Family offices — small yet private wealth management firms – were set up to solely serve the investment needs of a single ultrarich family. The families who had their own family offices are worth at least $500 million. But, as the operating costs of single-family offices stand at $1 million annually, their services have been reserved only for the creamy layer of the upper class.

But the scenario has changed today. Family offices are opening their doors to a broader investor class to help them cut down their management fees and create a new investment venture. So, the services available only for families with more than $100 million in assets are now available to families with as little as $5 million in liquid assets.

A new breed of wealth management firm called the multifamily office is at the heart of this change. It operates much like a family office: Staffed by professional wealth managers, accountants, lawyers, and personal assistants, they take care of every need of the ultrawealthy, from doing family taxes, planning charities, setting up trusts to booking the private jet, and hiring nannies.

History has shown that many of the top multifamily offices began as single-family offices for well-known wealthy families. Again, we can take Rockefeller & Co. as an excellent example. John D. Rockefeller’s family office was founded in the 1880s, and a century later, it was among the first to open its doors to outside investors. Their multifamily office now manages the wealth and offers every financial service to around 180 wealthy families with at least $50 million in assets.

Another example is the Grace family based in Philadelphia. Eugene G. Grace, the patriarch of the family, is the founder of Bethlehem Steel company. After running the company for over four decades, he turned its family office into Ashbridge Investment Management. Today his family office accepts investments from other families with $10 million or more in assets. Similarly, the Pittsburgh-based Pitcairn family, which built a plate-glass empire, turned its family office into Pitcairn Financial Group. In contrast, the Whittier Trust Co., founded by the Whittier family, a California-based oil baron, serves 150 clients through their family office.

The history of these families reveals that they are good at building and maintaining wealth. So, they are well prepared to help other wealthy families to grow their fortunes. They can also pass their clients their vast experience in dealing with wealth.

Now, multifamily offices are providing the same services as single-family offices by spreading the costs out over many wealthy families. Several multifamily offices have been cropping up recently to offer investment services to clients with $10 million or more in liquid funds. In addition, a few multifamily offices recently lowered the entry bar to $5 million in assets. This move broke off an industry barrier that no one ever thought possible.

Due to their personalized services and freedom from financial conflicts, multifamily offices are becoming competitors to private banks, brokerages, and trust companies that serve High Net worth Individuals (HNIs) and families.

Although multifamily offices are highly elite financial services firms, their management fees are decreasing, making them more attractive to ultrarich families. On top of that, multifamily offices become even more accessible as they scale up and become more efficient.

The Entry of Big Banks into the Game

Several large banks are turning into multifamily offices to attract more wealthy clients. For example, SunTrust Banks Inc. acquired Asset Management Advisors (AMA), a rapidly growing Florida-based multifamily office that has been opening new offices nationwide and now has around 250 family clients. Another example is Credit Suisse Private Banking. It has bought Frye-Louis Capital Management, a Chicago-based family office launched by the ultrarich Louis family.

Similar to banks, a good number of brokerages and trust companies offer what they call ‘holistic wealth management.’ But what they do is sell their investment products, and they lack the intensely personalized investment services of multifamily offices. That includes paying bills and planning taxes to handling inheritance spanning several generations.

Offering a Personal Touch in Investments

Multifamily offices have other personalized offers for clients. Need a family vacation? They will handle it. Need to transport your near and dear ones from one place to another? They will do that, too. Wealth managers of multifamily offices travel to their client’s offices or homes for meetings and usually visit their clients at least once a quarter. For that reason, multifamily offices have spare offices and rarely open branches apart from their headquarters.

Most well-run family offices follow a ‘holistic’ approach to wealth planning. They make their clients fill out a questionnaire designed to understand the personality profiles of every significant family member. The test also aims to prevent family conflicts and develop a family ‘mission statement’ that guides everything from personal spending to philanthropy. The company also counsels families on the psychological dimensions of identity and wealth.

From making gifts to paying bills, multifamily offices maintain a close relationship with a family. They also provide simple yet easy-to-understand financial statements.

Inherent Pitfalls

Multifamily offices also have pitfalls. For example, inherent conflicts exist in multifamily offices dominated by a single wealthy family as the founding family has ultimate control over investments, and the office may not give the same level of service to others. In addition, many family offices, like those run by Rockefellers and Graces, don’t disclose their Assets Under Management (AUM), making it difficult for other clients to assess their power of control.

The primary reason a family becomes a multifamily office is to manage their investments. So, it is hard to know if the best investment managers in the family office are giving real opportunities and attention to the founding family or to other clients.

Justin Raj

Alpha Research Team