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Don’t forget the family at the family office

New entrants to family office world are often good at the ‘office’ part but ‘family’ is neglected

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The world of family enterprise is forever evolving, and the past decade is certainly no exception.

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Whereas we used to hear a lot about family businesses and how difficult it is to successfully transition them to future generations, some new vocabulary has helped us clarify some of the progress we’ve been seeing.

There are still plenty of family businesses, and it’s still a lot of work to properly transition them to the rising generation, but professionals who deal with such families are increasingly thinking about them in more productive ways.

Note the term “family enterprise” that I used at the top.

I think it nicely conveys the confluence of the worlds of family business and family wealth in a productive way, because these two groupings (business and wealth) have plenty of areas of overlap.

In reality, few families have 100 per cent of their wealth in their businesses, and most wealthy families own a percentage of some kind of business.

Enter the family office

Few terms have attracted as much attention lately as “family office,” and that’s probably a good thing, because a family office can be a great way for an enterprising family to get better organized. It can also help them think about and treat their wealth in a professional and business-like way.

The recent launch of this website is a testament to the buzz in the family office world in Canada, which typically lags our U.S. neighbours by a number of years in a lot of service industries.

It doesn’t take much to add the words 'family office' to a firm’s name, and although it sounds cynical, it’s unfortunately something we’ve seen far too much of.

As the term family office has become sexy, everyone and his brother now fancies himself a family office expert, and how hard is it to add a couple of words to your wealth management firm’s name, after all?

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There’s no shortage of professionals out there who are great at the “office” part but often quickly lose sight of the “family” part.

The professional organization of the family’s wealth is, ostensibly, being done for the benefit of the family and, more specifically, its members.

From family business to business family

This all makes me think about how it’s sometimes difficult for business founders – who started their business as a means of providing for their family – to make a conscious shift in their mind, and to eventually stop working in their family business, and to instead start working on their business family.

I borrowed that concept from the subtitle of a 2014 book called SHIFT Your Family Business. I have editorial licence to do that, since I’m also the author of that book.

It seems pertinent to mention here, though, because if it’s difficult for some family leaders to give enough attention to the family aspect, then most professionals who serve them aren’t likely to care more about the other family members, are they?

Single-family office good news

The good news here is that any family that is able to set up a single-family office (SFO) should be able to use that office as an important structural element in building out some family governance.

While it won’t generally be part of the first step, since properly managing the financial wealth is typically treated with more urgency, it should not be ignored over the long term, either.

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Just because something is less urgent that doesn’t make it any less important.

The family office will likely be well staffed with professionals who will continue to manage and grow the family’s financial wealth, all the while minimizing the amount of tax the family will need to pay.

I believe that the family office can and should also take a more active role in being a resource to the family members as they all work to increase their human capital, their intellectual capital and their social capital.

Multi-family office challenge and differentiator

When it comes to the ever-growing world of multi-family offices (MFOs), it’s a very different picture.

Because an SFO is created to serve one family, it doesn’t necessarily need to be a profit center for that family.

An MFO, on the other hand, is set up to make a profit, and finding ways to serve and charge family clients for services is far from a simple question.

It certainly is a challenge for any MFO to create and staff for the kind of process work that this family service can entail. They also need to figure out how to offer these important services without losing money on them.

Those who have figured it out are able to use it as a differentiator in their offering, which is a good thing.

Buyer beware – ask LOTS of questions

Earlier I noted that it doesn’t take much to add the words “family office” to a firm’s name, and although it sounds cynical, it’s unfortunately something we’ve seen far too much of.

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When you are seeking out the services of professionals who want to look after your family’s wealth, it’s typically a long-term proposition, because you want to make sure that everything is properly structured to survive at least through to the next generation of your family.

So it behooves you to ask lots of questions about every aspect of what you are hoping these professionals will offer.

I believe that navigating family dynamics, preparing the rising generation for important roles and initiating the creation of some family governance are all important, even if they don’t seem like an urgent need right now.

Having a family office, whether it’s your own single-family office or being part of a multi-family office, gives you a leg up because you now have a logical place from which you can establish these important processes, starting with convening regular family meetings.

Most firms will say that they do this work, but for many it’s something that is way outside their wheelhouse, and/or something they think they can stumble their way through if and when it actually comes up.

Families should demand better in this area, and providers need to up their game. It’s starting to happen, but there’s a long way to go.

Steve Legler is a Family Legacy Guide based in Montreal. He grew up in a business family, destined to take over the company his father had founded before he was born. After an unexpected liquidity event while he was still in his 20s, he ended up managing their family office instead. In 2013 he stumbled into the Family Enterprise Advisor (FEA) program, which turned into a career-changing calling for him. Since then, he’s been working with other business families as they face the challenges surrounding their intergenerational transitions. He works with family clients as a facilitator and sometimes as a mediator. He also does individual coaching with family members. He is the author of SHIFT Your Family Business (2014) and Interdependent Wealth: How Family Systems Theory Illuminates Successful Intergenerational Wealth Transitions (2019). He is active in many associations for professionals who work with families; as a member of the FEA Council of Family Enterprise Canada (FEC); as head the Wisdom Expedition of the Purposeful Planning Institute (PPI); and as a member of the faculty of the Family Firm Institute (FFI) global education network (GEN) program.

Steve Legler
Steve Legler

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