Pros and Cons of Working for a Family Office

The Pros and Cons of Virtual Family unit Offices

Benefits include direct command and flexibility and diverse investment perspectives 

A virtual family part (VFO) is a lean single-family function (SFO) that uses a high level of outsourcing to go along the staff equally low-toll and flexible as possible.  A VFO and SFO are essentially one in the same, but most families with but $20 million to 200 million in assets under management typically use the former model when they need a customized model, simply don't desire all of the overhead and support of a fully-fledged SFO.

VFOs first gained modest popularity in the 1990s, particularly in London, Zurich and New York, as wealthy families heard about the benefits of having their own SFO and desired the directly control that can be designed into such a structure.  As the family part industry has expanded over the past 20 years, this term has become more mutual and volition likely proceeds traction in the hereafter as families continue to seek out customized, affordable family function solutions.

Video: Here's a short video that I recorded in Berlin on VFOs, their growth and why they're beingness gear up up more oftentimes than ever before:

3 Benefits of a VFO

Here are the three benefits of a VFO that are most oft cited by families:

1. Direct control and flexibility: If your customer doesn't similar i person on the team, he replaces him; if your client wants to reshape his team, portfolio, etc., he can practise and then swiftly at his own discretion. If your client hires a multi-family unit office (MFO) or wealth management firm instead of a VFO, he may feel "stuck" with the team that's assigned to him and have niggling flexibility to pursue a different wealth management arroyo.  Many families accept recently wanted to deport more than co-investments and club deals, for instance, and a team may be re-built effectually that demand very chop-chop.
2. Various investment perspectives: If your client hires a Chief Investment Officeholder (CIO) to only manage his family'due south wealth, the CIO may soon lose rails of what other families are investing in and techniques they're using.  Inside of a VFO, nevertheless, your customer could use an MFO asset direction service or outsourced CIO.  Your client could negotiate the management of liquid avails or additional areas of his investment portfolio to exist administered by a leading MFO, and that part would gladly have his business.  In my experience, this isn't mutual practise, just it can be a tremendous benefit for families that employ this strategy.

   MostVFOs hire an outsourced CIO who helps hire and burn investment fund managers, reviews deal flow, helps manage real estate investments and is responsible for the overall investment portfolio design and risk management.

   In either instance—hiring an MFO or outsourced CIO—your customer gets the benefit of using the best practices collected from servingMFOs, but inside the construction of an SFO.  Yes, your client can gain this perspective as a traditional SFO, but likely at a higher price point, which leads us to the side by side benefit.

3. Cost:  In theory, your client's gross costs of running an SFO are reduced if he selects highly experienced outsourced partners.  For case, a $20 million dollar cyberspace worth family unit often doesn't require the total-time employment of a portfolio manager or trust and estate professional person. By outsourcing nigh functions, the monthly overhead can be kept at a minimum, while yet meeting the family unit's investment mandate and retaining benefits #1 and #2 higher up.

Three Downsides of a VFO

VFOs are the exception, non the dominion, when it comes to family part structures.  There are certainly disadvantages that your client should consider when contemplating whether to gear up a VFO compared to a MFO, SFO or alternative wealth management structure for his family unit.  Here are some of the primary disadvantages and objections raised past those questioning the VFO model:

1. Service provider selection take chances: Since well-nigh of operations and the investment team are outsourced, your client's ability to select the right service providers at the correct cost is critical.  In my work with families, I always try to make sure they take their "Family unit Role Compass," or a vision that guides what the mission of the family office is and what the ultimate objectives are for the family.  I believe that families are more likely to brand sound decisions if they accept actually invested time in charting their course.  In addition to having a compass, having the correct experienced and well-connected advisory board synthetic helps ensure that your client can review the most well-qualified service providers instead of but the ones who alive in his city, are family friends, etc.  Still, at that place's existent risk of making poor decisions as your client selects his service providers—a take chances that some families may find besides slap-up no affair how much they try to mitigate
2. Speed: Since most of your client's team is outsourced while operating a VFO, he may be disappointed in having to expect a half 24-hour interval or more for a reply from a provider when a critical effect, such a sale of an nugget, finish of a taxation period, public offering, natural disaster or death in the family unit, has occurred.  If someone works exclusively for your client'southward SFO, he's required to get back to him immediately during business hours. That articulate, defended attention of someone worried just nearly your client'due south portfolio is an advantage that's sometimes worth the price.
3. Confidentiality:  Naturally, when everything your client invests in is reviewed or managed by exterior partners, there's a higher hazard of others seeing your client'south investment portfolio and benefiting from that knowledge. They may see your client acquiring companies in a certain industry or having access to potentially damaging facts about his financial situation or solvency.  This isn't a large worry of most families who vet their service providers thoroughly, just it's something that should be considered.  The Southeast Asian families who I've worked with in Indonesia, Malaysia and Singapore, for case, have been the nearly concerned with this downside of operating a VFO.

Equally I noted in the beginning of this piece, the VFO concept is still a relatively new ane.  The toll efficiencies and simplicity of the VFO model make a lot of sense to families that prize the direct control of this streamlined solution.  I see this model growing in popularity every bit more families continue to adopt a more than customized solution than what has been traditionally offered by banks and wealth management firms.

By Richard C. Wilson, CEO of The Miami Family unit Function, an SFO with $500 million in assets and bestselling author of "The Unmarried Family Office Book: Creating, Operating, and Managing Investments of a Unmarried Family Part"

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Source: https://www.wealthmanagement.com/high-net-worth/pros-and-cons-virtual-family-offices

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