What is a multifamily office, otherwise known as simply an MFO? It is best described as a firm that serves the "middle-market" woman who just netted $60 million for the sale of her business interest or upon stepping down as a senior executive of her company. While no one else feels sorry for her, we do. She is considered a tweener in the marketplace–too large for most of the traditional wealth management firms, but too small to have her own dedicated staff to run her affairs, which more affluent families often handle via dedicated single-family offices.

Enter the MFO. This firm aggregates her assets with those of other, unrelated private families and individuals to achieve the critical thing that she lacks: scale. Scale allows an MFO to provide its clients a combination of sophisticated advice and a broad range of carefully integrated service offerings. It allows MFOs to provide the family office services that were once only available to families with billions in assets.

Most families and their trusted advisors are uncertain, which reflects the lack of standardization and clarity in the industry itself.

Unfortunately for our mid-market example (the Alliance defines middle-market private families as having between $20 million and $200 million in net worth; there are about 30,000 of these households in North America), she and most others in her situation would not recognize an MFO if they tripped over it. MFOs are not household names; they place a low priority on marketing, and when they do put themselves forward, they often have difficulty differentiating themselves from their peers. Meanwhile, although wealthy families may covet many of the services offered by top-tier MFOs, as a rule, they also prize their privacy and are often unmoved by marketing pitches. Because of this, families and the MFOs often have trouble connecting. (This is not to say they never do: According to the second annual Multifamily Office Study & Listing conducted last year by the Alliance, MFO assets under advisement grew 28 percent from 2004 to 2005.)

What services do the best MFOs offer? Most families and their trusted advisors are uncertain, which reflects the lack of standardization and clarity in the industry itself. To provide some guidelines, the Alliance published its inaugural Multifamily Office Standards last year, detailing the 10 core service offerings that best-in-class MFOs provide (see "MFO Service Offerings," page 56).

Each of these 10 core services requires definition. Fortunately, some already have been defined (such as the Certified Financial Planner Board of Standards’ definition of comprehensive planning and the Association for Investment Management and Research’s portfolio management standards). Suffice it to say that the best-in-class MFOs provide a majority of the core services in-house, and have integration and/or management planning responsibility for any core services that are outsourced, delegated or shared with third parties or other intermediaries.

Who are these MFOs? The Alliance has identified eight different types of wealth management firms, based primarily on the size and complexity of the families they serve. The single-family office is at the largest, most complex end of the spectrum, serving the $1 billion and above family, while firms advising families of $1 million are at the other end. Somewhere in the middle are the MFOs.

Where a client sits in the spectrum also determines which of the service offerings he needs. If you are a just-retired executive with $1 million in assets, you will most likely need the first four offerings on the 10 core services list, and are best served by a financial planning firm. But if you belong to a $1 billion multigenerational family, then it is likely you will require all 10 core services at one time or another.