What does success look like at the family office? Execs weigh in

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Defining success for a firm as complex as a family office goes beyond balance sheet totals.

Even if investment returns are healthy, tax plans are in good order and succession planning is in place, intangibles can spell success or failure for family offices.

“It’s important right from the outset that the family office works with the family to define what success will look like,” says Quillan Quarrington, partner, family enterprise services, PwC Canada in Oakville, Ont. “That includes everything from what’s the working style, to the communication strategy, to the actual services that the office is providing.”

Advisors at family offices say it’s the family who ultimately defines success.

Patricia Saputo, co-founder of Crysalia, a learning and development office for enterprising families in Montreal, says the service proposal is key.

“You develop the plan of action going forward as to what services will be rendered to you and your family. … Usually a contract is set up. For me, everything has to be based on ‘what did you sign up for?’”

Saputo, who is a member of the family that established one of Canada’s largest dairy enterprises, has experience on all sides of the family office equation, and now she works developing the social and human capital of business families. She stresses that it’s not just the easy-to-measure quantitative items, such as investment returns, that spell success. It’s the non-quantitative, relationship-building items that are important.

To me it’s not the first year that’s important, it’s what happens after the third year. Are you still getting exactly what they promised you?

Patricia Saputo, Crysalia

“What kind of service does the family feel they are receiving from the multi-family office, and are they able to trust them to deliver — whether it’s timeliness of reports, accuracy of information, professionalism, quantity of communication throughout the year?” says Saputo.

“Are they doing that only the first year because they just signed you up? To me it’s not the first year that’s important, it’s what happens after the third year. Are you still getting exactly what they promised you?”

Mind the nuances

Even for the measurable services, defining success has nuance.

Greg Moore, partner at Richter Family Office in Toronto, says investment services have to be judged using a wider lens related to the goals of the family.

“Lots of families come to us with a big spreadsheet. They’re tracking the performance of each individual strategy on a quarterly or annual basis. … That’s not integrating the full picture to indicate how it’s all working together,” says Moore.

The successful family office provides high-level consolidated reporting for the family, he says. All the family’s goals, from philanthropy to funding of lifestyle to the needs of future generations, have to be considered in the portfolio.

“[Portfolio] managers will operate differently. You need to remind families as to why a manager is doing a particular job,” says Moore.

Dynamics can shift

So a foundational portfolio may require a strategy stressing liquidity and low risk while an aspirational portfolio may involve more risk to build capital.

He says his firm had a portfolio manager with a fairly modest return of 3.5 per cent over six months during a strong equity market. “That manager is sitting as your low-risk defensive income manager and the sandbox they play in was down 4 per cent, so the fact they made 3 per cent is a home run.”

A major review of success in meeting objectives should happen once a year, family office advisors say, with quarterly checkups to ensure things are on course.

Enzo Calamo, CEO of Vancouver-based Lugen Family Office and Medici Family Office, stresses that successful offices need to keep on top of changes because family priorities and dynamics shift and economies change.

“It’s impossible to do everything at one time. If projects are moving along I think you are moving toward success. If a project’s not working you have to look at that.”

At times of crisis

Success may not reveal itself until something bad happens, such as a death in the family, says Moore.

“A good family office will have served the family to ensure that the estate is transitioned effectively and efficiently from a tax and investment perspective, and, more importantly, the next generation has been involved,” he says. “Absent that you will elevate conflict at a time when emotions are high.”

Similarly, investments should be structured so a market crash doesn’t result in the family having to make “reactive decisions at an inopportune time.”

In good times, families may question the cost of the family office, Moore says. “‘Why do I have this team of professionals around me? Everything’s fine – it’s candy floss and Ferris wheels.’

“It’s when you have these periods of crisis that suddenly you call to arms your family office to ensure everyone’s going the same direction and there’s some degree of harmony across the stakeholders,” he says.

How happy are the clients?

PWC measures the success of its family office practice based on value propositions, says Quarrington.

The firm aims to simplify things for families so they can navigate tough emotional and financial conversations. It helps provide peace of mind, setting short and long terms goals and reducing risk by focusing on items such as succession, governance and estate planning.

PwC also helps single-family offices evaluate their success relative to other family offices around the world, says Quarrington. The practice evaluates how well an office educates the family and its next generation as well as its communication strategy, enterprise issues, philanthropy and regulatory compliance.

Jeremy Martenstyn, partner, Canadian tax and private client services at BDO, says there is another aspect of success that applies to both clients and their advisors at family offices: How happy are your clients?

“How willing they are to recommend us in the marketplace?” he asks. “Also, how happy we are. How happy our people are to work on those files. Is it a collaborative experience? Are they pleasant to work with?”