Episode 7 of 10
Due Diligence and Regulatory Checks Before You Choose a Multifamily Office
A polished proposal is only the starting point. Before choosing a multifamily office, verify who you are hiring, how the firm is regulated, how it is paid, and how client assets are held. A short, documented review can prevent expensive surprises later.
Family Office Service Providers & Partners - What to Know
Start with the legal entity
Ask for the exact legal name of every entity that will serve your family. A brand name may cover several companies, such as an investment adviser, broker-dealer, trust company, insurance agency, accounting practice, or consulting affiliate. Write each name down. Request the firm's registration number, principal office, ownership structure, and the names of the people who will work on your account.
Then compare the answers with official records. The SEC's Investment Adviser Public Disclosure database, known as IAPD, provides registration documents and information about an adviser's business, ownership, fees, conflicts, and disciplinary history. It also provides professional background and conduct information for investment adviser representatives. Check the firm's IAPD record. Learn how IAPD works.
If the firm or an individual also operates as a broker, search FINRA BrokerCheck. Investor.gov says BrokerCheck can show a broker's employment history, qualifications, and disclosures. Search the firm and each person who can recommend or execute securities transactions. Use FINRA BrokerCheck.
Read Form ADV and the agreement
Do not rely on a summary deck. Ask for the current Form ADV, including Part 2A, often called the brochure, and any relevant supplements. Read the sections covering services, fees, conflicts, outside business activities, custody, disciplinary events, and how the firm selects or monitors outside managers.
Match the brochure to the proposed engagement letter. The agreement should identify the services included, the billing method, termination rights, reporting schedule, confidentiality terms, and responsibility for third-party providers. Look for language that allows fees to change, permits affiliated products, or gives the firm broad discretion without describing the limits.
Ask the firm to explain every compensation stream in plain language. This can include advisory fees, commissions, referral payments, carried interest, fund expenses, markups, custody charges, and fees paid to affiliated companies. A conflict is not automatically a reason to reject a firm. The practical test is whether the conflict is disclosed clearly and managed in a way you can monitor.
At the very least, most single family offices should be conducting 40 hours of due diligence, background checks, reference checks, and fact-gathering practices before making an investment.
Confirm who controls and holds assets
Your multifamily office may coordinate investments without holding your securities. Ask exactly who has authority to move money, approve wires, sign checks, or change account instructions. Separate investment authority from custody and payment authority wherever practical.
For an SEC registered investment adviser with custody of client funds or securities, the SEC custody rule requires assets to be maintained with a qualified custodian, such as a bank or broker-dealer, and requires a reasonable basis for believing the custodian sends account statements directly to clients at least quarterly. Read the SEC custody rule guide.
You should receive statements directly from the custodian, not only from the office. Compare the custodian statement with the office's report. Confirm that private investments, special purpose vehicles, and loans are listed with clear ownership records. Ask how cash movements are approved, whether dual authorization is required, and what happens when a key employee leaves.
Check people, vendors, and continuity
Interview the actual team, not only the business development contact. Ask who will be your lead relationship manager, investment decision maker, controller, and backup. Request references from families with a similar level of complexity, while respecting their confidentiality.
Review the background of senior personnel through IAPD and BrokerCheck when applicable. Ask about unresolved complaints, regulatory inquiries, litigation, and employment changes. Give the firm a chance to explain any disclosure. Your record should include the explanation, the supporting document, and your decision.
Due diligence also covers the office's operating partners. Identify the custodian, fund administrators, tax advisers, legal counsel, cybersecurity provider, and insurance adviser. Ask who owns the client data, where records are stored, how access is removed, and how the office operates during a system outage or leadership transition. Request a written business continuity summary.
When any investor looks at any deal or opportunity, they're instantly evaluating a couple of things. They're thinking, who is this person? Are they credible? Is this gonna go well for me? What's the downside protection? What's the collateral? What's the structure? And then what is the upside?
Document the decision
Create a short diligence file for each finalist. Save the proposal, Form ADV, agreement, fee schedule, ownership chart, regulatory searches, reference notes, and your list of open questions. Record the date each item was checked. If the firm will not provide a document needed to understand fees, authority, custody, or conflicts, pause the process and ask why.
Use the same questions for every finalist. This makes comparison easier and reduces the chance that presentation style will drive the decision. Recheck registrations and key disclosures before signing, then set a calendar reminder to review them at least annually and whenever the relationship changes. Do your own review of the people, services, and proposed investments instead of relying on a family-office label or referral. Keep written support for material statements and follow up on gaps.
Checklist
- Verify every legal entity, adviser, broker, and key representative in SEC IAPD and FINRA BrokerCheck. Save the records and note any disclosures.
- Reconcile Form ADV, the engagement agreement, and the fee schedule. List every compensation source, affiliate, conflict, and termination right.
- Confirm asset custody, wire controls, direct custodian statements, data security responsibilities, business continuity, and the backup team in writing.
Takeaway
Choose the multifamily office that can answer difficult questions clearly, document its answers, and give you independent visibility into registration, fees, conflicts, custody, and continuity.