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Wealth-management firms hop on the family office bandwagon

But are clients really getting the holistic, integrated approach that true family offices are designed to deliver?

It turns out that Canadians may not be quite as middle class as we often imagine.

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According to Wealth-X’s World Ultra Wealth Report 2021 , more than 11,000 Canadians hold a net worth of $30 million (U.S.) or more. On a per-capita basis, that’s not far behind our neighbours to the south, where more than 101,000 individuals reach the same threshold to join the ranks of the ultra-high net worth (UHNW).

In fact, growth in the UHNW category north of the border has outpaced the U.S.’s over the past 10 years, as individuals and families enter that rarefied club for the first time.

Canada’s wealth-management industry has taken notice.

“Most of those newly wealthy people are clients at traditional banks,” says Tom McCullough, chairman and chief executive officer of Toronto’s Northwood Family Office. “And those institutions are just now realizing, ‘Oh my gosh, we’ve got all this latent money sitting around. Somebody’s got $40 million in this local branch, and we’ve never really targeted them? We have to do something about that.’”

Increasingly, the answer among big banks and private wealth-management outfits is to repackage existing services as family-office-type offerings. That means Canada’s UNHW individuals now face a conundrum their global peers have been contending with for some time: When is a family office really a family office?

The answer isn’t always as clear-cut as it might seem.

“This trend of establishing family-office platforms in an existing organization is becoming extremely widespread,” says Douglas Byblow, president of the Calgary-based family office Forthlane Partners.

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“From a bank’s perspective, it might help to promote internal credit and investment products, and it enables them to have a more in-depth relationship with clients of wealth. That can be good, but clients really need to question the scope of their capabilities, and do they offer the holistic approach that a family office is supposed to?”

How do they make money?

One issue for prospective clients to be aware of, says Byblow, is revenue model.

“If an accounting firm has an economic driver based on hourly rate billing, it will invariably gravitate to that service, as opposed to a more broad-based, what I would call pure family-office model,” he says. “That’s not a criticism, but just a recognition of what’s driving those different business models.”

More fundamental is whether a firm offers the kind of holistic, integrated approach that family offices were designed to deliver.

People like to wrap themselves in the flag of whatever’s popular, and if they can brand themselves as a family office that can be attractive.

Thomas Livergood, Family Wealth Alliance

They may be able to offer a broad range of what Byblow calls “specialist technical solutions”: investment and tax advising, legal consulting, etc. The question is whether those specialists are working in their own silos or working together, based on a common understanding of clients’ needs.

Simply pulling together a variety of technical services, says McCullough, may simply be “co-location without integration.”

Large numbers of clients

That problem is exacerbated, of course, by what may be a much larger client base.

“How many client relationships are you serving?” asks Thomas Livergood, CEO and founder of Illinois-based Family Wealth Alliance (FWA), a consultancy and networking organization with a membership of multi-family offices and other wealth-management organizations.

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“I think of a story about a very established family office, interviewing a guy at a bank, who said, ‘Oh yes, we do concierge and family meetings and arrange trips. And I have less than 120 client relationships.’

“How can you say you do family office when you serve 120 families?”

While the issue may be relatively new to the Canadian wealth industry, it’s been playing out for some time in both Europe and the U.S. In 2005, FWA sought to establish some basic standards to help define what a multi-family office is — and isn’t.

“People like to wrap themselves in the flag of whatever’s popular, and if they can brand themselves as a family office that can be attractive,” says Livergood. “We did the standards to help distinguish the pretenders from the real McCoy. If we can provide some constants, perhaps we can guide families to a better standard.”

The answers still left something to discretion, but some fairly hard-and-fast basics emerged, organized around four questions: whom do they serve, what services to they offer, how do they deliver services, and what experience do they have?

Of the four, says Livergood, the first is most important. According to FWA, a true multi-family office serves at least 10 unrelated families, and the median net worth of its 10 largest clients will be at least $30 million (U.S.).

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“The type of family the firm serves is the single largest determinant,” says Livergood, “and that’s why we’re pretty strict about that. For example, a bunch of retirees at $3 to $5 million net worth is a great business, but at the end of the day, their needs are just very different than those of people with multi-generational wealth.”

Everyone can benefit from family office model

Though he’s no fan of those jumping on the family-office bandwagon, Byblow does say that at the very least, its popularity may point to a growing awareness in the wealth industry — that those aforementioned specialist technical solutions only go so far. “Not all families require in-depth support like a family office does,” he says, “but everyone can benefit from advisors who are attuned to the bigger picture of a client’s goals.”

McCullough agrees.

“Not everyone has the level of complexity those ultra-high-net-worth families do,” he says. But for those who do, “external standards from the Family Wealth Alliance can help a lot to identify a real family office. There are also organizations out there like the Ultra High Net Worth Institute in the U.S., who work at trying to help families figure out what they need and want.”

Ultimately, he believes, it comes back to location and integration.

“It does no one a service to line up a bunch of services without integrating them,” he says. “You’ve got your bricks all in a row, but there’s no mortar holding them together — and guess what happens when there’s a strong wind?”