The first family office was … the church?

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It has been said many ways, in many languages: “Shirtsleeves to shirtsleeves in three generations.”

It’s a common concern among wealthy people. “Somebody rolled up their sleeves early to make the wealth, and then the second generation often spends down the wealth,” says Kirby Rosplock, founder and chief executive officer of Tamarind Partners in Palm Beach, Fla. “By the third generation, there is no wealth left, and they’re back to rolling up their shirtsleeves.”

It’s a good reason for ultra-high-net-worth families – those with upward of tens of millions of dollars – to enlist the services of a modern family office, she says. Today, these offices often manage their investments, estate planning, tax needs, philanthropy and other financial affairs.

Rosplock should know. She is the author of The Complete Family Office Handbook: A Guide for Affluent Families and the Advisors Who Serve Them. Her firm offers consultation services to family offices across North America.

The fear that wealth will not last from one generation to the next has been a raison d’être for family offices for hundreds of years, even if the name “family office” is relatively new. “Back in the time of the Crusades, for example, the term ‘family office’ was not used, but that was around the time trusts were created.”

As Rosplock notes, trusts and family offices go hand-in-hand.

Back to the Middle Ages

During the Middle Ages, the Catholic church performed the role of the family office when lords and other nobles made the multi-year journey to the Middle East to support the church’s ambitions. In turn, the clergy would manage their assets – in trust – to take care of the family they left behind.

This kind of wealth management was not unique to Europe. Anywhere families had vast fortunes, advisors were necessary to help preserve those riches for generations to come.

Still, the foundations of the modern-day family office only truly began to take shape in the U.S. in the late 19th century – the Gilded Age – as the Carnegies, Rockefellers and Vanderbilts accumulated unprecedented fortunes.

There were actually these important hubs already in place, only most people didn’t call them a ‘family office.’

Luanna McGowan, president of McGowan Group Inc.

These families, with their multiple businesses and philanthropic endeavours, had complicated needs; for one thing, they required a central management structure to ensure these entities operated independently of family members’ whims while still serving the needs of current family and the generations thereafter.

Indeed, industrial magnate Andrew Carnegie, who came to America from Scotland, is believed to have popularized the saying “shirtsleeves to shirtsleeves,” Rosplock says.

Another wealth boom begins

Well into the 20th century, “family office” was often used informally by America’s – and Canada’s – wealthiest families.

Single-family offices became more formalized starting in the late 1980s as another wealth boom began, brought about by globalization and technological innovation.

Hundreds of families had newfound riches and “needed someone to help manage it all,” says Luanna McGowan, president of McGowan Group Inc., a Canadian family office consultancy based in Toronto.

Even into the early 2000s, however, many ultra-high-net-worth families would not have referred to the team of professionals managing their affairs as a family office, she says.

“But if you talked about a family office, they’d say, ‘Oh, I think I have one,’ and so there were actually these important hubs already in place, only most people didn’t call them a ‘family office’ per se.”

The global explosion of wealth over the past 20 years has served as the catalyst that transformed family offices from an under-the-radar cottage industry into the professionalized one now used by tens of thousands of wealthy families around the world, Rosplock says.

This next generation has a much bigger social conscience.

Kirby Rosplock, Tamarind Partners

Among the most notable inflection points in this recent evolution is the multi-family office. While a single-family office “serves members of a bloodline,” Rosplock says, the multi-family office is a commercial enterprise providing services to many wealthy families.

Besides helping coordinate the many tentacles of wealth, today’s family offices are playing a growing role in helping the new generation of ultra-high-net-worth families use their fortunes to fight climate change and social inequality.

Wealthy families have long been engaged in philanthropy. Among the most notable examples was Carnegie himself, who helped create the modern public library system in the U.S., among other charitable initiatives.

‘Peasant shoes to peasant shoes’

Yet he made his fortune in steel, which “was horribly polluting,” she says.

So while previous generations used wealth created from their businesses to fund charitable ventures, today’s heirs are saying, “‘We can make money and do good at the same time,’” she says.

In turn, the modern family office evolved to serve this goal. That includes facilitating investment opportunities in green technologies, Rosplock says. “This next generation has a much bigger social conscience.”

Still, even today, family offices remain focused on their most enduring duty: avoiding a “shirtsleeves to shirtsleeves” outcome.

Or, as it’s referred to in China, “from peasant shoes to peasant shoes,” or, among the Dutch, “clogs to clogs.”

No matter the language, “that’s really the ethos behind the family office,” Rosplock says.