Jan van Bueren and Thomas Ming discuss the increasing diversity of multi-family office providers, and the potential pitfalls for wealthy families that come along with it.
Wealthy business owners and families that have sold their businesses are increasingly considering setting up a single-family office (SFO), or using multi-family office (MFO) services. As an SFO is not economically feasible for most families they often end up deciding to opt for MFO services.
As the demand for MFO services increases, it could easily be concluded that the growth of the MFO industry is the result; however, the supply side of this development should not be underestimated. Due to, amongst other things, regulatory developments, the consolidation of the private banking industry, cost pressures and the "hype" of MFO services over the last few years, quite a few providers are entering or have already entered the MFO market with the aim of getting in on the action. So it is not only demand but also supply that is feeding this trend.
Whilst a large number of providers is generally considered a good thing in a free-market economy, given that this generates a variety of benefits, such as decreasing prices and a more competitive choice for consumers, the same does not apply to the MFO industry at the moment.
There is no industry standard for what range of services an MFO should offer, and most MFOs tend to operate discreetly without giving an insight into their activities and what they actually offer clients. Moreover, the use of the term "family office" is, in most jurisdictions, neither regulated nor supervised, and even if it is, only lightly. Lastly, MFOs originate from very diverse backgrounds and tend to offer completely different ranges of services as a result. For these reasons, the MFO industry is very opaque, which is especially problematic for families looking to use MFO services. Or, as it is also sometimes put, "if you've seen one family office, you've only seen one family office".
It is therefore important for families who are considering using an MFO to compare providers carefully. An important starting point in this process is the origin of the MFO and its founders. Although this does not apply to all MFOs, the majority of them tend only to focus on one or a limited number of services, which are often closely related to the background of the founders. When the needs of the family are as closely related as possible to the main competencies of the MFO's...