What families are often seeking from Michael Louie, partner at accounting firm D&H Group LLP in Vancouver, is financial solutions. “The problem is that the solution is not something out of a box,” he says.
Although his background is in accountancy, he holds FEA and STEP designations and offers services that one might expect to receive from a family office.
“What is a family office? This is the big existential question,” he says. “A family will come to me and ask ‘What can you do for us?’ I think they look at a CPA and say a CPA prepares tax returns and financial statements. Little do they understand that we are financial people, so we can help with most anything financial.”
Families also expect family offices run by investment advisors only to manage investments, and those run by lawyers only to handle documents like shareholders’ agreements. However, “a true family office will try to understand, address and answer a family’s need in any or all of those specific areas,” he says.
Louie holds a B.Comm and an MBA in real estate and international business from the University of British Columbia. Early in his career, he trained in a large firm and articled in the assurance world handling audits and tax returns for large companies, primarily in the Vancouver area.
He was recruited by D&H in 1990, initially to handle CPA-type work, but then found himself at a crossroads.
“As a professional, I had a choice of being broad and having a lot of clients or having a deep relationship with a few clients, effectively a family office,” he says. “And in Canada this was an untested field, addressing the services being sought by some of these families, which were non-traditional.
“They had needs where they were considering buying another business or a piece of real estate or expanding, so it was more along the financial-analysis side of the business,” he says.
So, do you think of yourself and your colleagues in D&H Group as a family-office advisory?
I would say my colleagues and I are all ‘multi-family offices’ because we all serve families with complex business needs. So it is a family office that fits within a CPA firm. Our firm is seeking to bring more than just financial statements and tax returns to the table for our clients.
What was the catalyst that started this evolution for you?
I found there was something lacking, which was collaboration and communication. Accountants are not the best communicators. So I earned my Family Enterprise Advisor certification, and that was very helpful in interacting with families and their members, their various generations, and figuring out their specific needs in the three main areas of finance, law and family governance counselling.
How does this work in practice?
Often the families that I work with will be the guide. I help the family identify where their issues may lie. I can’t advise effectively in all four, but I will identify what I need, and we will bring in on an advisory basis whatever is needed, like counsellors or lawyers.
There are 101 structures. It’s like movies – there are only about 10 themes that keep being repeated over and over. It’s not the solution or the structure that I want to do for the family; its more about what the family is seeking. For instance, with an estate freeze, one of the things that I think about, which is probably unusual for an accountant, is that you’re introducing new shareholders into the mix. You don’t have free rein anymore.
I have a family that went through this: They are splitting up the multi-hundred-million-dollar empire with their inherent shareholders’ rights, voting and equity because they have different perspectives on what distributions each should receive every year. Some want to build and reinvest in the business; the others want to live the country-club lifestyle.
Is this what you mean when you say your work sometimes involves serving as the ‘conscience’ for the family?
When I’m talking about conscience, it’s really about taking a step back, looking at the family’s needs and asking two questions: What assets and liabilities do you hold, and if you’re not here – and people do die unexpectedly – what do you want to have happen with those net assets? And a third question: If you do die, what are your contingency plans?
For entrepreneurial families, the family-office world is really a fledgling business. People in Canada are trying to figure it out. In Europe and Asia, the process has been honed over generations already, while in Canada we are trying to figure out what these newly wealthy families need.
Many families just want a solution and to move on, but to be completely candid, it’s a relationship that I hope can last generations. We once pitched to a very large family, and we didn’t win the day because they wanted a list of what we would do for them in the first year and what it would cost. It’s not that I bring a solution to a family; it’s more that the family is in need of a solution, and we try to work toward that [together].
It’s the great wealth transfer that’s going to happen. Families, even of seemingly modest means, are amassing more-than-modest estates, and so the inheritors will receive something like $1 trillion in the next three years. Let’s say the government takes their one-third in this new capital-gains regime: divided by 40 million Canadians, that’s still a pretty big number.
You can have families who were of modest means, and suddenly they’re worth $20 million to $50 million because they bought simple apartment buildings, and the kids want to keep them. When the parents owned real estate, they were literally out there painting houses, but the kids don’t see themselves that way.
I work with a really large national second-generation business, and there’s nobody in the third generation stepping up to manage it. It’s a tough situation for the grandparents who founded this business to understand or accept.
We need next-generation financial education. I do some teaching of young people, and the concepts that we teach are very simple: You don’t make money overnight on a meme stock; credit-card debt is not good debt; a dollar of earnings doesn’t mean you can spend a dollar, especially when mom and dad are not around doling out allowances.
People ask me, ‘Oh, have you watched the series Succession?’ And I say, ‘No, I deal with that every day. For me, it’s non-fiction.’”
Responses have been lightly edited for clarity and length.
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