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Return to the office? Debate not top-of-mind for 'virtual' family offices

Most have been ‘virtual’ for decades, employing teams of internal staff and external collaborators

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Faced with the ongoing threat of COVID-19 and its variants, many organizations that switched to virtual during the pandemic are now debating whether they should still plan for a return-to-office or commit long term to a remote workplace model.

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Family offices may be forgiven for yawning a little at these discussions.

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That’s because most family offices have been virtual for decades, albeit for different reasons and along a model that’s based not so much on allowing staff to work from home but more about building a team of internal staff and external collaborators.

“When people say ‘virtual family office,’ most of the time they’re referring to a model where there is one main expert – usually a wealth manager – with all these other experts wrapped around that one core person,” explains Russ Prince, a New York-based family office consultant. “It comes originally from the idea of taking that single-family office and structuring it so that you have only a few, select in-house resources supported by third-party expertise.”

Even multi-family offices with extensive in-house teams serving the needs of several wealthy families are virtual to a certain extent because they typically bring in outside help from time to time, says Prince.

“I don’t care if it’s a single- or multi-family office – they are all using outside experts when appropriate,” he adds. “That’s what it means to be a virtual family office, and the reality today is that pretty much all family offices are fully or partly virtual.”

Virtual family offices make financial sense, says Mark Barnicutt, president and CEO of HighView Financial Group, an Oakville, Ont., investment counselling firm whose services include helping high-net-worth clients build a virtual family office.

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Running a family office is expensive

Employing a team to run a traditional family office isn’t cheap, points out Barnicutt. By various estimates single-family offices can cost up to $1 million a year in operating and administrative expenses while multi-family offices come with fees of between 1 per cent to 2 per cent of a family’s assets under management.

“That means you need a significant amount of cash flow coming out of the assets to not only fund the business but also to fund the family,” says Barnicutt. “Those models work really well when you have enough assets. But if you’re at a lower wealth level you need to employ an outsourced strategy or you’ll end up just burning capital.”

I don’t care if it’s a single- or multi-family office – they are all using outside experts when appropriate.

Russ Prince, family office consultant

With a virtual family office, families pay for the help they need only when they need it. Depending on the network of outsourced providers available to the office, this model can also provide access to a broader and much more diverse range of services. At HighView Financial, for instance, core services cover 10 key areas, from asset management to liability and tax, estate management and family wealth mentoring, family philanthropy and lifestyle management.

Of course, any number of professional-services providers can form a network and agree to refer clients to each other. What sets an effective virtual family office apart is its ability to pull together and coordinate a cohesive team of experts, says Prince.

“This can’t just be about someone handing off work to a lawyer and saying ‘make them an estate plan and get back to me when you’re done,’” he says. “Everybody has to work together and, believe me, building a good team takes a lot of time and effort.”

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Know the big-picture goals

Having a central person or team coordinating all the professionals in a virtual family office is important, he adds. In most cases, it’s the people who bring in the clients who take on the role of coordinator.

Systemic processes for working together are crucial, says Prince. While that may sound obvious, in reality professionals tend to prefer to do things their way, especially when they’re viewed as experts in their fields.

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Every expert also needs to understand – and align with – the family’s overarching goals. “In my experience, a lot of times the professionals working with family offices don’t have the big picture,” says Prince. “And because of that they often end up missing opportunities.”

Barnicutt agrees. The lack of coordination and insight into big-picture goals often leads to family office professionals working only in their own corner, sometimes at odds with each other.

“So you may have a family, with a net worth of $20 million, that has a great accountant, and they’ll have an estate and trust lawyer who’s done their will without consulting with their accountant,” says Barnicutt. “This can create problems because a lot of accountants are focused on mitigating taxes while estate lawyers are focused on mitigating risk, and sometimes those strategies can be slightly conflicting. If you don’t bring your professionals together you can end up having planning gaps or even strategies that contradict each other.”

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No need for expensive offices

Grant Colby, CEO and managing director at NCP Digital Family Office in Victoria, says most wealthy Canadians today are open to working with virtual family offices. Even those used to working with a single team operating out of one central location have come around to the idea that the professionals best suited to their family’s needs don’t all have to be located in the same office.

These days they don’t even have to be in a physical office, and if there is one it doesn’t need to be on expensive real estate, says Colby.

“Back in the ‘90s, having that fancy office was perceived as a sign that you were a fancy firm equipped to handle the complex needs of a wealthy family,” he says. “But I think in the current climate that fancy office is no longer seen as a badge of honour, and clients recognize that they’re actually paying for that.”

While virtual family offices offer a lot of advantages, they may not be suitable for ultra-wealthy families with complex family, business and asset structures, says Barnicutt.

“The bigger and more complex you get, the more you need of other people’s time,” he says. “You can hit a tipping point where it makes sense to have your own team of people.”

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