Who wouldn’t want an office of experts managing their financial affairs and planning for their family while also providing relief from the mundane aspects of wealth?
“With the creation of multifamily offices, the benefits of a traditional separate family office can be achieved at a substantially reduced cost while at the same time keeping the financial affairs of each family completely separate and confidential,” says Steven Y. Patler, JD, CPA, managing director with The Prosperitas Group LLC in Bloomfield Hills, Mich. “It provides a solution for families who don’t want the administrative burdens or can’t justify the costs of establishing their own family office. Objectivity and independence are key indicators that separate a real multifamily office from an organization that claims to be a family office.”
Smart Business asked Patler what types of families would be best served by a multifamily office.
Why would someone want to use a multifamily office rather than a single-family office?
The most obvious benefit is cost efficiency. Single-family offices generally will not make sense for families with a net worth of less than $100 million. On the other hand, multifamily offices have much lower net worth thresholds. In fact, many existing single-family offices have closed and their families have become clients of multifamily offices. Besides the obvious cost efficiencies, a multifamily office has greater buying power. This makes it possible for clients to have greater access to investment vehicles and potentially with lower fees. Furthermore, the multifamily office advisers typically will have broader and deeper experience because they are regularly exposed to the challenges faced by many different families.
Describe a good candidate for a multifamily office.
Basically, a multifamily office can be beneficial to most high-net-worth families/individuals. This could range from a widow or widower with significant investment assets to a large multigenerational family that runs its own business, to a business executive who does not have the inclination or time to properly attend to his or her own financial affairs. Those experiencing a liquidity event, such as selling a company, are also good candidates. Furthermore, a multifamily office can serve an important role in providing much needed continuity for the family at times of illness or death.
What types of services does the multifamily office provide?
The specific services provided by a multi-family office should be tailored to help achieve each family’s particular goals. A multifamily office serves as a CFO or quarterback of the family’s financial affairs in addition to the role of high-level concierge. It protects the family, manages what they have and helps them plan for the future. Specific services can include integrated financial, estate and tax planning; risk management; family governance and philanthropy; monitoring third-party service providers; bill paying; and consolidated reporting. Not all multifamily offices are the same. Some are heavily investment-oriented and outsource most of their tasks, while others are more comprehensive and have employees from a broad range of disciplines. Many are ‘open shops’ that are able to coordinate and integrate with a family’s existing professionals to produce a team approach.
Why don’t more people use multifamily offices?
Most significantly, many people are unaware of what a multifamily office is and how it can help their family. Although the concept of family/multifamily office is not very well known, the number and size of multifamily offices has steadily grown throughout the country in the last 10 years, mainly through word of mouth from multi-family office clients and estate-planning attorneys.
Some people attempt to manage their own affairs or mistakenly think someone else is actually ‘looking out’ for them. We have seen examples where someone dies and his or her spouse, with no financial experience, is left vulnerable to unethical behaviors by some so-called advisers.
Another reason people may not consider a multifamily office is because they think you have to be extremely wealthy. As mentioned earlier, this is not necessarily the case. A multifamily office makes it significantly more affordable to get independent and objective professional assistance.
What is the fee structure?
Some firms charge an hourly fee, while others charge an asset-based fee. For some clients, a more attractive alternative may be to set a fixed fee based on the nature and complexity of a family’s situation. A fixed fee promotes increased communication and trust since the family members will not feel like the meter is running every time they call their multifamily office advisers. I know I am best able to serve my families the more frequently we talk.
STEVEN Y. PATLER, JD, CPA, is a managing director of The Prosperitas Group LLC, Bloomfield Hills, Mich. Reach him at (877) 540-5777 or email@example.com. For more information, go to www.prosperitasgroup.com.