“Do the next right thing.”
— Emily P. Freeman,
Bestselling Author: the Next Right Thing
“Vision is perhaps our greatest strength … it has kept us alive to the power and continuity of thought through the centuries, it makes us peer into the future and lends shape to the unknown.”
— Li Ka-shing, Asian Billionaire Businessman
Estimated Net Worth of $31.9 billion
The Rockefeller family is often credited with having pioneered the family office concept in the late 19th century. Family offices started gaining popularity in the 1980s, and since 2005, as the ranks of the super rich grew to record proportions family offices swelled proportionately. After the rapid increase in valuations of technology companies led to many people having newly created wealth, family offices have become even more common in recent years.
A traditional single family office (“SFO”) is a formal organization run on behalf of a single family. Its primary focus is upon the growth, protection, administration, and transfer of the family’s wealth. These businesses employ full time staff to address the family’s wealth management, tax planning, philanthropic activities, trust administration, and legal requirements. Some family offices even become involved in providing personal services such as security, managing household staff, property management, and personal accounting services.
The cost of such services can reach $1 million or more per year. As a percentage of assets under management, even at a net worth of $100 million, this can be a significant cost. As a result, many ultra high net worth families are joining together to utilize the services of a multi-family office (“MFO”) to mitigate the cost while enjoying many of the benefits a SFO organization can provide.
Could a VFO Be Right For Your Family?
High net worth families in the $10 million to $100 million net worth range can understandably find themselves desiring many of the benefits of a family office, but blanching at the cost of achieving such a high level of service. Is there a cost effective alternative? Responding to the many requests for such a solution, the application of modern technology has resulted in the creation of the Virtual Family Office (“VFO”). A VFO is a lean version of a SFO that utilizes a high level of outsourcing to keep the operational costs as low and flexible as possible. Families who engage the services of a VFO can obtain many of the benefits of a customized service solution without the overhead and support of a fully staffed SFO.
What Families Like About the VFO
- Direct control and flexibility: If the family wants to make a change with regard to a single member of the team in order to reshape the portfolio, pursue a complex new tax strategy, or address an expanded legal need, it can be done quickly and easily. Many families prefer to conduct more co-investments and “club” deals with other selected families, and a team can be built around that need very quickly.
- Diverse investment perspectives: If a family hires a Chief Investment Officer (CIO) to only mange the family’s wealth, the CIO could lose track of what other families are seeing as investment opportunities and the techniques they are utilizing. As part of a VFO, however, a family could use a MFO asset management service or outsourced CIO. It should be possible to negotiate the management of liquid assets or other areas of the family’s investment portfolio by a leading MFO or CIO. Utilization of such a resource should provide for an outsourced resource who can hire and fire investment fund managers, review deal flow, manage real estate investments, and take on responsibility for the overall investment portfolio design and risk management.
- Cost: A family’s costs of operating a SFO can be substantially reduced through the selection of highly experienced outsourced partners.
The VFO concept is still in its early stages of gaining recognition and acceptance as an alternative to a SFO or MFO. However, the cost efficiencies and simplicity of the VFO model are very attractive to families that highly value the direct control of this streamlined solution. This model may well gain in popularity as additional families seek to adopt a more customized solution to what has been historically offered by banks and wealth management firms.
We at JDT Advisory LLC would be pleased to have an opportunity to meet with you virtually and help you more fully explore the possibilities a VFO might provide to your family. Please contact us for a free introductory VFO consultation.
