In this article, we will explain what a virtual family office is and why one may be appropriate for you and your family.
What Is a Family Office?
To understand what a virtual family office is, we must first understand a “traditional” “one family” family office, which normally serve ultra-high-net-worth (UHNW) individuals and families typically with net worths of $200 million or more, via the following portfolio of services:
- financial planning
- estate planning
- succession planning
- investment management
- access to private market, and other “special situation” investment opportunities
- insurance
- charitable giving
- wealth transfer planning
- tax services
To provide such services, family offices leverage and coordinate the skills of professionals in multiple disciplines including wealth management, legal, tax, estate planning, accounting, insurance, and more.
What Is a Virtual Family Office?
Running a traditional family office is very expensive since you must employ multiple professionals (wealth management, legal, tax, accounting, etc.), hence why they are typically not recommended for individuals and families with net worths below $200 million. And, as importantly, for management of smaller sums of assets, it is almost impossible to access and secure top-tier advisory talent in the various advisory disciplines.
This is where a virtual family office (VFO) comes in.
A virtual family office is a wealth and financial advisory firm that serves a small cohort of high net worth (HNW) and ultra-high net worth (UHNW) individuals and families. In doing so, it distributes, or fractionalizes, the cost of the various advisory professionals (wealth management, legal, tax, accounting, etc.) among multiple clients.
As a result, virtual family offices provide advisory services of a similar quality as traditional family offices, but at a fraction of the cost.
Who Needs a Virtual Family Office?
Any individual or family with a net worth of $20 million or more (including the value of their home and business) can benefit from having a virtual family office. The VFO that serves them will include a team of wealth managers, lawyers, tax specialists, estate planners, accountants and insurance professionals, all working together to maximize their wealth.
Very importantly, when a sizable portion of an individual’s and/or family’s net worth is tied to a business they own and/or operate, experienced investment bankers and business management consultants should be part of the VFO team.
These business advisory professionals can provide mission-critical business advice as to M&A, capital stack / financings, valuation, exit and succession planning, and importantly best understand the critical inter-connectedness of the “family business” to the overall “life” investment and money plan.
What Services Does a Virtual Family Office Provide?
As mentioned above, a virtual family office provides the same services as a family office. But rather than serving just one individual or family, they serve multiple individuals.
Once again, these services include:
- financial planning
- estate planning
- succession planning
- wealth/investment management
- insurance
- charitable giving
- wealth transfer planning
- tax services
- investment banking (if the individual owns all or a significant portion of a business)
Is a Virtual Family Office the Same as a Wealth Management Firm?
A Virtual Family Office provides similar services as a traditional wealth advisory firm, and so much more.
Via taking a holistic approach to wealth management, via wealth managers, investment bankers, lawyers, tax specialists, accountants and more, VFOs have the ability to both grow a family’s wealth while providing more “holistic” risk mitigation (via tax, estate, insurance, succession planning, and more) than possible via a “siloed” wealth management approach.
A Summary of Virtual Family Offices
In conclusion, individuals and families with net worths of $20 million or more should strongly consider using the services of a virtual family office. This is particularly true if/when a significant portion of the family’s wealth is tied to a business it owns and/or operates. By having multiple experts assess the family’s wealth in an integrated manner, the family will be given advice that can profoundly increase their wealth, and minimize their risk, in both the short and long term.
