Key things to know
Virtual family offices operate remotely rather than from a centralized location like a traditional single-family office.
Virtual family offices outsource non-core functions to provide customized services, lower overhead costs and more flexibility in hiring.
Downsides of virtual family offices may include that staff feel less tied to the family and the potential for staff to become siloed due to their remote status.
Families with significant wealth have long used family offices for personalized wealth management services, such as wealth planning, investment consulting, tax and legacy planning, and philanthropy. Some also have concierge services, which act as personal assistants for tasks such as booking vacations, securing concert tickets and other services.
A family office model is increasing in practicality and popularity in which these experts work together remotely: a virtual family office. There are both pros and cons to the virtual family office.
A family office is essentially a business that manages a family’s personal and business affairs. Traditionally, family offices are run by a president/CEO and employ experts who work together in a shared physical space.
A virtual family office is managed by a president/CEO who, instead of having on-site employees, outsources various responsibilities to contractors and consultants.
Lance Losey, senior vice president and managing director of client advisory with Ascent Private Capital Management of U.S. Bank, says that virtual family offices are a growing trend since the pandemic, when so much work shifted to remote, and people became more comfortable with virtual meetings.
“Digital technology has made the virtual family office more practical and feasible today than it was just a couple of years ago,” he says. “With few exceptions, the core work of family office employees can be done virtually.”
“Digital technology has made the virtual family office more practical and feasible today than it was just a couple of years ago. With few exceptions, the core work of family office employees can be done virtually.”
- Lance Losey, senior vice president and managing director of client advisory, Ascent Private Capital Management
By using technology and outsourcing non-core functions, virtual family offices provide both customized services and greater flexibility to families with significant wealth at a lower cost than a traditional single-family office.
The structure of a virtual family office is like that of a traditional single-family office: All of the family’s financial affairs are centralized within the office, which is overseen by family members or a board of directors that sets broad guidelines and objectives, while a president/CEO oversees core day-to-day functions.
“The only real distinction is that with a traditional family office, employees work together in the same physical location,” says Losey. “Conversely, a virtual family office mainly uses remote independent contractors and consultants to accomplish the same tasks.”
Losey makes a further distinction between single- and multi-family offices. “Not all wealthy families have enough wealth and complexity that they need or can afford the full-time services of family office employees,” he explains. “Multi-family offices serve small or larger groups of different families that share the services, instead of just one family. This makes it more cost-efficient.”
Losey says virtual family offices are best understood as a type of single-family office.
“Single-family offices may be comprised of fewer or more virtual resources as they move along a continuum. Somewhere along the spectrum, as more and more resources are virtual, it will be obvious you are employing a “virtual” model,” says Losey.
But even traditional single-family offices use some aspects of the virtual family office model. For example, very few single-family offices have full-time attorneys on staff; instead, they hire outside legal expertise as needed.
In contrast, the virtual family office is less identified with the multi-family office model because most forms of multi-family offices already are “virtual” to the family—with all resources outsourced and virtual, including family office leadership.
Various factors will point you toward one or the other family office models. If control is a high priority, a single-family office will be preferred to multi-family. For single family offices exploring whether to be largely virtual, various factors will point toward or against local or virtual resourcing, including:
“And understand, it is rarely an all-or-nothing equation. Some family offices look very traditional with most resources on staff, but with certain resources outsourced virtually,” says Losey. “On the other end of the spectrum, you have family offices with just one full-time employee, usually the CEO, working off a hub-and-spoke model where the spokes are virtual resources.”
Virtual family offices offer other potential benefits in addition to lower cost. For example, families aren’t limited to people who live in the immediate area when hiring experts and specialists to handle tasks like investment management, accounting, and tax and legacy planning.
“The world is at your disposal,” says Losey. “You can hire the best experts, regardless of where they’re located, which is especially important if you have very specific needs.”
Virtual family office hubs also offer more flexibility. Instead of a fixed staff of full-time employees and the associated costs (such as salaries, benefits and rent), families benefit from a flexible group of remote contractors and consultants who can more easily be added to and subtracted from the team as needed. This makes it easier for families to respond quickly to changes in the market and internal family dynamics.
“Efficiencies are built into the virtual family office model,” says Losey.
However, resource turnover can be more challenging with a virtual family office than with traditional family office.
“Virtual family office contractors and consultants aren’t 100% dedicated to your family like full-time family office employees are,” says Losey. That means it’s easier for them to leave for a better opportunity, which could leave your family office without expertise in a key area until you find a replacement.
There’s also the potential for “silos” in virtual family offices since contractors and consultants aren’t interacting face-to-face every day. This can potentially lead to miscommunication, misunderstandings, inefficiencies, and lost opportunities.
“Strong leadership and communication by the president/CEO are critical to virtual family office success,” Losey says.
Depending on your situation, a virtual family office might make sense for your family. Your wealth advisor can help you make the right decision based on your needs.
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