Virtual family offices are the increasingly popular solution to help HNWI’s handle everything from daily operations to physical asset management. Here, we explain what a VFO is, its services and the benefits of using one.
Simply put, it is a white-label family office offering an all-in-one solution to every non-monetary element of a traditional family office structure, including physical asset management, legal consultation and lifestyle management.
Although the term ‘virtual family office’ might conjure up images of dot-com-style faceless service, they tend to be staffed by ex-lawyers, bankers, fund managers and property professionals who have previously worked on large family client accounts, who now offer 24/7 support to those families in a semi-dedicated manner.
They take on a number of operational responsibilities for HNWI’s, particularly younger HNWI’s and more recent comers to significant wealth, or those who are scaling back their own single family office operations to concentrate on pure monetary or investment matters. These services are tailored to the individual family’s requirements and can take the form of project-specific tasks, ongoing retainers or long-term advisory relationships.
Pooling wide-ranging resources under their ambits, support can be provided at every level of the clients’ desires, from financial and book-keeping support to recruitment and staff administration, to logistics and project management, graphic design, procurement and luxury travel/concierge services. Instead of the Principal or their household staff needing to shop around for specialist services, and then onboard them (dealing with issues of confidentiality, suitability and due-diligence), the VFO is able to provide these services under an ongoing arrangement.
The rise in popularity lies in its efficiency and ability to recuperate its costs many times over. In relation to substantial property renovations, yacht or aircraft refits, teams will assist the client through all phases of their projects, supporting with the appointment of design and construction teams and managing the project management team in minute granular detail to ensure the highest of standards in the finished project, on time and on budget.
The added value doesn’t stop there, however. A VFO can usually lend its assistance at earlier and later stages of the physical asset management process, too; assisting with initial acquisition of the asset itself, ongoing recruitment and management of staff, maintenance, and subsequent disposal or commercialisation (offering for rental or charter to generate income). In addition to this, many virtual family offices also offer private and discreet day-to-day accounting, expenses, payroll and budgeting services, so that all of the relevant functions are able to work seamlessly together.
This allows clients to enjoy as much or as little assistance as is necessary in the management of their estate or property portfolio. Because of the nature and scale of the projects, these offices are usually able to generate significant savings during the lifetime of the project, which far outweigh the costs of their appointment.
This system can also often act as ad-hoc general counsel for wealthy individuals and families, providing early-stage advice in investments, corporate, personal and reputational matters, and the prompt drafting of legal documentation and advice, whenever and wherever the need might arise. Similarly, in times of trouble, crisis or bereavement, an ad-hoc general counsel service can serve as a first point-of-contact for the authorities, media and general public, freeing the family up to concentrate on the matter at hand.
Principly, these offices operate as an extension to the family’s own operations, these services are frequently available ‘out of hours’ or in locations to suit the client (at their home, office, holiday property or yacht, or even en-route between two or more of those), and they are able to provide holistic advice which takes into account the client’s wider goals, preferences, philanthropic aims, risk profiles and risk appetites, so that independent transactions are treated as constituent parts of a wider set of ongoing legal affairs.
Virtual family offices are also often tasked with managing the minutiae of a client’s complex day-to-day operations and lifestyle. This can take the form of planning and executing estate management strategies, recruiting and maintaining household staff, arranging travel over land, sea or air, and managing high-value collections of art, wine, watches and vehicles.
Beyond the day-to-day, VFOs are also often a first port-of-call for more exotic requests. It is here that a significant overlap is often found between our services and some of the more reputable lifestyle concierge companies like Quintessentially or the American Express Centurion concierge. Because virtual family offices represent the family ‘from the inside’, however, and are tasked always with cost-conscious spending, the service received from an in-house, compared with that of an external concierge service, is generally a world apart.
Examples of relatively frequent operational instructions can include:
In trying to organise or manage each of these situations on their own, an individual or family might quickly find themselves swamped in detail, choices and difficulties. To the uninitiated, it can also be difficult to discriminate between the services proposed by suppliers, yet easy to be up-sold additional services which either aren’t required, or aren’t fit for purpose.
In short, the virtual family office, by virtue of its wide-ranging and ongoing instruction, acts as a bridge between the close-knit inside world of the family and the outside network of suppliers and advisers, taking care of the small details so that the clients are free to concentrate on and enjoy the bigger picture.
The simplest answer to this question is ‘cost’. Because virtual family offices tend to operate on a time-charge basis, the client is only paying for time when the office is working to generate savings on its account. There is no expenditure on quiet times, nor on holiday, sickness or rent. There are no bonuses to consider, and no requirements to set goals, targets, plan appraisals or keep employees motivated or engaged – as service providers, employees of the newer model recognise the need to excel at all times in order to satisfy their briefs.
Cost is not the only driver, however. Today’s ultra-wealthy are getting younger and younger. Both through generational passing of wealth and as the rise in the technology economy empowers a generation of millennial billionaires, the attitudes controlling today’s fortunes are increasingly cost-conscious; less focused on style, and more on results.
For these younger entrants, as for their older counterparts, trust is one of the most important commodities. A well-run VFO relationship is a very long one indeed. Trust, integrity and honesty are the core values upon which they are built, and relationships generally take many years to build properly, starting with small, project-based instructions and growing over time to suit the Principal and their family, be that for infrequent operational ‘health checks’ or for concentrated, hour-by-hour support when required.
Rather than employing a full-time staff, as many single family offices do, a virtual family office has no ongoing overhead cost, and can ‘staff-up’ specifically or instruct known and trusted experts as and when they are required for client projects, which can significantly reduce ongoing operating costs for those clients.
Similarly, clients do not need to pay ongoing costs associated with the infrastructure of their family office (no IT bills, no software costs, no rental or business rates costs and no maintenance or utility costs), nor to suffer interruptions of service during holidays or sickness.
Rather than focusing solely on the prospect of either maintaining or growing the wealth of a client’s family, a virtual family office offers legal, lifestyle and asset management service on a truly holistic basis. In this way, the relationship manager acts as a single source of knowledge, expertise and assistance to the client for all of their non-monetary affairs.
Traditional single family offices, like all organisations, must learn as they grow. Experience can be ‘bought in’, but usually comes at a price. Virtual family offices, however, because they work on a multitude of projects for different clients at different times, but in similar spheres, are able to impart the benefit of shared similar experiences to ensure that costly mistakes or misconceptions are avoided by design.
Similarly, when it comes to supplier selection, because of the wide variety of other families’ business which a virtual family office will have worked upon, they often have direct experience of the widest range of suppliers and contractors, so are able to avoid the potentially costly pitfalls of appointing the wrong one.
Whilst the idea of a virtual family office might seem new, many will be familiar with the concept of the traditional Single Family Office. A wealthy individual or family (the ‘Principal’) will build a team of in-house professional advisers to manage their affairs. Often, those single family offices will occupy prestigious premises, away from the family home, but in reach of the external network of supporting advisers (lawyers, private bankers, accountants and tax specialists), with the majority of the staff employed on a full-time basis. The serene, cobbled back-streets of Mayfair tend to provide suitably salubrious locations for these.
Family offices, in general, cover a broad range of services for their Principals. Many are focused solely (or mainly) on money matters and the management of trust structures conceived of by their financial advisers. These offices will manage investment portfolios, physical assets (such as prime property, commercial property portfolios, yachts and aircraft) and, increasingly, direct investments in young enterprises with promising futures. Increasingly, some also often provide elements of ‘lifestyle management’, from complex client representation in large property, marine or aviation investments to the ‘softer’ concierge-type requests for luxury travel and shopping, right down to everyday diary management and gatekeeping.
Wealth has changed over the years, however. As land values, the costs of employment and the tax burden weighing upon some of these traditionally wealthy structures have increased, so too have the number of “Multi-Family Offices” in existence. These are often formed either by the merger of two or more existing single family offices, or they are established specifically to cater for their constituent shareholders’ family requirements. The advantages to these structures, particularly when it comes to the wealth-management side of family office operations, are clear – they offer shared risk, shared exposure and shared overheads, with the same (or better) returns.
These multi-family setups can sometimes sacrifice a level of personal service, however, and tend to be geared very much toward the ‘hard’ money-matter type operations. It is in response to this dilution of the softer side of family office services that there has been a recent growth in the number of “Virtual Family Office” services available.
Almost certainly not. Many VFOs will count single family offices among their best clients – those single family offices which concentrate principally on money matters are thus able to bring in operational support as and when they need it. Similarly, while many of the younger generation of ultra-wealthy seem to favour outsourced family office services, there is still no shortage of more established family offices which work very efficiently to serve their Principals’ needs.
Finally, it bears noting that a virtual family office isn’t suitable for all. Those with more complicated arrangements spanning multiple jurisdictions, like those that operate complex or convoluted structures in order to manage risk and exposure, are likely to be better-served by a dedicated in-house team. For those whose affairs are modern, streamlined and require less hands-on management, however, the virtual family office sector is rapidly maturing to serve them in a cost-effective and sustainable way.
Perhaps you are looking for some further information about the way VFOs work, and if they could be of benefit to you. This article goes into further detail about the pros and cons of a Virtual Family Office.