Running a single family office is expensive: UBS’s Global Family Office Report 2023 estimates the pure cost of operating a family office at about 38 basis points (bps) of assets under management — with smaller family offices ($100 million to $250 million) spending 46.6 bps of AUM. And increased competition for staff is pushing costs up.
The cost can lead families to look for alternatives — one of which is a virtual family office, or VFO. A VFO gathers expert advisors on an as-needed basis for virtual meetings, rather than using the physical office as a base. This can be more cost effective, especially for families whose assets are not enough to support a single family office. Experts say a virtual family office can make sense for a family with from $10 million or $20 million to about $250 million in assets.
How can a family determine whether a virtual family office is the right choice? Experts offer a range of advice, including a Wealthtender article that compares a virtual family office to a traditional financial advisor. A Forbes article lays out the basics: What Is A Virtual Family Office? And The Sharp Financial Group lists six vital areas for a virtual family office to address: investment management, tax advisory services, insurance management, succession planning, planned giving, and real estate management.
There are downsides to virtual family offices. Anyone looking to set up a VFO needs to assess how the assembled experts will handle confidentiality and cyber security, for example. A VFO needs a coordinator who can make sure the service providers are a good fit. And since the model is less centralized than other family office setups, it’s important to define roles clearly and have a way to coordinate the various experts’ work.