In the wealth management industry, it is not often that we come across a term as subjective and elusive as the “Multi-Family Office” (MFO). Wikipedia defines a MFO as “usually an independent organization that supports multiple families to manage their entire wealth.” Back in 2013, Forbes quoted Steffianna Claiden, a family office industry leader who said, “Everywhere you look, there's another multi-family office. However, as anyone can use the term, because there's no real definition or regulation.” The lack of mutual exclusivity contributes to this confusion—all MFOs are RIAs (registered investment advisors), but not all RIAs are MFOs. While this group of advisory firms can be difficult to label, there are three categories that unite them and sharply contrast the norms of the standard RIA.
The Services They Provide
It would be unusual to call your RIA and ask them to help you purchase a private aircraft or organize a family meeting to discuss the family’s financial values and priorities, but in the MFO world, these requests are commonplace. Because of the extraordinary wealth these families possess, their needs go beyond that of managing and investing assets. These firms may be asked to plan charitable efforts, get involved with family governance, and provide various concierge services. They act as an extension of the family and oversee truly all areas of wealth management.
The Clients They Serve
RIAs work with individuals to manage their wealth, while MFOs work with multiple generations and branches of large, complex families. Regarding wealth, RIAs average $1.1 million per client, in contrast to the average $62 million for each MFO client (according to Fidelity Investments client data). The relationships between these advisors and clients are deep and frequent, sometimes even daily. This goes far beyond the quarterly meetings that come are more standard among traditional RIAs. Due to the complex nature of their needs, MFOs have dramatically fewer total clients (around 40-60 total relationships—according to Fidelity Investments data) than the average RIA who serves anywhere from 26-100 individuals.
The Firms Themselves
Because of their tendency to serve multiple generations, MFOs often have longer tenure in the industry, averaging a firm age of 22 years as opposed to the 14-year average firm age of RIAs. MFO clients require more employee time and attention, resulting in two and a half times the average employee headcount. Total assets under management average $5.5 billion (according to Fidelity Investments client data), head and shoulders above the RIA median of $333 million. RIAs are likely to have technology in place to support their client volume, while MFOs are more likely to communicate one off through more traditional mediums.
What separates these firms is much more significant than their three letter names. And to be honest, the label itself doesn’t matter much. It’s more about the services you’re providing, and ensuring that you have the infrastructure in place to support the complex needs of your clients. That means a different business model and employee benefit practices, recently benchmarked by Fidelity in our Large RIA and MFO Compensation Study. Focus on making sure you’re well equipped to serve your clients, however you categorize your firm. To close with Shakespeare, a firm by any name will still smell as sweet.
Andrew Fay is a senior vice president and head of the Family Office segment, Fidelity Clearing & Custody Solutions.
