Improving the effectiveness and efficiency of one’s business is almost always beneficial. But family offices are being driven to make their firms more professional as they take on more complex responsibilities and investments, and their client families grow in size and wealth.
In a recent poll, about 85 per cent of investment managers at family offices around the world said their firms had become more professional in the past five years. The August survey of representatives from 309 family offices in 25 jurisdictions, including Canada, was conducted for the Jersey-based fund and corporate service management firm Ocorian.
Among the improvements that family offices are making are stronger succession plans, family charters and constitutions; more support from third-party service providers; beefed-up management teams; and more diverse and professionally managed investment portfolios.
About one-third of respondents said their firms had developed more robust philanthropy programs, and 40 per cent had strengthened compliance, tax and legal infrastructure.
The shift to more formal structures, documentation and governance is a natural evolution in the sector, say Canadian experts in the field.
More family members need more professional offices
As family offices mature from the founding generation into generations two, three and beyond, the increasing number of family members being served is a factor in professionalization, says Varugis George, president of Cambridge Executive Connections Inc., a Toronto-based learning and networking firm that serves family offices, institutional investors and advisors.
“The sheer volume of individuals the family office is supporting will require a little bit more structure and governance and practices that are more formal,” he says. “The reporting requirements alone will make the organization want to take those next steps in formalization and professionalization.”
In Canada, family offices tend to be serving the second and third generations of enterprising families, while in Europe they might be dealing with generations six or seven, says George.
“It just makes it that much more complex, and you need to be that much more organized. Somebody once told me it’s the difference between playing golf and playing football — totally different games that require different amounts of coordination and organization.”
Specialized services and sophisticated investing
As family offices mature they often expand into more complex responsibilities and endeavours. The asset mix may include public securities, alternative investments and real estate, says Ed Giacomelli, who serves as a senior advisor and director to several family enterprises and businesses.
“There may be recreational properties to oversee, and the family may have a foundation,” he says.
“As you grow in complexity and in wealth, the needs of the family office can grow substantially. This often gives rise to more reliance on software and security, which can require more specialized expertise within the family office team.”
Family offices might need more people and more structure to deal with more sophisticated investing, says Yannick Archambault, national leader with KPMG Family Office.
“If you’re launching a family foundation, that brings more sophistication and complexity, so you need someone to oversee that,” he says.
A family crisis, conflict or significant loss, such as a financial shock or the death of the patriarch or matriarch, can also spur the need for more professionalization, he adds.
His firm helped one family office work through its needs for more sophisticated technology, including access restrictions and cybersecurity, after a ransomware attack.
More structure and defined roles
For a family office to become more professional, clearer job descriptions and organizational charts might be needed. Even at a basic level, the firm will need a president who may or may not be a family member, a vice president for finance, a controller and one or two administration people, Giacomelli says.
The nature of the asset base will determine other roles. If assets are managed externally, for instance, the CEO and CFO might be sufficient to manage oversight, he says. If the office is interested in direct private equity or real estate development, specialists in those areas may be needed.
As family offices mature, “you will start to see boards that include independent non-family members … independent of the family and the assets,” Giacomelli adds.
Archambault says his firm is seeing the formalization of committees as well. “The most frequent one is an investment committee. There might be internal and external individuals at the table.”
KPMG is also seeing more committees on the philanthropy side as family offices launch larger foundations and giving strategies.
“And we’re slowly starting to see more committees around governance,” Archambault says.
Documentation and charters
Formalized and documented strategies and policies are hallmarks of professionalization for family offices. A 2023 Citibank global survey found that more than half of the 268 family offices who responded had implemented an investment policy statement that outlines investing goals and risk appetite.
Archambault says KPMG is also seeing more interest in the creation of family mission statements and codes of ethics documenting how family members make decisions, talk to each other and manage conflict.
Giacomelli says it’s important for families to have a mission, goals and guiding principles, and they need to be articulated to ensure alignment. In some cases that includes a written constitution or family charter, he says.
Professional development and training
More resources, advice and support for professional development and best practices are becoming available in Canada, say family office specialists.
Organizations such as Family Enterprise Canada and Family Office Exchange (FOX) in the United States and more informal regional peer groups provide networking opportunities and services. KPMG and other advisory firms have expanded their practices into the family office field as well.
Varugis George says a family office at any level should work with the best advisors it can find. Learning from other family offices is also a great way to establish best practices, he suggests.
George’s firm, Cambridge Executive Connections, for instance, offers opportunities for peer-to-peer networking and forums. “They clearly benefit from the chance to connect with other people who do the same work they do in a private setting.
“For many family office CEOs, it can feel lonely because you have to protect the family’s privacy. The chance to truly connect with your peers in a safe space are few and far between.”
Some family offices, however, are skipping an evolutionary approach and starting with professional structures from the beginning.
“There is certainly a lot more access to information now,” George says. “Many family offices are looking to not have to re-create the wheel or repeat the same mistakes others may have made.”
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