Multifamily office glossary

Plain definitions of 81 terms used in multifamily office and family office work, with a note on why each one matters when you compare firms.

Advisory fee

An advisory fee pays for advice, planning, coordination, reporting, or oversight. It may be a percentage of assets, a flat retainer, an hourly charge, or a project fee. The agreement should explain what services are included, how often you are billed, and whether outside managers or specialists charge separately.

Why it matters. When comparing MFOs, match the advisory fee to the work your family needs. A lower rate may cover fewer services, while a higher rate may include broader coordination.

Related terms: Management fee, Fee-only, Fee transparency

Alternative investments

Alternative investments are assets outside traditional public stocks and bonds. They can include private equity, venture capital, private credit, real estate, infrastructure, commodities, and hedge funds. Many require larger commitments, longer holding periods, and more specialized analysis. Their results may not move in line with public markets.

Why it matters. A good MFO should explain which alternatives fit your goals, how they are valued, and how much liquidity you may give up.

Asset allocation

Asset allocation is the mix of investments across categories such as stocks, bonds, cash, real estate, private markets, and other assets. The mix is chosen to support goals while considering time horizon, liquidity, risk, taxes, and existing exposures. Allocation applies across the family portfolio, so outside holdings and business interests should be included.

Why it matters. When choosing an MFO, check whether its allocation view includes every major family asset, not only accounts held at its preferred custodian.

Asset location

Asset location means deciding which types of investments belong in taxable accounts, retirement accounts, trusts, or other ownership structures. The goal is to place income producing or tax sensitive assets where taxes may be managed more effectively, while keeping the overall portfolio aligned with family goals, liquidity needs, and legal restrictions.

Why it matters. When choosing an MFO, ask whether its team coordinates investment placement with your tax, trust, and estate planning.

Asset protection

Asset protection is the process of arranging ownership, insurance, trusts, entities, and operating practices to reduce exposure to certain future claims. Effective planning is done before a dispute or liability arises. Laws vary by location, and transfers made to defeat known creditors may be challenged or reversed.

Why it matters. When choosing an MFO, look for coordinated planning that connects asset ownership, insurance, business risks, and family trusts.

Assets under advisement (AUA)

Assets under advisement is the value of assets a firm advises on, even when another institution holds or manages them. An MFO may help set allocation targets, review managers, or coordinate reporting without having trading authority. AUA can therefore be higher than the assets the firm directly manages.

Why it matters. Ask how much of reported AUA is directly managed and how much is advisory only. This helps you understand the firm's actual role and how fees relate to services.

Assets under management (AUM)

Assets under management is the total market value of investments an advisor or firm actively manages for clients. It may include stocks, bonds, private funds, cash, and other assets. Firms may calculate AUM differently, such as using average values, year-end values, or only accounts receiving ongoing management.

Why it matters. When choosing a multifamily office, compare AUM with the services offered and the firm's client base. A large number alone does not show whether the team fits your family's needs.

Broker-dealer

A broker-dealer is a financial firm or professional that can buy and sell securities for clients or for its own account. Broker-dealers may earn commissions, markups, advisory fees, or other compensation. Many also provide custody, trading, research, or investment products. Their duties and compensation can differ from those of an RIA.

Why it matters. When choosing an MFO, identify whether it uses a broker-dealer, how that relationship affects product access, costs, custody, and conflicts.

Capital call

A capital call is a request from a private fund for investors to send part of the money they previously committed. Calls may arrive with limited notice and vary in size and timing. Investors must keep enough liquid cash or other resources available to meet them without disrupting the broader portfolio.

Why it matters. Your MFO should track unfunded commitments, forecast calls, and maintain a practical liquidity reserve for your household.

Carried interest

Carried interest is a share of profits paid to investment managers, usually in private equity, venture capital, real estate, or similar funds. It is generally calculated after investors meet conditions set in the fund documents. Those documents define the percentage, timing, preferred return, and treatment of losses.

Why it matters. Before selecting an MFO for private investments, understand every layer of carried interest and related fees. These terms can materially affect net results and cash flow timing.

Cash management

Cash management covers how a family holds, moves, and uses short-term money. It includes operating cash, reserves, bill payment, bank accounts, treasury instruments, wires, and approval controls. Good practice matches cash timing with expected needs while keeping records clear. The MFO should explain who forecasts cash and who can authorize payments.

Why it matters. Review controls, access rights, bank coverage, and how upcoming needs are tracked.

Cash-flow planning

Cash-flow planning estimates money coming into and going out of a family over time. It can include household spending, taxes, debt payments, capital calls, business needs, charitable gifts, and planned purchases. The goal is to keep enough cash available while coordinating investment decisions with future obligations and income that may vary.

Why it matters. When choosing an MFO, ask how often forecasts are updated and whether they include irregular expenses, private investment calls, and business needs. Cash flow and taxable income may differ, so ask how both are tracked.

Co-investment

Co-investment lets an investor participate directly in a specific transaction alongside a lead fund or sponsor. It may provide focused exposure and sometimes lower fees than investing only through the main fund. The tradeoff is greater concentration, less diversification, and a need to understand the deal and sponsor closely.

Why it matters. When selecting an MFO, review how it finds co-investments, handles conflicts, sizes positions, and performs independent analysis.

Concentration risk

Concentration risk arises when too much family wealth depends on one company, industry, asset type, location, manager, or source of income. The exposure may be obvious, such as a large business holding, or hidden across several funds. An MFO should identify overlapping exposures and discuss practical ways to reduce dependence on one outcome. Review exposures by manager and entity because several holdings can depend on the same market or outcome.

Why it matters. Ask whether reports show exposures across all accounts, entities, and private holdings.

Conflict of interest

A conflict of interest exists when a firm's financial interests, relationships, or incentives could affect its recommendations or actions for your family. Examples include affiliated products, referral payments, outside business interests, or compensation that changes by investment choice. A conflict should be disclosed and managed.

Why it matters. Ask for a plain-language list of potential conflicts and how decisions are reviewed. Clear answers help you judge whether the MFO's incentives match your goals.

Related terms: Fiduciary duty, Fee transparency, Fee-only

Consolidated reporting

Consolidated reporting combines information from bank, brokerage, private fund, trust, and other accounts into one view. Reports may show holdings, performance, cash flows, fees, and exposure by category. Because private assets often report on a delay, the MFO should explain the reporting date, valuation source, and limits of the data.

Why it matters. You need one understandable picture of the family's finances before making decisions.

Related terms: Custody, Net worth statement, Reporting cadence

Correlation

Correlation describes how two investments have tended to move in relation to each other over a period of time. Investments with low or changing correlation may provide different sources of return. Correlation is based on historical data and can shift during stressful markets. It should be one input in portfolio review, alongside other risk measures.

Why it matters. Ask how the MFO tests whether diversification may hold up when markets are under pressure. The review can include stress scenarios and the portfolio's existing exposures.

Custody

Custody refers to the safekeeping and administration of financial assets. A custodian holds securities, records ownership, settles trades, collects income, and provides statements. Custody is separate from deciding how money should be invested. Families should understand whether the MFO uses one custodian or several and how information from each account is combined.

Why it matters. A clear custody arrangement helps you track assets, limit unauthorized transfers, and verify reporting.

Cybersecurity

Cybersecurity is the set of controls used to protect family information, accounts, devices, and transactions from unauthorized access. Controls may include multifactor login, secure document exchange, staff training, wire verification, monitoring, backups, and incident response. The family should know what the MFO handles directly and what depends on banks or outside vendors.

Why it matters. Ask for practical safeguards, breach procedures, and limits on payment and data access.

Direct investment

A direct investment gives an investor ownership or lending exposure to a specific company, property, project, or asset rather than through a pooled fund. This can provide more control, information, and potential customization. It also places more responsibility on the investor for research, monitoring, governance, and exit planning.

Why it matters. Ask an MFO whether it has the team, networks, reporting systems, and time needed to oversee individual opportunities properly.

Distribution waterfall

A distribution waterfall describes how cash from a private investment is divided among investors and the manager. The agreement may return contributed capital first, apply a preferred return, then split remaining profits under carried interest terms. Small wording differences can change who receives money and when.

Why it matters. Ask an MFO to model the waterfall for each fund so you understand expected proceeds, incentives, and possible conflicts.

Related terms: Private equity, Venture capital, Co-investment

Diversification

Diversification means spreading wealth across investments and sources of return that may respond differently to events. It can involve asset types, regions, industries, managers, currencies, and time periods. Diversification does not remove losses, and owning many funds does not guarantee it. The goal is to avoid relying on one narrow outcome.

Why it matters. See whether the MFO measures real overlap instead of simply counting accounts or funds.

Document vault

A document vault is a secure digital location for storing and sharing family records. Files may include statements, legal documents, insurance policies, tax information, entity records, and meeting materials. A useful vault controls access, tracks versions, supports search, and keeps backups. The MFO should explain retention, permissions, and what happens when the relationship ends.

Why it matters. Central, controlled records reduce duplicate requests and help the family find important documents quickly.

Estate plan

An estate plan explains how your property, business interests, and personal responsibilities should be handled during incapacity and after death. It can include wills, trusts, beneficiary designations, powers of attorney, health care documents, and instructions for family decisions. A good plan is reviewed as assets, laws, relationships, and goals change. Trusts and beneficiary arrangements also need ongoing monitoring as family circumstances evolve.

Why it matters. When choosing an MFO, confirm it can help keep your estate plan connected to your investments, insurance, and family decisions.

Estate tax

Estate tax is a tax that may apply to the value transferred at death above an available exemption. The calculation can include property, business interests, insurance, prior gifts, and certain trust interests. Federal and state rules differ, and the amount owed may depend on ownership, valuation, deductions, elections, and prior planning.

Why it matters. When choosing an MFO, ask how it prepares liquidity, valuations, and transfer strategies before an estate tax bill becomes urgent.

Estate-tax portability

Estate-tax portability is a federal election that can allow a surviving spouse to use a deceased spouse’s unused estate tax exemption. The election generally requires a timely estate tax return, even when no tax is due. Portability has limits and does not replace every trust or state tax planning need.

Why it matters. When choosing an MFO, confirm it tracks filing deadlines and coordinates portability decisions with your estate attorney and tax preparer.

Related terms: Estate tax, Estate plan, Step-up in basis

Expense ratio

An expense ratio shows a fund's annual operating expenses as a percentage of its average assets. It can cover administration, custody, accounting, distribution, and investment management. It usually excludes trading costs and may not include every fee paid by an investor. Review the fund's current expense disclosure for details.

Why it matters. Compare expense ratios across similar funds and add them to advisory and management fees. The cheapest fund may not provide the exposure, access, or service your plan requires.

Family balance sheet

A family balance sheet lists what a family owns and owes at a point in time. Assets may include businesses, real estate, investments, cash, private funds, and personal property. Liabilities may include mortgages, credit lines, guarantees, and other obligations. Reviewing the full picture helps advisers understand concentration, leverage, liquidity, and net worth. Record who can approve transfers, investments, and major commitments.

Why it matters. When choosing an MFO, confirm that it can consolidate assets and liabilities across entities, custodians, properties, and private investments.

Family constitution

A family constitution is a written statement of shared values, policies, and expectations for managing family wealth and relationships. It may cover education, employment, ownership, philanthropy, distributions, leadership, and dispute resolution. It is usually a guiding family document, not a substitute for wills, trusts, contracts, or other legal documents.

Why it matters. When choosing an MFO, ask whether it can help turn family values into clear policies and revisit them as generations change.

Family council

A family council is a regular group for discussing shared family matters, values, ownership questions, and long-term goals. It gives family members a clear place to raise concerns and make recommendations. The council does not replace the board, trustees, or management team. Its role is to improve communication, prepare future leaders, and keep important decisions from becoming personal conflicts.

Why it matters. When choosing an MFO, confirm it can help your family establish, facilitate, and document a council that fits your size and culture.

Family governance

Family governance is the set of agreed processes families use to make decisions about shared wealth, businesses, philanthropy, and responsibilities. It may include family meetings, voting rules, education, reporting, committees, and conflict procedures. The purpose is to make expectations clear and give future generations a practical way to participate.

Why it matters. When choosing an MFO, ask how it supports family communication, education, meeting preparation, and decision follow through.

Family limited partnership (FLP)

A family limited partnership, or FLP, is a legal entity that can hold family assets and define different management and ownership rights. Senior family members may manage the partnership while other relatives hold limited interests. FLPs require valid business purposes, careful records, proper valuations, and ongoing administration.

Why it matters. When choosing an MFO, ask whether it can coordinate FLP governance, reporting, valuation work, and investment management.

Family meeting

A family meeting is a planned session where family members discuss shared financial matters, responsibilities, values, education, or decisions. Meetings tend to go well with a clear agenda, the right participants, prepared materials, and agreed follow-up. An MFO may facilitate the meeting or provide information while the family retains decision authority.

Why it matters. Ask how the MFO supports communication across generations and handles sensitive discussions.

Family office model

A family office model describes how a firm organizes services for wealthy families. An MFO serves multiple unrelated families and may provide investment oversight, planning, reporting, tax coordination, governance support, and access to specialists. Service depth, staffing, pricing, and outside provider use vary widely between firms using this model. The right structure depends on the family's service needs, control preferences, and governance approach.

Why it matters. When comparing MFOs, map your required services to the actual team and workflow. Ask who coordinates work, who makes decisions, and which responsibilities remain with your family or other advisers.

Fee transparency

Fee transparency means clearly showing what you pay, who receives it, how it is calculated, and when it is charged. A complete view can include advisory fees, management fees, fund expenses, performance fees, custody charges, and transaction costs. Good disclosure also explains services, exclusions, and possible changes.

Why it matters. Choose an MFO that can provide a complete cost summary in writing. You should be able to estimate total annual costs before signing and review them later.

Related terms: Advisory fee, Expense ratio, Transaction costs

Fee-only

Fee-only describes a firm or professional paid by clients through stated fees rather than commissions on product sales. Arrangements can still include retainers, asset-based fees, or project charges. Review the firm's disclosures and business structure for any other compensation or charges.

Why it matters. If you prefer a simple payment relationship, confirm every source of compensation in writing. Ask whether affiliates, referrals, or underlying funds create additional charges.

Related terms: Advisory fee, Fiduciary duty, Fee transparency

Fiduciary duty

Fiduciary duty is an obligation to act in a client's best interest within the scope of the relationship. The duties and standard depend on the service, adviser, governing documents, and applicable rules.

Why it matters. Ask when the MFO accepts fiduciary responsibility, which services it covers, and how conflicts are handled. Get the scope and standard stated in your agreement.

Related terms: Conflict of interest, Fee-only, Fee transparency

Generation-skipping transfer tax (GSTT)

The generation-skipping transfer tax, or GSTT, is a federal transfer tax that can apply when wealth passes to grandchildren, more remote descendants, or certain unrelated beneficiaries. It may apply to direct transfers, trusts, or distributions. Planning often involves allocating available exemptions and documenting how assets should move across generations.

Why it matters. When choosing an MFO, ask whether it monitors multigenerational transfers and coordinates GSTT planning with your attorneys and tax advisers.

Gift tax

Gift tax is a federal tax system covering certain transfers made during life for less than full value. Rules can involve annual exclusions, lifetime exemptions, gift splitting, valuation, and reporting. Gifts may include cash, securities, business interests, real estate, or trust contributions. State rules may also apply.

Why it matters. When choosing an MFO, look for careful gift tracking, valuation coordination, and reporting support across family entities and trusts.

Hedge fund

A hedge fund is a pooled investment vehicle that can use a broad set of strategies, including short selling, leverage, derivatives, relative value trades, or event driven positions. Each fund has its own risks, fees, liquidity terms, and reporting practices. Results can differ widely across managers and strategies.

Why it matters. A prospective MFO should explain what role each hedge fund serves, how risks are measured, and how withdrawals and fees work.

Illiquidity premium

The illiquidity premium is the potential extra return investors may seek for committing money to assets that cannot be sold quickly or cheaply. Private investments often offer this possibility, but the premium is uncertain and may be offset by fees, losses, delays, or difficult market conditions.

Why it matters. An MFO should test whether the possible return justifies restricted access to cash and fits your spending and estate plans.

Independent custodian

An independent custodian is a financial institution that holds a family's securities and cash while an MFO provides advice or management. The custodian maintains account records, processes transactions, and issues statements. Separating custody from advice can add oversight and make it easier to verify where assets are held.

Why it matters. Confirm which institution holds assets, who can move money, and how account activity is reviewed.

Investment committee

An investment committee is the group that reviews and approves major investment decisions for a family. Members may include family representatives, the MFO team, and outside specialists. The committee sets decision rules, reviews results, and documents approvals. A clear process supports thoughtful decisions when markets move quickly.

Why it matters. Ask who sits on the committee, how often it meets, and what decisions require family approval.

Investment due diligence

Investment due diligence is the structured review performed before committing money. It can cover a manager's people, strategy, track record, fees, operations, controls, valuation, legal documents, and conflicts. The work should continue after investment through reporting, meetings, risk reviews, and checks against the original thesis.

Why it matters. When choosing an MFO, ask to see its diligence process, documentation standards, independent checks, and ongoing monitoring responsibilities.

Investment policy statement (IPS)

An investment policy statement, or IPS, records how a family portfolio should be managed. It can state goals, time horizons, liquidity needs, risk limits, target allocations, rebalancing rules, and responsibilities. An IPS gives the family and advisers a shared reference point. It should be reviewed when family circumstances or objectives change.

Why it matters. When choosing an MFO, ask whether it creates, follows, and regularly updates an IPS that reflects your actual priorities.

Irrevocable trust

An irrevocable trust is designed so that its terms and ownership generally cannot be changed freely after creation. Assets may be managed for named beneficiaries under rules set in the trust document. Depending on structure and administration, an irrevocable trust can support estate planning, asset protection, charitable goals, or transfer planning.

Why it matters. When choosing an MFO, seek experience coordinating investments, trustees, tax professionals, and your family’s long term objectives.

J-curve

The J-curve describes a common pattern in private market funds. Early results may look negative because fees, expenses, and initial write downs occur before investments mature. Later gains and distributions can improve reported performance. The shape and timing vary by strategy, manager, market conditions, and valuation practices.

Why it matters. Choose an MFO that can set cash flow expectations and judge private investments over a full holding period, not only early statements.

Liquidity needs

Liquidity needs are the cash amounts a family expects to require over a stated period. They may include living expenses, taxes, debt service, business funding, capital calls, property costs, emergencies, or planned gifts. Identifying timing and size helps determine which assets should remain readily accessible and which can support longer-term goals.

Why it matters. When choosing an MFO, make sure it maps upcoming cash needs before recommending investments that may be hard or costly to sell.

Management fee

A management fee is a charge for managing a portfolio or investment vehicle. It is often stated as an annual percentage of assets and collected quarterly or monthly. The fee may apply to all assets or only a defined portion. Private funds may charge this fee regardless of investment performance.

Why it matters. Review the fee schedule by account and strategy. Small percentage differences can become meaningful as family assets grow or remain invested for many years.

Related terms: Advisory fee, Performance fee, Expense ratio

Manager selection

Manager selection is the process of choosing outside investment managers, funds, banks, or specialists. It usually includes reviewing strategy, people, past results, fees, operations, risk controls, and fit with the family's goals. A disciplined process records why a manager was chosen and when that decision should be reviewed.

Why it matters. Ask how candidates are sourced, compared, approved, and monitored after selection.

Minimum investment

A minimum investment is the lowest amount a firm, fund, or program requires to open or maintain a relationship. It may apply to total family assets, a specific strategy, or each account. Some firms may make exceptions based on complexity, expected growth, or services requested, while others apply firm limits consistently.

Why it matters. Confirm the minimum for the services you want, not just the headline number. Also ask about additional account minimums, liquidity needs, and what happens if assets fall below the threshold. Lower private-market minimums can increase the need to track illiquid holdings.

Multi-family office (MFO)

A multi-family office serves several wealthy families through one coordinated team. Services may include investment oversight, reporting, cash management, estate coordination, insurance review, and family governance support. The office combines shared resources with planning tailored to each family. Families usually pay fees for advice, administration, or both.

Why it matters. When choosing an MFO, confirm which services are handled in-house, which are outsourced, and how the firm manages conflicts among client families.

Net worth statement

A net worth statement lists what a family owns and owes at a specific date. It can include investment accounts, businesses, real estate, personal property, trusts, loans, and other obligations. The statement may use estimated values for assets that do not trade regularly. Reviewing changes over time can reveal concentration, debt, and liquidity issues.

Why it matters. Ask whether the MFO maintains this view and how often values are updated.

Next-generation education

Next-generation education prepares younger family members to understand wealth, responsibility, ownership, and decision making. It can include financial basics, family history, philanthropy, business training, and supervised participation in meetings. The goal is practical readiness over time. Strong programs respect each person's interests while building the judgment needed to contribute responsibly to shared family assets and priorities.

Why it matters. When choosing an MFO, ask how it teaches next-generation family members at different ages and measures progress beyond meeting attendance.

Operational due diligence

Operational due diligence examines how an investment firm operates behind its stated strategy. Review areas can include ownership, staffing, valuation, cash controls, cybersecurity, service providers, financial statements, and business continuity. It complements investment research by checking whether the organization has processes that support accurate records and reliable execution.

Why it matters. A capable MFO should test operations alongside performance research.

Related terms: Cybersecurity, Manager selection

Outsourced family office

An outsourced family office provides family office functions through external professionals instead of a fully staffed internal office. A lead adviser may coordinate accountants, attorneys, investment managers, insurance specialists, and administrators. The family receives a central point of contact while using outside expertise as needed. Scope and accountability should be defined in writing.

Why it matters. When choosing an MFO, ask who owns the overall relationship, who approves decisions, and how outside providers are selected and monitored.

Performance fee

A performance fee is compensation tied to investment results. It may be calculated as a percentage of profits, sometimes subject to a benchmark, hurdle, or high-water mark. The terms should explain how gains and losses are measured, when the fee is charged, and whether different accounts use different calculation methods.

Why it matters. Ask how the fee affects incentives and how losses are handled. Compare the full cost with the strategy's risk, liquidity limits, and expected role in your portfolio.

Private credit

Private credit is lending arranged outside public bond markets, often directly to businesses or through a specialized fund. Loans may offer floating rates, collateral, covenants, or negotiated terms. Returns depend on interest payments, fees, repayment, and losses. Valuations and exits can be less frequent than in public markets.

Why it matters. Ask an MFO how it evaluates borrowers, monitors loans, manages defaults, and balances income goals against limited liquidity.

Private equity

Private equity means investing in companies that are not publicly traded, often through a fund. A fund may buy established businesses, improve operations, and later sell or recapitalize them. Investors usually commit capital for several years, receive periodic reports, and accept limited ability to exit before the fund sells its holdings.

Why it matters. When comparing MFOs, review their private equity sourcing, manager selection, ownership terms, fees, and plan for meeting future capital calls.

Private foundation

A private foundation is a charitable organization funded mainly by one family, individual, or company. It can make grants, support family values, and involve younger relatives in giving. It also requires administration, records, governance, and ongoing filings. An MFO may coordinate these tasks or work with the family's legal and accounting professionals.

Why it matters. Confirm whether the MFO has experience coordinating charitable structures and family participation.

Related terms: Family governance, Document vault

Real assets

Real assets are physical or resource based investments with value tied to property, infrastructure, land, energy, commodities, or similar assets. They may produce rental income, usage fees, or resource revenue. Their prices can respond differently to inflation, interest rates, and economic growth than financial assets.

Why it matters. When choosing an MFO, examine its experience with property and infrastructure, valuation methods, debt use, and liquidity planning.

Rebalancing

Rebalancing is the process of bringing a portfolio back toward its intended mix after markets or cash flows change its weights. An MFO may use calendar dates, percentage bands, or judgment. The process can create taxes, fees, and trading costs, so the family should understand when rebalancing occurs and who approves exceptions.

Why it matters. A written process shows how the MFO manages drift without trading simply for activity.

Registered investment adviser (RIA)

A registered investment adviser, or RIA, is a person or firm registered with the Securities and Exchange Commission or a state regulator, depending on its size and activities. RIAs provide investment advice and may offer portfolio management or planning. Registration requires public disclosures and ongoing compliance, but registration alone does not guarantee results.

Why it matters. When choosing an MFO, review the RIA's Form ADV, fees, services, disciplinary history, and how it manages conflicts.

Reporting cadence

Reporting cadence is the agreed schedule for delivering financial reports and holding review meetings. Common schedules are monthly, quarterly, or twice a year. Reports may cover performance, cash, taxes, commitments, and major decisions. The right schedule depends on the family's complexity, activity level, and need for timely information.

Why it matters. Set expectations before signing, including report timing, meeting frequency, and response standards.

Revocable living trust

A revocable living trust is a legal arrangement you create during your lifetime and can generally change or cancel. You usually remain in control of the assets placed in it. The trust can provide instructions for management during incapacity and may help assets pass outside probate after death, depending on local law and proper funding.

Why it matters. When choosing an MFO, ask who will track trust funding, account titles, beneficiaries, and investment decisions over time.

Related terms: Estate plan, Irrevocable trust, Step-up in basis

Risk capacity

Risk capacity is the amount of financial loss a family can withstand without failing to meet important obligations or goals. It depends on cash reserves, income, liabilities, time horizon, spending, business exposure, and access to other resources. Capacity is different from comfort. A family may feel comfortable with risk but lack the financial room to absorb it.

Why it matters. When choosing an MFO, ask how it measures financial capacity separately from feelings about market risk.

Risk tolerance

Risk tolerance describes how much investment uncertainty and loss a person is willing to accept emotionally. It reflects reactions to market declines, changing headlines, and periods of disappointing results. Tolerance is personal and can differ among family members. A clear discussion helps advisers design a plan that the family can follow during stressful markets.

Why it matters. When choosing an MFO, see whether advisers test your reactions to losses with specific scenarios instead of relying on a short questionnaire alone.

SEC Form ADV

SEC Form ADV is a public filing used by registered investment advisers. It describes the firm's ownership, services, fees, client types, assets managed, disciplinary history, and certain conflicts of interest. Part 2, often called the brochure, explains the firm's practices in plain language. The filing should be reviewed before engaging an adviser.

Why it matters. When choosing an MFO, use Form ADV to compare fees, services, conflicts, ownership, and reported disciplinary events.

Service-level agreement

A service-level agreement describes the work an MFO will perform and the standards it will follow. It can cover reporting dates, meeting schedules, response times, document handling, bill payment, and escalation procedures. A written agreement makes responsibilities easier to compare across providers and gives the family a reference for reviewing service.

Why it matters. Use it to confirm what is included, what costs extra, and who owns each task.

Single-family office (SFO)

A single-family office is an organization dedicated to serving one family and its related entities. It may employ investment, administrative, reporting, governance, and household staff, or outsource some functions. The family usually controls its priorities, hiring, and budget. Costs and operating complexity depend on the range of services managed internally.

Why it matters. Use the SFO model when control, privacy, and customized operations justify the internal cost and responsibility. Compare those needs with the broader shared resources of an MFO.

Step-up in basis

A step-up in basis is a tax rule that may reset an inherited asset’s tax basis to its fair market value at the owner’s death. This can reduce taxable capital gain if the heir later sells the asset. The result depends on ownership, asset type, current law, valuation, and estate planning choices.

Why it matters. When choosing an MFO, ask whether investment sales, trust ownership, and inheritance goals are reviewed together before realizing gains.

Strategic asset allocation

Strategic asset allocation sets a long-term target mix for major investment categories. It links the portfolio to goals, time horizons, liquidity, and risk limits. The plan usually allows ranges around each target and defines when rebalancing should occur. Short-term market views may influence small adjustments, but the main structure remains tied to long-term objectives.

Why it matters. When choosing an MFO, ask how targets are set, how often they are reviewed, and what rules trigger a rebalance.

Stress testing

Stress testing estimates how a family's finances or portfolio might respond to difficult conditions. Scenarios may include a market decline, interest-rate change, business loss, delayed capital return, or large cash need. Results are estimates, not forecasts. The exercise helps identify weak points and possible actions before a stressful event occurs.

Why it matters. Ask which scenarios are tested, how often, and how findings change decisions.

Succession planning

Succession planning prepares for the transfer of leadership, ownership, decision rights, and responsibilities in a family business or family wealth structure. It addresses timing, qualifications, training, communication, liquidity, and contingency plans. Strong succession work begins before a retirement, sale, death, or conflict forces a rushed decision.

Why it matters. When choosing an MFO, ask whether it can facilitate family discussions and coordinate business, tax, legal, and investment planning.

Tactical asset allocation

Tactical asset allocation adjusts a portfolio's mix of stocks, bonds, cash, and other assets as market conditions or opportunities change. It sits beside a long term investment plan and allows measured shifts rather than constant trading. The process should follow clear limits, decision rules, and review points.

Why it matters. When choosing an MFO, ask how tactical decisions are made, who approves them, and how the team controls costs, taxes, and unnecessary turnover.

Related terms: Alternative investments, Hedge fund, Real assets

Tax-efficient withdrawal

A tax-efficient withdrawal strategy determines which accounts to draw from, when to take money, and how much to withdraw. It may combine taxable assets, retirement accounts, trusts, and charitable vehicles. The plan considers income taxes, capital gains, required minimum distributions, cash needs, and the effect withdrawals may have on heirs or future flexibility.

Why it matters. When choosing an MFO, look for coordinated withdrawal planning instead of investment management that treats every account separately.

Related terms: Asset location, Estate plan, Step-up in basis

Tax-loss harvesting

Tax-loss harvesting means selling an investment that has declined in a taxable account to realize a loss, then considering a replacement that keeps the portfolio's intended exposure. The realized loss may offset certain gains, subject to applicable rules and personal circumstances. Good execution considers trading costs, timing, portfolio risk, and record keeping.

Why it matters. A capable MFO should coordinate harvesting with your overall portfolio, account types, tax professionals, and long term investment plan.

Transaction costs

Transaction costs are the expenses of buying, selling, or transferring investments. They can include commissions, bid and ask spreads, market impact, exchange charges, and fund trading expenses. They may not appear as a separate invoice. Frequent trading, complex assets, and low liquidity can increase these costs.

Why it matters. Ask how the MFO monitors trading costs and whether estimates are included in reports. Net results depend on what remains after visible and less visible expenses.

Related terms: Expense ratio, Fee transparency, Management fee

Venture capital

Venture capital invests in young companies that may grow quickly but have uncertain results. A venture fund spreads commitments across startups, often in technology, health care, or other emerging fields. Most investments may produce little or no return, while a few successful companies drive much of the fund's outcome.

Why it matters. Choose an MFO that can assess venture managers, manage concentration, and set realistic expectations for long holding periods and uneven results.

Virtual family office

A virtual family office coordinates family wealth services through a distributed team rather than one central office. Work may happen through secure portals, video meetings, shared reporting systems, and specialist providers in different locations. The model can include investment, tax, legal, insurance, and administrative coordination without maintaining a large internal staff.

Why it matters. When choosing an MFO, check how the virtual team communicates, protects information, assigns responsibility, and handles urgent decisions.

Wealth planning

Wealth planning connects a family's financial resources with its goals, responsibilities, and decisions. It may cover investments, cash flow, taxes, estate documents, insurance, philanthropy, business interests, and family education. The process looks across the household rather than treating each account separately. Plans should be practical, documented, and revisited as circumstances change.

Why it matters. When choosing an MFO, look for a planning process that connects advice across your full family balance sheet.