How Can RIAs Start a Multi-Family Office Practice?

Unique considerations for starting a multi-family office practice

Establishing a multi-family office practice isn’t as simple as scaling up a traditional RIA business model. There are unique challenges that come with serving family offices, and understanding these considerations is key to building a successful MFO.

First, the breadth of services required is far greater than what a traditional wealth management firm might offer. Families with significant wealth aren’t just looking for investment advice. They may require services ranging across estate and tax planning, bill payment and money movement, philanthropic advice, household management, real estate, buying and selling exotic assets, medical concerns, concierge needs, and family governance and education. As a result, RIAs must either build a team with diverse expertise or form partnerships with other service providers to offer a truly holistic approach. It’s crucial to assess what services your firm can handle in-house and where you may need to outsource.

Another important consideration is client expectations. Family office clients expect a high degree of customization, confidentiality, and discretion. They’re not interested in cookie-cutter solutions or standard wealth management plans. Tailoring your services to meet the specific needs of each family, while maintaining a scalable business model, can be a delicate balancing act. RIAs will also need to have the infrastructure and personnel in place to provide the white-glove service that these families expect.

Additionally, transitioning into a multi-family office model means understanding complex family dynamics. Managing wealth for a family often involves working with multiple generations, each with its own set of values, goals, and sometimes even conflicting interests. Advisors who wish to succeed in the MFO space must have the ability to navigate these interpersonal complexities with sensitivity and diplomacy.

Regulatory compliance also presents unique challenges in the MFO space. Given the multi-faceted nature of family office work – where investment management intersects with tax strategy, legal advice, and more – there are additional layers of compliance that need to be considered. You’ll need to make sure your firm complies with SEC regulations, fiduciary duties, and possibly state-specific rules that may apply to your expanded service offerings.

A step-by-step roadmap for establishing a multi-family office practice

Now that we’ve covered the unique aspects of setting up a multi-family office, let’s walk through a practical roadmap for building a successful MFO practice.

The first step in establishing a multi-family office is to evaluate your existing client base and identify families that may benefit from this expanded suite of services. Look for clients who already have complex financial needs, such as significant estates, charitable foundations, or businesses that will be passed on to future generations. These clients are your best candidates for a multi-family office, as they are likely to be interested in comprehensive wealth management that goes beyond basic investment advice.

Next, you’ll need to determine the full scope of services you plan to offer. As mentioned earlier, family offices require a broad range of services. It’s essential to map out exactly what services your MFO will provide and how these services will be delivered. Will you hire in-house experts in each area, or will you partner with external specialists? The choice depends on the size of your firm and the resources available to you.

Once you’ve identified the services you’ll offer, it’s time to start building your team. A successful multi-family office relies on a diverse group of professionals with expertise across various disciplines. You may need to hire tax advisors, estate planners, legal experts, philanthropic consultants, and family governance specialists. If you don’t want to bring all of these experts in-house, consider forming strategic alliances with outside professionals who can offer these services to your clients.

One critical element of setting up an MFO is ensuring you have the right technology infrastructure in place. Managing the wealth of multiple families with complex needs often requires sophisticated software solutions that can handle everything from tracking investments to managing estate plans and philanthropic donations. You’ll need a robust platform that provides real-time data, easy access to client information, and secure communication channels. Investing in the right technology will be essential for running a smooth and efficient multi-family office.

Communication is another critical component of a successful multi-family office. You’ll need to establish clear lines of communication between your firm and the families you serve. Regular, comprehensive reporting is essential, and families will expect to be kept in the loop regarding their financial status, philanthropic activities, and estate planning efforts. Regular meetings with family members, including the next generation, will help ensure everyone is aligned on the family's goals and values.

Marketing your new multi-family office services is the next step in your journey. Establishing an MFO practice can set you apart from other RIAs in the marketplace, but you’ll need to make sure that prospective clients understand the value you offer. Highlight the comprehensive nature of your services, the ability to provide tailored, high-touch solutions, and your expertise in managing the unique needs of wealthy families. Networking with existing clients and through industry events focused on family office services can help spread the word about your new offerings.

Finally, don’t underestimate the importance of continual education and training for your team. The world of family offices is ever-evolving, with changing tax laws, estate planning rules, and investment strategies. Staying ahead of these developments is crucial to providing the best service to your clients. Encourage ongoing professional development and make sure your team is always up to date on the latest trends and best practices in the family office world.

Conclusion

Setting up a multi-family office practice can be a rewarding move for RIAs looking to expand their services and develop deeper relationships with high-net-worth families. The benefits of serving family offices are numerous, from increased client engagement to the potential for higher fees and long-term client retention. However, the transition into the MFO space comes with its own set of challenges, including offering a broader array of services, managing complex family dynamics, and ensuring regulatory compliance.

By following a strategic roadmap – identifying the right clients, building a diverse team of experts, investing in technology, and maintaining clear communication – you can successfully establish a multi-family office that delivers value to wealthy families and positions your RIA for long-term growth. The key is to approach the process with patience, careful planning, and a commitment to providing the highest level of service to your clients.

Richard Chen is the managing partner of Brightstar Law Group, a law firm that serves investment advisory firms by providing proactive business-minded solutions pertaining to corporate and securities-law-related matters. Among other things, our firm provides counsel with respect to securities and compliance matters (including representation in SEC examinations), private fund formation, corporate formation and structuring, business transactions (including M&A and joint ventures), contract drafting and negotiation, employment law matters, operational due diligence, and succession planning. For more information, please visit our website at www.brightstarlawgroup.com or call us at 917-838-7398.

© Brightstar Law Group. All rights reserved.

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