Family office advisors need to be well-attuned to the needs of their clients. But when prospective families come to their door, the first thing advisors need to help determine is whether they need a family office at all.
Do these families have the resources, shared values and long-term goals that align with a family office model?
First, advisors need to ask probing questions to find out whether family members are on the same page. Are they generally in agreement with each other yet open to evolving visions? Are their expectations regarding the management of wealth realistic and compatible with what a family office can deliver?
Sometimes patriarchs or matriarchs simply assume, falsely, that the next generation is on board with their plans.
“We’ll sometimes ask whomever is coming to us to start a family office if they intend to tie their children together in wealth decisions or in the succession plan,” says Lucy Ryan, director and education lead at Cole & Associates in Ottawa.
The reality is that members of the next generation may hold different values or have other ideas for the business. In that case, “sometimes the best advice we can give is for someone not to set up a family office,” Ryan says.
Family members should recognize that everyone needs to band together for the benefit of the collective.
Carolyn Cole, Cole & Associates
Other families are simply not ready to take on difficult issues, says Peter Jaskiewicz, director of the Family Enterprise Legacy Institute (FELI) and a professor at the Telfer School of Management, Patricia Saputo Distinguished Chair in Family Enterprise, University of Ottawa.
“If the family isn’t ready to engage in hard conversations and look deeply at questions of long-term purpose, values and governance, it might not be the right time to start a family office,” he says.
Ryan points out, however, that many families would benefit from having a professional come in to ask the hard questions and then open the door for conversations that might otherwise not happen.
Here are a few red flags that may become visible during early conversations with families.
Lack of a vision for the business
It’s essential for families to come together to reflect on foundational questions. “‘What do we stand for? What issues do we care about? In what ways do we want our money to make a difference in the world?’” says Katrina Barclay, executive manager at FELI.
If the answers to these questions vary widely among family members, there may not be a necessary unified vision for the future, she adds.
Poor communication
Jaskiewicz says, “We know from prior studies that more than 50 per cent of family offices have no formal plans for how wealth will be passed on across generations.” He notes that many families only realize later that they are not adequately prepared for next-generation ownership.
Misaligned family values
Conflicts can arise when, for example, one sibling wants to grow the business while another does not want to continue it. “Or one family member is into ‘empire building’ and the other one believes stewardship is the goal,” says Carolyn Cole, founder and CEO of Cole & Associates in West Vancouver.
Jaskiewicz says, “The reality is that this isn’t just a financial decision—it’s more a values-based one that should be made by a family who wants to take a long-term and holistic view of their wealth. A next generation that is well educated and connected and has the right values will be able to build upon the legacy that they are given.”
Fear of losing control
Sometimes the owner of the family business will be concerned about losing control, or even sharing with family members how much money the business has, says Cole. “If you have a wealth creator who’s fear-based, then you may align with, ‘I don’t want to set up a family office at this time.’”
Underestimating the work and time required
Establishing and structuring a family office requires planning, regular meetings and collaboration. “We recommend that people not go down the path if they are not willing to put in the work to build it,” says Cole.
The process involves the input of core family members and a commitment to working together. “Family members should recognize that everyone needs to band together for the benefit of the collective. Although [it’s] harder, setup can be done with partial participation at the beginning,” she adds.
One of the most overlooked aspects is how much time is needed to set up a family office, Barclay says. “It’s not something to rush.” The first step should be establishing the family’s core values, vision and mission. “This will set the foundation for the next 10, 20, 30 years or more,” she adds.
Cost
Creating a family office can require major financial investment. Cole notes that in early conversations with prospective clients, she often realizes that the cost of setting up a full-scale family office—with dedicated staff and decision-makers—may be beyond what the family can reasonably afford. At that point, she recommends exploring other options such as a virtual family office, or a multi-family office instead of a single-family office.
Alternatively, families may not need a full suite of professionals working for them full time. They might instead hire a wealth manager, an accountant and a bookkeeper. “You need to really understand: How do you match a family’s true, actual need to the amount of wealth that they are working to transition?” she says.
Family dysfunction
“If family members won’t come to the table, or simply don’t get along, it is much harder in the early days to build a family office, and it may not succeed,” Cole says. However, she points out that building a family office may be a catalyst to reuniting family and restoring relationships.
Barclay says, “If a family isn’t able to align around purpose, then starting a single-family office might not be the right move. However, it might be worth considering setting up several family offices. That way, different branches or owners can come together through these separate structures and work toward shared goals.”
In other words, building a family office isn’t just about wealth—it’s about relationships, shared values and long-term vision, the experts say. Without those, other paths may make more sense.
The Canadian Family Offices newsletter comes out on Sundays and Wednesdays. If you are interested in stories about Canadian enterprising families, family offices and the professionals who work with them, but like your content aggregated, you can sign up for our free newsletter here.
Please visit here to see information about our standards of journalistic excellence.