What is a ‘virtual family office?’


October, 2012 |

“We estimate that about $250 million in assets is required to justify establishing a single family office.”—Bill Loftus

If you build it, they will come

We recently visited Tom, the patriarch of a wealthy family on the West Coast that had started its own single family office (SFO) in 2007. The family’s members’ impetus was to gain greater control over their finances while reducing costs. They were frustrated by the unwieldy task of track-ing different relationships with banks and brokers, as well as the seeming lack of coordination among the various advisors.

Tom’s experience with his SFO generated mixed reviews. While he said he gained greater control, the costs outweighed the benefits. The SFO was not the panacea he had envisioned. What went wrong? Building a SFO was like building a business, he told us. He had to lease office space, buy software to manage the enterprise and investments, attract talent, establish policies and procedures, educate the team on the family’s goals and objectives, determine which legacy relationships would be kept, develop risk and liquidity parameters for the various investment strategies and put in place a budget to adequately fund the enterprise. Tom added that it took a year to put the SFO in place and several years before it was running on all cylinders. Even more important: The annual cost to run the office (salaries, rent, furniture, software, insurance, etc.) was in the neighborhood of $2 million. As advisors, we estimate that about $250 million in assets is required to justify establishing a SFO. All these factors led Tom to conclude that he would close his family’s SFO by the end of the year.

Are there alternatives that address the financial, emotional and philanthropic needs of a family without the embedded fixed cost of a SFO? We believe the model that best addresses the sophisticated needs of a family while still offering greater control, privacy, value and flexibility is some-thing we call the virtual family office (VFO). What are the component parts of a VFO and how should they interact with one another for optimal efficiency?

Over the years we have found that a typical family requiring the services a SFO offers needs an understanding of its private and publicly-traded investments, business interests, philanthropic structures, trust and estate plan, real estate, tax picture and most important, its family values and aspirational goals. The VFO should include:

  • A registered investment advisor (RIA) charged with developing an overall asset allocation strategy and the ability to allocate funds to a number of sub-advisors specializing in specific areas of investing
  • The Family Office division of a major accounting firm experienced in sophisticated tax matters, project management and consulting
  • A boutique investment bank skilled in analyzing existing and future private investments
  • A firm specializing in sophisticated trust and estate plan design with the ability to marshal legal, tax and insurance resources
  • A primary need is a project leader who “owns the relationship.” This per-son or firm is the chief relationship manager to the family, charged with fully understanding the overall mis-sion, risk temperament and objectives of the family as well as the requirements of each member. The chosen firm must be skilled in coordinating the information flow among all advisors and reporting back to the family in a timely and articulate manner. It should be noted that this firm may in fact be one of the primary service providers mentioned above.

In summary, our research indicates that one can build a highly effective VFO capable of delivering better investment, tax, legal, investment banking and consulting services at a fraction of the cost of owning and operating your own SFO.

Download the PDF here: What is a ‘virtual family office’

Bill Loftus

Bill is one of four founding partners of Coastal Bridge Advisors.   Bill leads the Corporate Executive Services, Lending and Alternative Investment operations of the firm. Bill is also responsible for overseeing business development and the  the firms west coast operation. With a career spanning almost 30 years, Bill began his career at Merrill Lynch in …

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