SFO to MFO – holy grail or achievable if you avoid the pitfalls?

Simon RoderickResearch, insights & industry news

Family office - multi or single

SFO to MFO – holy grail or achievable if you avoid the pitfalls?

June 14, 2021
 / 
Research, insights & industry news
Many family offices have aspirations to transition from being a single family office to being a multi-family office. On paper it all seems so easy, but so many family offices fail to turn this vision into a successful reality. Why? Sometimes it’s hard to say, but I do think there are some common mistakes.

Fram has worked for family offices for many years and, whilst some say that is each family office is different, and I’d mostly agree, one theme is that many have aspirations to transition from being a single family office to being a multi-family office. It makes sense, you’ve been through the pain of creating first class infrastructure, you’ve attracted a good team who look after your needs well, you’ve invested heavily, and you've realised a) the model can be scaled and b) you’re often an entrepreneur and so growing your family office is just another venture.

On paper it all seems so easy, but so many family offices fail to turn this vision into a successful reality. Why? Sometimes it’s hard to say, but I do think there are some common mistakes.

What is your value proposition?

Your peers are most likely already clients of some of the leading private banks and wealth managers. You understand their frustrations and feel that they would benefit from your boutique, high touch set up. However, many SFO’s fail to recognise that for families to leave a private bank you need to have in place a first class value proposition. In most cases, this is an outstanding investment committee, team, and well developed investment process you can market to third parties. In some cases, the “engine” of the family office works very well looking after a single family, but it isn’t sufficiently institutional to welcome others. Appointing part-time members to an investment committee and NED’s can help plug some of these gaps, and can help provide objective expertise.

Route to market

Where firms do have a strong investment process, the next challenge is their route to market, i.e. how do they find clients? Family offices don’t advertise and most think this wouldn’t work anyway. Therefore, their first thought is to hire a private banker looking for a home for their clients after they retire. I think this is often more of a romantic notion than reality. It can happen, it does happen, but there are so few individuals meeting this criteria that you can’t create a sustainable business plan around it. Hiring private bankers is an obvious route, but many firms make the mistake of offering them a lower salary with more upside potential on delivery. However, asking someone to leave behind an established brand and all of the benefits that come with this in terms of client flow, offering, and personal benefits misunderstands the situation.

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Family offices may need to go the other way and offer high levels of fixed compensation to early joiners and reverting to the lower salary, higher pay out model, once they’ve achieved scale. It is also key to align bonuses to the behaviours that you’d like to see in your demonstrated by your team. This isn’t a silver bullet and it can take time, but this can be accelerated by appointing a management team with experience of scaling a wealth management business.

Develop a 5 year plan and sell the vision

Family offices are often the result of the sale of an existing successful business. This business will have had a 5 year plan and if you’re intending to grow your family office this too needs to go through a rigorous planning process. Many offices are opportunistic when it comes to their strategic plan. However, once a plan is developed it can become a very useful tool in attracting and incentivising key talent.

Look for a differentiator

Family office - multi or single

Many family offices invest in liquid markets, private equity and real estate, but could you provide more services to differentiate your firm or will you compete on performance alone? A clearly honed message and defined list of services will really help firms segment and target prospective clients.

We feel that interest in working at a family office is extremely high and now is a great time to grow the office and attract high quality talent. There is a mystique around the industry, there is some envy at the relative lack of regulation and, scaled in the right way, growing a multi-family office can bring real value to existing owners.

About Fram Search

Established in 2010, Fram Search is a specialist financial services recruitment consultancy. We support financial planning firms, wealth managers, discretionary fund managers, private banks and family offices across the UK and internationally.

Our Wealth Management practice recruits across financial advice, investment management, paraplanning, compliance, operations and executive leadership functions. We provide both contingent recruitment and executive search services, helping firms attract high-performing advisers, strengthen support teams and build leadership capability. Our consultants combine deep market knowledge with extensive networks developed over many years within the wealth management sector.

Please contact us on 01525 864 372 / [email protected] to learn more.

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