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The concept of a dedicated family office has long been established as an effective solution for ultra-high-net-worth individuals (UHNWIs). These entities offer comprehensive financial and personal services tailored to manage and grow family wealth across generations.
However, the high costs and resources required to establish a full-service family office often limit their accessibility to only the wealthiest families. It's often said that $100 million in assets under management is the minimum to even consider operating as a dedicated single family office, and even that number is debated as too low due to the high cost structure.
Enter fractional family offices, an innovative approach that democratizes access to bespoke wealth management services.
“Masttro has allowed us to have a single source of truth for all of our investments, which is critical and enables us to execute a world-class, institutional-quality middle office infrastructure.” — Daniel Forman, CIO, Jefferson River Capital
Key Takeaways
What is a fractional family office?
A fractional family office is a new, cost-effective model that provides family office services to multiple families. This approach presents a middle ground by offering the same personalized and holistic investment management, wealth and tax planning services as traditional multi-family offices (MFOs), but on a shared, as-needed basis. Rather than providing comprehensive support to each family like an MFO or outsourced family office, it offers a portion of these services based on each family's requirements.
Doing this leverages shared resources and expertise while maintaining personalized wealth management for each family.
How are they structured?
Typically, a centralized core team manages investment oversight (across public equities, private equity, alternative investments, hedge funds, etc), tax optimization, estate planning and advises on areas like succession planning and philanthropy. Each family receives tailored financial strategies through their dedicated financial advisor within the shared team.
Outsourced specialists, like legal and accounting professionals, and other top-tier advisory services enhance flexibility and expertise. This structure allows affluent families to enjoy comprehensive, high-quality service at a fraction of the cost of traditional single-family offices, making it accessible to those with substantial, but not extreme, wealth.
Why a fractional family office model
The fractional model presents several benefits, including cost efficiency, flexibility, and access to a broad spectrum of expert advice and services that might otherwise be out of reach.
Key fractional family office benefits include:
- Cost Efficiency: A fractional family office provides family office services on a shared basis, allowing multiple families to benefit from professional management and advisory services without bearing the full cost of a dedicated team.
- Customized Services: Families receive tailored wealth planning solutions, trust and estate planning, tax advisory, and lifestyle management, while only paying for the services they need rather than a full suite of family office services.
- Expert Access: By utilizing a fractional family office, families gain access to a diverse network of experts and professionals, such as financial advisors, tax specialists, and legal consultants, which might be cost-prohibitive individually.
- Risk Management: These offices help in effective risk management by leveraging pooled resources, enabling broader investment opportunities and comprehensive risk mitigation strategies suited to each family’s portfolio.
- Flexibility: Fractional family offices offer flexibility in scaling services up or down according to the family’s changing needs and preferences, allowing for more dynamic and responsive financial management.
- Shared Infrastructure: Families benefit from a shared infrastructure, including technology platforms and systems that support efficient data management and reporting, enhancing decision-making processes.
Who are fractional family offices best suited to?
Fractional family offices are best suited for UHNWIs and families that require the services and expertise of a traditional family office but do not yet have the resources to justify their own full-scale, dedicated office. They likely also have a portion of their wealth management needs already taken care of, hence do not fit the ideal customer model for a multi-family office.
Fractional family offices are ideal for:
- Emerging Wealth Holders: Individuals or families who have recently acquired significant wealth through a liquidity event but are not yet at the level of ultra-high net worth individuals, making a full family office financially impractical.
- Cost-Conscious Wealthy Families: Family principals who wish to maintain a high level of financial management and service but prefer to keep overhead costs down by sharing expenses with others.
- Those Needing Professional Management: Families who need more specialized expertise in investment management, financial planning, tax strategy, and other wealth management services that a fractional family office can provide through experienced professionals.
- Families in Transition: Those going through transitions such as business sales, inheritance, or complex tax planning and compliance situations who need intensive, short-term assistance that a fractional family office can provide.
- Geographically Diverse Families: Families spread across multiple locations, who want centralized management of their financial and administrative needs without setting up separate offices in each location.
Philanthropic Families: Families interested in structured philanthropy and seeking guidance on strategic giving, impact investing and other wealth transfer strategies.
Alternatives Reporting: From Below the Line to All of the Above
The role of technology in fractional family offices
Technology has enabled the fractional family office model: it supports seamless communication and collaboration among team members and clients through secure, cloud-based wealth management platforms.
Overall, it empowers a fractional family office to offer tailored, efficient, and secure financial services giving families the benefits of their own family office without the full-time overhead.
Five areas where technology infrastructure enables fractional family offices:
1. Comprehensive Financial Planning:
- Integration of Financial Data: Wealth management software allows for the aggregation of financial data of all types: from public markets to private market investments, real estate funds, private equity funds, collectibles, digital assets, etc. It provides a holistic view of the client’s assets, liabilities, income streams, and expenses, allowing for informed asset management.
- Automated Reporting and Analysis: Family office software has embraced artificial intelligence, enabling automation that reduces manual tasks, increasing efficiency and accuracy in reporting and compliance. Modern consolidated reporting solutions can automatically generate reports and help with analyses to improve strategic oversight and investment planning.
2. Communication and Collaboration:
- Client Portals: Secure client portals enable families, clients and wealth planners to easily access their financial information, view reports, and communicate securely in real-time, not just at advisor or family meetings.
- Collaboration Tools: Features like secure messaging, document sharing, and task management facilitate better collaboration between the family office team and clients, to ensure transparency and support family education.
3. Customization:
- Tailored Services: Software can be customized to cater to the unique needs and preferences of each family or client, including investment strategies, risk tolerance, and financial goals.
- Dynamic Reporting: Clients can receive personalized reports and updates that reflect their specific financial situations and interests, with leading software solutions like Masttro enabling personalized dashboards for each user.
4. Efficiency and Automation:
- Automated Workflows: Processes like data entry, transaction processing, compliance checks, and reporting can be automated, reducing the likelihood of human error and freeing up time for advisors to focus on more valuable tasks.
- Scalability: Software can support the growth of the fractional family office by efficiently managing an increasing number of clients without a proportional increase in administrative workload.
5. Security and Risk Management:
- Cybersecurity and Risk Monitoring: Cybersecurity measures protect sensitive information, while technology-driven personalized client interfaces enhance service delivery. Leading software can monitor various financial risks and provide alerts, enabling the family office to respond proactively to potential issues that may affect client portfolios.
- Regulatory Compliance Tools: Leading wealth management software often includes tools to ensure compliance with regulatory requirements, reducing the risk of non-compliance and its associated penalties.
What does a successful fractional family office look like?
A successful fractional family office provides high-quality, personalized services to its clients while optimizing operational efficiency and managing risks effectively. Success means UHNW individuals and families obtain the wealth management services they aren't receiving elsewhere, while the fractional family office team can operate efficiently and profitably, guided by the best interests of their clients at all times.
As wealth management evolves and the number of UHNWIs grows, expect fractional family offices to gain traction as a solution for a wider audience hungry for personalized financial support. It presents a compelling offering, allowing wealthy families and individuals to share the costs and benefits of sought-after family office services without the financial burden of maintaining one independently.
As we’ve outlined above, technology plays a crucial role in the success of fractional family offices. Masttro is at the forefront of modern wealth management technology, providing the most intuitive, comprehensive software solution that is purpose-built for family offices.
Speak to us to find out more.
