What model is best - single or multi?

Anything involving families is a recipe for dispute, and family offices are no exception. Should they stick to the core of money- management, or branch out into other areas, such as concierge services? Should it keep the sparky, entrepreneurial, risk-taking character of a business’s founder, or become a conservative institution that concentrates on wealth preservation, rather than creation?

The issues often become crystalised when it comes to decisions on whether a family office should stick with being a single family office, or branch out and become a multi family office.

Perhaps one of the best examples of a family office that changed tack is the Guinness family. In 2006, they decided to turn the family’s investment office into a “private investment house” called Iveagh that would also manage others money.

Iveagh’s head of portfolio management, Chris Wyllie, says managing external funds keeps everyone on their toes. “Having external money means you are subject to increased scrutiny and people are less likely to become stagnant,” he says, adding that focusing purely on investment means energy is not expended on “non-productive pursuits”.

He adds: “For example, trust and tax-related issues can be a distraction in the family office environment.” One concern for families who join an MFO that has evolved from an SFO is that when the chips are down all available resources will be diverted to looking after the needs of the founding family.

But Wyllie says that this is an unfounded worry: “To neglect our retail funds to focus on the family would be entirely self defeating.” For Iveagh, he says, “the retail funds have been our growth driver.”

And then there is the theory that an SFO is by its nature conservative. Chris Andrew, founder of Clarmond Advisors, says often while the person who makes the family money is a sharp businessman, the family member who takes over the family office will not be encouraged to be a risk taker, but to preserve the wealth already accrued.

So you can have the classic pattern of an entrepreneurial father who breeds a conservative son, and this pattern is mirrored in the family office. As Andrew says: “The more innovative single family offices allocate funds to invest in private equity or operational businesses around the industry where they made their money, which is an area they will already understand. However, this type of family office is very much in the minority.”

A further benefit of MFOs, says Andrew Rodger, executive director of Stonehage, is they are more likely than SFOs to attract talented people. He says: “SFOs do not have as much range in terms of remuneration options as larger commercial organisations and some people are reluctant to put all their eggs in one basket by committing to work for one family only.”
Indeed, the founder family will reap benefits too, as “the depth and breadth of expertise required to attend to the ever more complex needs of wealthy families is increasing and commercial organisations may have the ability to bring greater resources to bear.”

Simon Paul, director of wealth management at MFO Sand Aire in the UK, which evolved from the SFO of the Scott family, agrees. “The difficulty for a single family office is that you are not a commercial enterprise that will be participated in by your employees so it will appeal more to people who are administrators rather than entrepreneurs,” he says.

And then there is the question of whether an SFO is even cost-effective. “We don’t think a single family office is worth setting up for less than £500 million (€572 million) because the costs of getting the right people and infrastructure are quite high,” says Paul. “Above that level you could afford to acquire some high-quality people.”

But MFOs are not without their critics, however. For example, Rodger says that during a time of economic stress some families can become nervous if they feel the managers are being diverted from protecting their assets by having to consider the needs of the other families. A further complicating factor is that other families may be at a different point in their evolution, so they might have a similar amount of money but completely different risk profiles and objectives.

One of the factors that prevents (or delays) the decision to move away from a single family office is a feeling of loss of control, says James Thompson, head of business development at Fleming Family & Partners. “However, some multi family institutions (we are one) are flexible in accommodating existing single family office staff within their structures if the capital involved is large enough.”

According to Chris Thompson, partner and executive family adviser at Greenway Family Office, where resources are limited those family members more involved in the office may get most of the attention of the staff. He suggests that a family office should be governed in a similar fashion to how the family would govern a family-owned business. “This is especially true when multiple branches and generations are involved. The family office should have a board of directors responsible for the oversight of the office and to whom the president/executive director would report. Families might also consider having a separate council with responsibility for hearing grievances or disputes among family members.”

Another common pressure that can arise around the family office is when one member has views about its running that are contrary to those of the other family members.

“If the family all agree that they want to stick with marketable investments and hire staff to manage that, it would be better if a family member who wanted to invest in venture capital, for example, went outside of the family office rather than diluting the staff’s resources or capabilities,” says Barbara Potter, a managing director at Laird Norton Tyee,

which was founded in 1967 to manage the wealth of the Laird and Norton families. The families made their fortunes in milling and manufacturing in the US midwest and began servicing external clients in 1979.

And then again, some family members may prefer to maintain their privacy by not using the family office, says Kristi Mathisen, another Laird Norton Tyee managing director.

“Some see the family office as an extension of the older generation and prefer their independence. This is especially true if there isn’t a formal organisation and structure in which the office operates with a clear chain of command. If the family wealth is not co-mingled in a joint investment (such as a family investment limited liability company), separation is possible, although some investment efficiencies are sacrificed. If the wealth is co-mingled, separation may not be possible and good governance policies should be established early on for addressing differences of opinion among family members.”

Depending on the size of the family and the capital involved – and provided the operations of the office are not compromised – it can be better to let family members cut loose, says Chris. “Often, these will tend to be the more entrepreneurial minded who want to use the capital for other purposes,” he says.

“However, those family members who do decide to leave the office have to understand they cannot expect to be bailed out and return to the fold if it all goes wrong.”