While Monaco is a land that welcome Family Offices for long time, the inception of the Multi Family Office activity is quite recent in the principality. It was essential for the Monaco to offer this form of entity to a wealthy clientele with diversified needs and requirements to support them in their wealth management strategy. The initiation of the first bill dates back to 2013 and the National Council adopted the Bill No. 946 on November 29, 2016, published under the No. 1.439 of December 2, 2016.
MFO’s activity in Monaco consists in providing, as a usual profession, advice and services of a wealth and financial nature to individuals, families or legal entities to which they are related to.
Established in the form of a Monegasque joint-stock company (SAM), the MFO is subject to the prior obtaining of an administrative authorization – excluding for credit institutions – issued by ministerial decree and, depending on the case, by the CCAFwhen the services of the MFO are extended to certain financial activities.
For sake of clarity, the law on MFOs stipulates that no management activity can be carried out by the latter, in order to avoid any risk of conflict of interest more likely to appear when the same structure diversifies its financial activities.
Likewise, since the method of remuneration can also weaken the objectivity and independence of the advisor being himself judge and party, the law specifies that the MFO cannot receive any other remuneration than the one received directly and exclusively from its client, the latter being assured of benefiting from sound advice, regardless of the amount of assets.
The Family Offices business model has evolved from a passive investment strategy to an active wealth management. While Family Offices used to have their assets managed by third parties, they realized that they themselves had the resources to manage their own funds.
This change can also be explained by the transformation of the profile of an increasingly number of clients who have built their fortunes following the sale of their company, or an IPO and who naturally choose active management, ahead of the market trends: Digitization, Impact investing, Technology, Startup, Art, Private Equity, renewable energies are all subjects in which they excel.
Wealthy leaders are looking for profiles of increasingly experienced advisers to help choose an adequate allocation, based on a wealth strategy that fits into a context of intergenerational wealth transfer, the “raison d’être” of the Family Office.
The expertise of managers and the growth capacities of these Family Offices being exponential, the fundamental costs of these structures are an essential point which lead some clients to opt for a Multi Family Office, of which the mutualization of operating costs presents a significant advantage.
City Private Bank recently established a gridof relative costs categorized according to 4 sizes of Family Office:
-The “small” Family Office composed of 2 full-time accountants / chartered accountants, a team of 3 people providing administration, stewardship, management and an investment advisor, for an annual variable cost of 1.5-1.8 million dollars
-The “medium” family office made up of a team of 6 people providing administration, stewardship, management, plus 3 full-time accountants / chartered accountants, 1 person in legal advice, 4 investment advisers and 1 project manager for an annual variable cost of 3 to 3.8 million dollars
-The “large” Family Office made up of a team of 8 people providing administration, stewardship, management, 1 security manager, plus 5 full-time accountants / chartered accountants, 1 person in legal advice, 5 advisers in investment, 1 project manager and specialists in philanthropy, and in art for an annual variable cost of 8 to 10 million dollars
-The “very large” Family Office made up of a team of 14 people providing administration, stewardship, management, 2 security managers, plus 10 full-time accountants / chartered accountants, 4 people in legal advice, 10 investment advisers, 2 project managers and specialists in philanthropy, and in art for an annual variable cost of 14 to 20 million dollars.
A benchmark for calculating the cost of these Family Offices would be to divide the direct expenses of the Family Office by the assets under management.
« If a family’s wealth is growing at a robust rate, say at 6% pre-tax annualized over the long-term, spending 1% on a family office may be reasonable. However, 1.5% or 2% office annual overhead will erode the spending value of the portfolio over time, much like fees and taxes ».City Private Capital Group- A guide to establishing a family office
The rise in competence of Family Offices, and the expansion of their areas and investment sectors, lead them to be managed more and more like companies with the same logic of personnel management, cost optimization, and governance ; in this sense, the MFOs not only embody a democratization of the SFO but allow the customer to lighten the entire operational part.
SFO versus MFO, each will have to study the best alternative on a case by case basis; the exchange and sharing of experience is one of the ways to clarify this long-term heritage project.
Monaco hosts every year, the Ritossa Familly Office Investment Summit, an opportunity to meet a large number of Family Office professionals and wealthy families who have founded their own SFO, and discuss these issues.
Article: Joana Foglia