also usually have robust segregation of duties and internal controls.
The trade-off of the multifamily office is that the family potentially relinquishes some of their control, and they may compete with other clients for the firm’s time and attention.
Hybrid-family office
A hybrid family office combines both in-house capabilities with outsourced expertise. This structure offers flexibility, the ability to maintain control in-house where direct interaction is critical and access to top-tier talent across disciplines. Additionally, a hybrid model mitigates risks and challenges related to employee turnover, HR issues and infrastructure requirements. Hybrid family offices are perceived to be more costly, but are they?
