INSIGHTS

The Multi-Family Office and its Role in the Wealth Management Landscape

Defining the role of a Multi-Family Office, and how it differs from a Single-Family Office and Private Banks

According to Singapore’s Economic Development Board, 1,100 family offices were established in the country as of 2022. This represents a 175% increase from late 2020 and accounts for more than half of all family offices in Asia. This is a testament to Singapore’s overall stability, competitive business environment, robust legal framework, availability of talent and related service providers, as well as the abundance of investment opportunities in the country and region.

According to research, the number of ultra-high-net-worth (UHNW) families is expected to reach 784,000 in 2026 globally – a 125% uptick within this decade alone. To add, with the great wealth transfer underway, we anticipate an increasing need for families to source more sustainable, long-term wealth preservation solutions, specifically in the form of setting up a family office.
Given these significant statistics, what exactly are family offices? How do these differ from private banks? And what does this mean in the regional context of Asia?

The Rise of the Family Office

The Industrial Revolution in the 18th century saw the creation of many successful entrepreneurial merchant families. Consequently, structures were put into place to manage the wealth that these families generated.

However, it was only after the Second World War that Single Family Offices – established to manage the wealth and personal affairs of a single family – became more common in North America and Europe. Primarily focused on investment advisory, these single-family offices subsequently evolved during the 1980s to oversee more aspects of wealth management such as tax and estate planning, philanthropy, and succession planning.

Since then, globalisation – along with the increasing complexity of the financial landscape – has given rise to a major challenge: the need to stay up to date on a wide range of legal and regulatory issues such as tax and investment laws and regulations, as well as anti-money laundering legislation. This can be time-consuming and resource-intensive – especially for smaller family offices that have a smaller staff count and limited resources.

Private Banks vs. Family Offices

Although private banks do cater to wealthy individuals by offering a wide range of services such as banking and wealth management, risk management, investment advisory, and estate planning, family offices are entities that offer a broader scope of services. Services offered by family offices are tailored to the specific needs of the family, and include diverse and effective aspects of wealth preservation, succession planning, estate planning, tax strategy, and philanthropic endeavours.

Another key difference between private banks and family offices is the alignment of interest with the clients. The latter offers wealth management solutions that are centred solely around the needs and objectives of the family, without external commercial objectives, which pose an inherent conflict of interest. Family offices offer services that cater to the specific needs of the families and can customise bespoke solutions that achieve the best outcomes for the families.

Lastly, some family offices offer services that extend into wealth successor education also known as NextGen grooming or cultivation – enabling the family to preserve, grow, and transfer its assets to subsequent generations following the values that the family upholds.

Single-Family Offices vs. Multi-Family Offices

Besides the differences between private banks and family offices, family offices are also categorised into two key types: Single-Family Offices (SFOs) and Multi-Family Offices (MFOs).

While SFOs cater to the wealth management needs of a single family, MFOs are designed to cater to the needs of multiple families. Compared to SFOs, MFOs represent a more cost-effective solution as they serve multiple families. This means that MFOs can take advantage of economies of scale by pooling resources to serve multiple families, resulting in reduced administrative and operating expenses.

Another aspect in which MFOs differ from SFOs is the experience and the ability to scale investments. As a MFO combines the wealth and experience of multiple families, it reaps the benefits of greater negotiation power, along with a greater capacity to source for – and secure – investment deals that would not have been possible without pooled resources. Moreover, the diversity of experiences within a MFO better enables it to keep up with best practices and trends that may affect movements in financial markets.

The comparative differences between private banks, SFOs, and our MFO are summarised in the following table.

Wealth Management: The Asian Context

Besides the structure of family offices, culture also has a significant influence on intergenerational wealth management – specifically so in Asia.

Despite the large number of high-net-worth (HNW) and UHNW first-generation business founders in Asia, the topic of intergenerational wealth transfer is an especially sensitive one to broach. This is because conversations around succession planning and inheritance are predominantly associated with mortality – a subject that is viewed as a taboo in Asia. Consequently, this can lead to procrastination, or even avoidance, when it comes to developing a plan to manage and transfer wealth to subsequent generations.

According to the Global Family Office APAC Report 2023, only 49 percent of Asia-Pacific family offices have any form of succession plan, and merely 11 percent have a formal written plan that is legally enforceable.

The Case for Multi-Family Offices

There are several reasons why MFOs can be the appropriate vehicle for wealth transfer and preservation.

  1. Economies of scale
    Family offices are costly to set up, especially when overheads are borne by a single family. In the case of a MFO, administrative overheads are shared by multiple families and therefore, cost to run the office are significantly reduced.
  2. Access to diverse expertise
    MFOs can afford to employ experts that specialise in various asset classes, as well as tax specialists and legal experts. This provides families with a more cost-effective way to access various financial or legal expertise without a heavy cost burden.
  3. Negotiating power
    MFOs can tap into pooled resources, affording it with greater powers of negotiation, and a greater ability to secure investment deals.
  4. Internal governance
    Compared to SFOs, managing the wealth of multiple families requires experienced operations and compliance teams to facilitate robust internal controls and governance processes, which MFOs would already have,. This means that with MFOs, there is a reduced likelihood of funds being misappropriated.
  5. Business continuity
    SFOs can be significantly impacted by the departure of key personnel or by disruptions to their business. In contrast, because MFOs manage the wealth of multiple families, they are more likely to have protocols and processes in place to ensure business continuity in personnel departures, or in times of adversity.
  6. Succession planning
    Educating the next generation from wealthy families is crucial in preparing them to take over the reins of the family business and wealth. MFOs can pool resources to develop programmes that educate the next generation from multiple wealthy families, preparing them to take over the family business and preserve wealth for future generations.

Conclusion

In summary, MFOs play a vital role in the wealth management landscape and hold many benefits for families that are seeking a more cost-effective approach towards managing wealth. Additionally, MFOs can simplify the financial affairs of wealthy families by offering access to pooled resources, managing multiple investment accounts, as well as overseeing and implementing the legacy planning process.

Keen to learn more about our multi-family service offering? Reach out to us for a non-obligatory consultation with our Family Office Advisors at [email protected].

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