Family Office: Definition, Services and Who It Is For
What defines a family office, how single and multi family offices differ, which services are involved and what role FINMA supervision plays in Switzerland.
A family office manages the wealth of affluent families in a holistic way and independently of a bank. It brings investment management, reporting, tax and legal matters, succession planning and administration together in one place, aligned solely with the interests of the family. For a long time this form of wealth management was reserved for very large fortunes. Today, multi family offices open up access to a wider circle.
A family office is an organisation that looks after large private fortunes independently of any bank. The focus is on preserving wealth across generations and, ideally, growing it. Unlike a bank, an independent family office does not sell its own products but acts solely on behalf of and in the interest of the family.
But why is a family office often better suited than traditional wealth management to help entrepreneurial families preserve what they have built? And what role does FINMA supervision play in this? This article sorts out the terms, the services and the Swiss context.
At a glance
- A family office manages the large wealth of an owner family in a holistic way and independently of a bank.
- Compared with traditional wealth management, it takes on further tasks around the wealth: investment strategy, controlling, reporting, tax and legal matters, succession planning and administration.
- A single family office (SFO) serves a single family, a multi family office (MFO) serves several independent families.
- In Switzerland, an MFO that manages the wealth of independent third-party families is generally FINMA-licensed under the Financial Institutions Act (FinIA) and subject to ongoing oversight by a supervisory organisation.
- A family office is an organisation made up of people with a mandate and responsibility, not a self-service dashboard.
Family office: definition and history
The term family office is not defined uniformly. In general, it refers to an organisation that manages large private fortunes independently of banks. The priority is preserving wealth and, ideally, growing it. To this end, specialists develop suitable strategies and ensure that investments are made on a sound legal basis.
The key difference to traditional wealth management, for example at a bank: the wealth managers at a bank act under the instruction and control of the bank. A family office is bound exclusively by the instructions of the owner family.
The idea from America: dedicated family companies to manage family wealth
In 1838, the Morgan family of entrepreneurs founded the first family-owned company to manage their wealth. The “House of Morgan” is thus considered the first family office. The Rockefeller family followed in 1882 with the establishment of their own family office. Over the years, more and more wealthy families followed these examples.
Single family office and multi family office
Since the term family office is not defined by law, you will find different organisational forms in practice. One key distinguishing feature is the number of families per office.
Single family office
A single family office (SFO) manages the wealth of one family only. It is either integrated into a family business as an embedded SFO or run separately as a standalone company. An SFO is the most independent form, but it comes with high fixed costs.
Multi family office
A multi family office (MFO) serves several families that are independent of one another. It brings the expertise to manage large family fortunes and shares the structural costs across several mandates. The key difference to a single family office is that it works for several families.
The specialists at a multi family office have usually gained their expertise at banks or in wealth management. Multi family offices often emerge from single family offices that today also make their organisation and knowledge available to external families.
The essential services at a glance
Family offices take a different approach from banks, for example: an independent family office generally does not sell its own products. When putting together its services, the interests of the family come first, detached from pure yield optimisation. The point is a holistic approach that goes beyond short-term profitability. The family office acts in the interest of the family’s long-term wealth preservation and involves external specialists where appropriate.
The classic areas of activity of a family office are:
- Developing and planning investment strategies for the wealth
- Implementing the strategies, for example through wealth management mandates
- Consolidating different areas of wealth
- Monitoring performance and providing consolidated reporting
- Coordinating tax and legal matters
- Planning succession and estate, acting as mediator between the parties involved if required
- Setting up foundations
- Administration including accounting for the wealth
- Setting and monitoring risk parameters
- Planning and supporting charitable engagements
- Real estate management
- Personal services, for example coordination around powers of attorney for care
Since the tasks are based on the requirements of the respective family, the list can be expanded as needed. Taking on individual partial tasks is also possible.
The subtle difference: family office and wealth manager
The activity of a family office is not specifically regulated by law in Switzerland. However, there are associations that bundle interests and define requirements for new members. In these associations, the admission criteria are clearly defined. These aspects often come into play:
- Independence of the institution: the focus is exclusively on the family office service. It is not a partial service of a provider that also conducts other business.
- Focus on total wealth: holistic management across all asset classes is an essential characteristic. It is not only about the securities portfolio or real estate management, but about steering and controlling the entire wealth.
- Monitoring and coordination: the family office supports the selection of providers and coordinates and controls the commissioned services.
- Fee transparency: fee compensation by the family dominates. Any third-party commissions must be disclosed and may only be collected after consultation with the family.
- Congruence of interests: the activity is geared exclusively to the interests of the family served. Its own business interests take a back seat.
- Impeccable reputation and code of honour: integrity and adherence to ethical principles are confirmed through the association’s rules.
The independence and the focus on total wealth show that the services cover all questions that arise with the wealth. With a real estate investment, it is not only the expected performance that counts, but also tax matters, inheritance, administration and the overall structure of the wealth. The perspective therefore always extends to the next generations as well.
By refraining from certain operational activities, a multi family office takes account of the heightened emphasis on security. Decent returns are desirable, but the priority is wealth preservation.
Legal requirements and FINMA supervision
This is where the decisive difference between the two forms lies. Since 1 January 2020, wealth managers in Switzerland have been subject to the Financial Institutions Act (FinIA) and require a FINMA licence. After being licensed, they are subject to ongoing oversight by a supervisory organisation, which in turn is licensed and supervised by FINMA.
For family offices, a distinction must be made here:
- A pure single family office that manages only the wealth of its own, economically or family-connected persons is exempt from the licensing requirement.
- A multi family office that manages the wealth of independent third-party families generally qualifies as a wealth manager under FinIA and is therefore subject to licensing.
So a family that commissions a multi family office to manage its wealth in Switzerland typically commissions a FINMA-licensed wealth manager under ongoing supervision. In addition, anyone managing third-party assets on a professional basis is subject to the Anti-Money Laundering Act (AMLA) and must fulfil the corresponding due diligence obligations.
This is exactly the point that distinguishes a genuine multi family office from a mere piece of software. A multi family office is an organisation made up of people with a mandate, governance and responsibility that is subject to supervision. A digital tool maps data and supports reporting, but it does not make investment decisions, carries no mandate and is subject to no prudential supervision. Technology makes the work of a family office visible and traceable, but it does not replace the judgement and the regulatory responsibility behind it.
Investment forms: long-term focus over speculation
In 2020, a survey of 121 family offices gave rise to the “Global Family Office Report” by UBS and Campden Research. It provides insight into the most important asset classes. The ranking at the time:
- Equities (29 percent)
- Bonds (17 percent)
- Private equity (16 percent)
- Real estate (14 percent)
- Liquidity (13 percent)
- Other (11 percent)
Other surveys also show that family offices invest money where it can grow over the long term. The principle is that large fortunes are not used for speculation. Accordingly, equities, real estate and company holdings dominate, complemented by a relatively high share of bonds for stability. In the real estate asset class, the focus increasingly shifts from commercial real estate, which is difficult to calculate, towards residential real estate.
Family offices have developed into significant investors that increasingly participate in start-ups (venture capital) with risk capital. The entrepreneurial experience of the families plays a major role in assessing such commitments. A key advantage over traditional wealth management is that the family has a greater say in the investment structure.
Under what conditions is a family office worthwhile
The staffing of a family office adapts flexibly to the needs of the asset owners. In addition to the holistic and interest-aligned approach, cost advantages can play a role. The various organisational forms, especially in the area of multi family offices, enable a growing number of asset owners to manage their wealth independently of banks.
Single family office
The single family office is the most independent form. Because it involves high fixed costs, experience shows it only becomes economically sensible from wealth in the hundreds of millions. Industry estimates often cite an order of magnitude of around 250 million.
Multi family office
From wealth of around 15 million Swiss francs, a multi family office can be an option, depending on the provider. The market of providers has grown along with rising demand. In addition to providers that have emerged from a single family office, recent years have also seen the emergence of independently founded multi family offices.
The market is growing and attracting more interested parties
Digitalisation has long since reached individual wealth management too. This refers not only to the robo-advisers that have emerged in recent years. The family office market is also evolving and is no longer reserved for the very largest fortunes. Everon combines the holistic approach of a multi family office with a more accessible entry point, so that wealth management is open beyond the traditional thresholds as well.
A sound organisation is the foundation
One of the greatest advantages of a family office is the comprehensive control over one’s own wealth. In a single family office, this is exercised by the specialists who report to the asset owner.
In a multi family office, the separation of wealth management and operational business is widely regarded as the best form of security. It supports interest-aligned management. You should always be critical of providers that issue or broker their own financial products without disclosing this.
Switzerland as a financial centre: high in the family office ranking
The worldwide growth in wealth has triggered a lasting upswing of family offices. Published figures are based on estimates and therefore vary. In Switzerland, the Swiss Single Family Office Association estimates the number of single family offices active here at around 250 to 300 and the wealth managed by Swiss family offices, including holdings in family businesses, at around 600 billion Swiss francs.
In Europe, Switzerland ranks among the leading locations alongside the United Kingdom and Germany. It is regarded as a well-developed market for family offices, which is explained by the long tradition of the financial centre, its stability and the density of specialists. Alongside Swiss families, families from neighbouring countries also draw on expertise from Switzerland.
The main advantages of a family office
The particular advantage of a family office lies in the control over one’s own wealth. An efficiently structured organisation enables interest-aligned management in a way the direct link between bank and family cannot. It allows individual steering of the wealth in the interest of the family. With a well-organised family office, there are no hidden fees, and total costs are often lower above a certain level of wealth.
Conclusion
With a family office, you lay the foundation to organise wealth management in a holistic way. What was long reserved for wealthy families is today accessible to a wider circle through multi family offices.
The structure of the wealth is not based on the fixed parameters of individual product providers. At the centre of all strategic considerations are the individual interests of the family. This includes one of the biggest challenges of family businesses: succession.
The key insight is that a genuine multi family office is not a piece of software or an online tool, but an organisation made up of people with a mandate, governance and FINMA supervision. If you, as a family, want to sustainably secure the lifestyle you have achieved, preserve what you have built and think across generations, a family office is a suitable instrument for this.
Frequently asked questions about the family office
What is a family office?
A family office is an organisation that manages and coordinates the wealth of one or several affluent families in a holistic way. It brings investment management, reporting, tax and legal matters, succession planning and administration together in one place and acts solely in the interests of the family, independently of a bank.
How do single and multi family offices differ?
A single family office (SFO) manages the wealth of a single family only. A multi family office (MFO) serves several families that are independent of one another and shares the structural costs across them. This makes the holistic approach economically viable at much lower levels of wealth.
Is a multi family office in Switzerland subject to FINMA supervision?
A pure single family office that manages only its own family’s wealth is exempt from the licensing requirement. A multi family office that manages the wealth of independent third-party families generally qualifies as a wealth manager under the Financial Institutions Act (FinIA) and requires a FINMA licence. It is subject to ongoing oversight by a supervisory organisation.
From what level of wealth is a family office worthwhile?
A dedicated single family office usually becomes economically sensible only from wealth in the hundreds of millions, given the fixed costs. Industry estimates often cite around 250 million. A multi family office, thanks to shared structures, can be an option from around 15 million Swiss francs, depending on the provider.
Is a family office the same as a piece of software or an online tool?
No. A family office is an organisation made up of people with a mandate, governance and responsibility, not a self-service dashboard. Technology supports the work, for example in reporting, but it does not replace the judgement and oversight that define a regulated multi family office.
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This article is for general information purposes only and does not constitute investment advice or an offer to buy or sell financial instruments. Everon AG is a wealth manager licensed by FINMA under FinIA. Past performance is not a reliable indicator of future returns.
