Multi-family offices aren’t expecting – and haven’t yet seen – an onslaught of single-family offices beating down their doors as a result of the Securities and Exchange Commission’s landmark ruling last month, according to comments from some within the industry.
“I don’t think there will be a big influx of business for MFOs just because of the ruling,” said Brian Hughes, managing director, strategic relationships, for Threshold Group, a multi-family office based in Gig Harbor, Washington. “In terms of the way we would market or do things after the ruling, we came to the conclusion we’re not going to make a big push to go after SFOs.”
The SEC ruling, which defined family offices that would still qualify for exclusion from registering with the agency, has, so far at least, not been a catalyst for single-family offices to unwind and become part of a multi-family office, said Murray Stoltz, president of Manchester Capital Advisors.
“We’re not seeing it,” Stoltz said. “If SFOs have to register under the new rule, it’s not the final straw that will make them part of an MFO. As far as we can see, it’s not a threshold issue for them.”
In fact, MFOs that have themselves had to register with the SEC say the process isn’t as calamitous as some have depicted it.
“Once you register, it’s not as onerous as people make it out to be,” said Hughes.
“Registration is very do-able,” Stoltz added. “If a family wants to keep a single-family office, registration alone is not going to stop them.”
Industry observers also noted that wealthy families who chose to set up single-family offices to protect their privacy and can afford to comply with SEC oversight are unlikely to change their minds because of the SEC ruling.
“There are always going to be SFOs,” said Mariann Mihailidis, managing director at Chicago-based Family Office Exchange. “We’re not seeing a groundswell of single-family offices who suddenly don’t want to be one.”
“Wealthy families set up single-family offices for a reason,” said one veteran consultant to high net worth families. “The ruling doesn’t make that reason go away.”
But SFO outsourcing trend expected to accelerate
While the SEC ruling may not result in less single-family offices, it is likely to accelerate the trend towards more outsourcing. What’s more, the clock is ticking - family offices have until 30 March 2012 to decide if they qualify for the exemption or need to register.
After assessing the activities of the family office to see if what they’re doing falls inside or outside the SEC exemption, family offices will ask “‘What do we want to do about that?’ if they fall outside the exemption,” said John Benevides, president of family office services for Chicago-based Harris myCFO. (To view a recent interview with Benevides click here.)
“I would anticipate that families will increasingly consider working with outsourcing providers and outsource to multi-family offices like Harris myCFO,” Benevides said.
“Single-family offices now seem open to looking for partners to collaborate with and outsource to,” added Allison Taff, principal and director of family office partners for Boston-based Silver Bridge Advisors. “We believe there will always be families that want or need a dedicated single family office, but that new business models, especially coming from the multi-family office space, present excellent alternatives and an easier way for a family to adhere to regulations now being required of family offices.”
Threshold’s Hughes said he expects an increase in outsourcing and interest in multi-family offices from SFOs for more traditional reasons.
“We’re seeing it not so much from the rule change, but because there is a transition from one generation to another, a change in leadership or a change in economic circumstances,” Hughes said.
Regardless of what spurs a single-family office’s interest in a multi-family office, MFOs need to make sure they too are in compliance with the new SEC rule.
“Multi-family offices have to understand what the rules are and how they will be involved with the family,” said Mihailidis. “It will be a different way of working with SFOs than in the past.”
For example, as a result of the ruling “multiple family offices for unrelated families cannot share the same or substantially the same staff of employees because those employees would be deemed to be operating a de facto family office,” said Baird Allis, associate for Duncan Associates, a Chicago-based law firm specializing in family offices. “As a result,” Allis warned, “an MFO that provides staff to multiple exempt family offices, will need to register with the SEC if it has not already done so.”