Family offices are flourishing – and like snowflakes, no two are alike

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Some of us might think a family office is only for the wealthiest of people, but more high-net-worth Canadians are recognizing these one-stop shops as a smart way to handle their financial affairs.

“Family offices are far more popular now than they were even a few years ago,” says Eric Gilboord, chief executive officer of WarrenBDC Inc., a Toronto firm that advises in the sale and acquisition of businesses.

“People who didn’t know about family offices until recently find that they need help – a quarterback who can operate their finances at a higher level than they can themselves,” says Gilboord, who fields calls from family offices expressing interest in buying businesses for the families they represent.

While they are growing in popularity, there’s nothing particularly new about family offices. The Rockefeller family set theirs up in 1882, and Credit Suisse estimates there are 6,500 to 10,500 in the world.

“The family office sector in Canada is booming right now. There are probably a solid 250 to 300 in the Greater Toronto Area alone – family representatives who contact firms like ours about business opportunities,” says Robert Bezede, director of corporate finance at Norton McMullen Corporate Finance Inc., another sales and acquisition firm, in Markham, Ont.

Definition is not regulated

One thing that’s important to understand about family offices is that, like families themselves, they may seem similar but no two are exactly alike. That’s partly because there is nothing to regulate the definition of what a family office is, or the extent of the services it might provide.

“When I started out as a chartered accountant 35 years ago, I didn’t even know there was such a thing as a family office,” says Chris Clarke, chief executive officer of First Affiliated Integrated Wealth Management, a family office based in Collingwood, Ont. “But I loved the idea of strategic planning for private families in a way that’s completely free of bias.”

The family office may be the go-to for family members who are getting divorced or have car accidents.

Robert Bezede, Norton McMullen Corporate Finance Inc.

Each family is different, and family offices can be asked to pitch in on issues that go well beyond financial management, she says.

“I helped one couple settle their marital dispute through facilitation, and another time I had to go in with my team to the office of a client who had fallen ill and physically pack and clean up the entire office, not just financial papers but art work and more. It was quite a job. I’ll leave it to your imagination,” says Clarke, who is the author of a book called True Family Wealth: Love, Money and an Inspired Life.

One family office might take care of a particular family’s entire fortune and finances, while another may focus only on some aspects, such as a corporation controlled by family members.

Families pool their funds

Even the net-worth entry point to engage a family office can vary, says Shai Dubey, assistant professor at Queen’s University’s law school and its Smith School of Business in Kingston, Ont.

“To have a solo family office [serving one family and no other clients], you’re likely looking at a family with a net worth of $75 million,” he says.

Sometimes a group of families with smaller net worths will pool their resources to hire a family office. “Some families may not have the resources to hire a staff of their own, but they can hire a team to work exclusively with three or four families rather than a larger group of clients,” Dubey says.

Gilboord says these days he is encountering families with $10 million who have pooled with others to engage a family office. “Some of these families have major business decisions to make that will affect a lot of family members, so they want a dedicated team,” he says.

The barrier to having a family office can be the cost, says Bezede.

“You’ll pay at least $250,000 a year to have a Bay Street financial person dedicated only to managing one family portfolio, so you need to have a pretty big pool of funds to make it worthwhile,” he says.

Some firms pay the gardener

On the other hand, investment management fees for a family office can be around 1 per cent, compared to the average 21 basis points (2.1 per cent) that Canadians pay in mutual fund management fees, according to a 2018 survey.

The depth and breadth of the work performed by a family office can differ. A smaller office might do work that’s largely personal, such as paying cleaners and gardeners, booking travel and organizing events in addition to some routine financial management such as keeping track of investment accounts.

“The family office may be the go-to for family members who are getting divorced or have car accidents. I have heard of some that even keep a family driver on the payroll,” Mr. Bezede says.

You do have to be a bit of a therapist sometimes.

Shai Dubey, assistant professor, Queen’s University

In larger families, the work can be more sophisticated and complicated. It might require a team of lawyers, accountants and financial and estate planners who will manage a family’s investment portfolio, oversee and facilitate major business decisions, organize distribution of funds to family members, do tax planning, manage residences and commercial real estate and administer a family’s foundation and philanthropy work.

Well-off families are drawn toward family offices for several reasons. The one-stop service they provide can be tailored to a particular family’s needs, and their experts can sort through complex and opaque business structures involving uncles and aunts and distant cousins.

“The work can involve managing family dynamics, training family members and ensuring governance of their holdings,” Dubey says. “If you don’t have a family office, you may have to talk separately to lawyers, investment advisors, accountants and estate planners, but with a family office you can get the whole picture.”

Intangible and emotional issues

A coordinated financial team can prevent mistakes and misunderstandings, help ensure that communication about money between family members is calm and businesslike, and work out complex tax strategies when individual relatives have different liabilities.

“Family offices can organize important things such as intergenerational transfers,” Mr. Bezede says. This is common as many wealthy families become larger over generations, with some members more directly connected to the family fortune than others.

“Not every family member is going to be involved in the business, but some who aren’t involved may benefit from it, and this needs to be organized,” Mr. Bezede says.

Family offices also have access to financial opportunities not necessarily available to advisors who deal with a roster of clients. For instance, a family office might have knowledge of personal loans to businesses that can be quite lucrative for the lender, Bezede says.

Those who work in or with family offices agree that these offices sometimes have to manage intangible and emotional issues that come up among relatives, especially when money is involved.

“You do have to be a bit of a therapist sometimes,” Mr. Dubey says.