When ultra-high-net-worth (UNHW) individuals or families search for a wealth advisor, they often reach a crossroads: should they partner with a multi-family office (MFO) or create their own single-family office (SFO)?
There are several considerations when deciding which path to take, but first, let’s define what constitutes MFOs versus SFOs. Family offices, by nature, have a fiduciary duty to act in the family’s best interests above all else, unlike a big bank acting as a broker-dealer. As the name implies, MFOs, like Caprock, cater to the wealth management needs of multiple affluent families. In contrast, SFOs are structured as standalone businesses dedicated to managing the wealth of a single family, generally understood to have at least $100 million in net worth. But that isn’t where their differences end.
Complexity of wealth management
Since SFOs are typically established by ultra-high-net-worth families to manage their wealth exclusively, this allows for the recruitment of people who provide services tailored specifically to the family’s unique financial goals and needs. This structure offers a personalized, highly tailored solution, allowing for direct asset management. However, an SFO may limit your family’s access to investment opportunities and may not be suitable for complex family dynamics.
MFOs, on the other hand, are equipped to provide investment access and bespoke service to multiple wealthy families. They offer a broad range of services and can act as an unbiased partner supporting all family members involved. This management structure addresses a variety of wealth complexities and empowers the family across generations. The cost for an MFO varies, but it is generally a flat percentage of assets under management (AUM) or a flat fee plus cost scenario.
The Caprock method offers a solutions-based approach to wealth management for ultra-high net worth families. This model provides support for an array of complexities, including business entities, real estate and other private assets, charitable accounts, taxable and tax-exempt statuses, cash flow and liquidity concerns, multiple generations of stakeholders, and various estate, legal, and tax advisors. A single fee is negotiated at the onset and tailored to the family’s needs.
| SFO | MFO | Caprock | |
|---|---|---|---|
| Wealth Status | $100M+ | $10M+ | $10M+ |
| Services | Based on what the family specifies | Comprehensive of what all clients need | Comprehensive, solutions-based approach |
| Cost | Varies based on services, AUM, salaries and overhead | Varies based on services and AUM, ranging between 0.75% and 1.5% of AUM | Negotiated based on AUM |
| Privacy/Confidentiality | High level of privacy with a focus on only one family | Privacy and confidentiality are based on the structure of the firm and access to client information | Dedicated team and secure platform to ensure client privacy and confidentiality |
| Resources | Tailored to what the family establishes, but may be limited | Broad network of professionals and investment options | Robust internal team with diverse acumen and a large network of professionals and investment opportunities, particularly in the hard-to-access private market |
| Management/Control | Significant control and accountability for the financial management and ongoing operations | The family sets the goals and makes all decisions, but the firm is responsible for team management and operations | The family acts as the CEO and Caprock acts as the dedicated Chief Financial Officer and Chief Investment Officer overseeing all strategy and execution in full alignment with the family’s desires |
| Family Dynamics | Generally focused on patriarchal needs and desires | Equipped to handle multi-generational support, often serving as a third-party resource for facilitating generational family matters | Fully equipped and experienced in navigating the nuances of generational wealth and alignment to support complex structures |
Cost considerations
Establishing and maintaining an SFO can be a significant financial investment, as one family must assume the complexity and front all costs associated with several factors including but not limited to staffing, employee benefits, technology, infrastructure, security, investment fees, and ongoing operational expenses.
A majority of the costs associated with maintaining an SFO come from investment advisory fees (45%) and internal operating costs (40%), according to a guide from Citi Private Bank. For example, staffing costs can add up quickly. Citi’s guide, which cites a report from Botoff Consulting, shows that hiring just three staff to operate an SFO can cost a median of $850,000 in annual base salary alone.
While establishing an SFO may cost millions, depending on the assets under management and many other factors, MFOs can provide operational cost-sharing among multiple families, potentially reducing individual costs through economies of scale. Caprock, for example, manages more than $11 billion in assets, leveraging a robust technology platform that provides comprehensive investment management and reporting on a client’s entire balance sheet.
In the cost comparison aspect, assess the amount of investment you are comfortable with for the specific services you want to be managed before deciding which type of family office to pursue.
Access to resources and experienced professionals
Since SFOs focus on the needs of one family, they can provide a deep source of knowledge on financial management, investment opportunities, and service professionals. MFOs serve as an exclusive club with a diverse team of professionals offering a wide range of expertise, including investment management, tax planning, estate planning, dedicated reporting across the entire balance sheet, and more. Caprock employs a team approach with professionals from diverse industries and advisors who are well-versed in financial management, due diligence, idiosyncratic risk, public and private investment asset classes, and client services.
While SFOs provide a certain depth of knowledge, MFOs provide both a depth and breadth of understanding that drives access and deal flow while serving a family’s complete financial picture. This is especially important when looking to diversify your private market investments.
Weighing the options
As with any significant life choice, family office options have pros and cons. Deciding whether a single-family office or multi-family office comes down to complete control and management versus a shared approach where you may achieve more access to services and investments at a reduced cost. Choosing between an SFO and an MFO depends on your family’s unique needs and preferences. While there are signs that an MFO is the way to go, a trusted financial advisor can help you navigate this decision-making process and select the option that best aligns with your family’s needs.
Caprock’s network of experienced advisors, backed by a seasoned investment team and dedicated support staff, provides comprehensive wealth and investment management tailored to each family’s needs.
Reach out to Caprock today to talk to an advisor about whether an MFO is right for you.
The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training.
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