What's a family office, anyway? They're for the very rich only, right?
Some firms serve an earlier stage of wealth, but who’s to say they aren’t a family office? Or perhaps there is a better name
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In our ongoing exploration into the essential definition of a family office in Canada today, we have looked at what services a family office should offer its clients. Now we flip the page to examine the clients.
Is a family office still a family office if it serves clients who are not extremely wealthy? And what should we call a firm that resembles a family office but serves mostly families of more modest means?
Elke Rubach is the president of Toronto-based Rubach Wealth Holistic Family Advisors. Her company offers a range of services that would typically be offered by a family office to four or five families at a time with net worths of $5 million to $20 million.
“The people we work with have enough complexity that they need a hand,” Rubach says. “Sometimes they need estate planning, tax planning, a bit of both. Sometimes it’s growing the business, sometimes it’s selling the business. Sometimes it’s training the next generation.”
Although she agrees there is a qualitative difference between managing $10 million and managing $100 million, she holds that her clients need professional advice to negotiate the degree of complexity they live with.
“They’re having hard issues – addiction issues, blended families – and fortunes of $100 million can disappear very quickly,” she says.
Rubach thought hard before defining her firm; she eventually settled on the term “holistic family advisors” to describe a business set up to help families of modest means thrive.
“I went through all the brain cracking of what we are. Are we a family office? What is a family office?” she says. “The conclusion we came to is we are our clients’ family office.”
She notes that the deck is stacked against families in a time when financial literacy is not widespread and few people understand the value of paying for independent financial advice. As a society, she says, “we’re not trained to talk about money, because for some reason it’s not polite.”
Rubach Wealth has established a needed space for families whose net worth is not remarkable – at least not yet.
“We don’t want the fee to keep a young professional from planning, and we know that if they do plan they are galaxies ahead of their peers. We have plans for the young lawyer who’s just starting out and starting a family,” she says. “I think the most important thing, whether it’s a family office or a desk on the Danforth, is that the family needs to take responsibility and really find the right chemistry with the advisor.”
A ‘collaborative coordination of professional services’
In Calgary, Algar Virtue & Associates Inc. is also serving a clientele that, with some $5 million to $20 million in liquidity, falls below the net worth of the typical family-office client.
“We wouldn’t describe ourselves as a family office,” says vice-president Rob Koski. In fact, the company is so invested in its proprietary descriptor as the “Family CFO” that it has registered it as a trademark.
“We have a lot of the attributes of a family-office offering,” Koski says, adding that there is “significant need” for this range of services at the financial level that Algar Virtue targets. “We thought that was lacking, and it’s a great business.”
Rather than apply the family-office label, Koski thinks of his work as “the collaborative coordination of professional services. We often describe what we do as applying business discipline to the area of family wealth.”
The company’s clients tend to be entrepreneurs who range in age from their 30s to their 50s, some of whom are just beginning their careers, some of whom own operating businesses, and some of whom have already retired.
“One of the things I love about our business is that we deal with multiple generations, but discretely,” says Koski. Instead of working with several generations together, as often happens in a standard family office, Algar Virtue targets various age groups separately as the need arises. For instance, “we start working with the children at age 15 or 16, beginning with financial literacy.”
Despite the demand for this type of service, Algar Virtue has few competitors. “I think there’s a tremendous opportunity,” Koski says. “We think we’re a bit of a unicorn here in western Canada. As we talk to other people, they say nobody else is doing what we’re doing.”
Too much focus on investable assets
Carolyn Cole views the entire question in a different way. She is the founder and CEO of Cole & Associates, a firm that advises on family-office strategy and design in Vancouver and Toronto. She never starts the client conversation with dollar value, and when she does discuss value, she always uses net worth as a yardstick rather than investable assets.
“If an advisor is focused on how much a family has to invest, then they are most likely in the sales system of the financial world and have very little real knowledge of family offices. In contrast, family offices take into consideration a family’s entire net worth,” Cole says.
“Intention is the foundation of deciding and determining what type of family office a family needs,” she says.
She cites four typical models. First is an administrative family office, a good solution for individuals with less complexity, which includes elements of financial and estate planning.
Second, an embedded family office is connected to an operating company. Third is an institutional family office, set up when a liquidity event or comparable circumstances provide an opportunity for the family to embark on a more sophisticated purpose for their capital.
Finally, a legacy family office is the right tool to bring family members together in the interests of good decision-making.
In choosing a family-office model, “the key differentiator is deciding whether an inheriting generation will maintain their collective ownership of an asset. Is it solving for here and now, or building for future generations? If you’re solving for here and now you need great professional advisors, but you do not need long-term planning,” she says.
“And from my perspective, it does not matter what the dollar value is.”
This is the third in a series of articles exploring the definition of a family office. Click here for earlier instalments:
- What is a family office, anyway? We inadvertently stirred the pot
- What’s a family office, anyway? Ten Domains to guide them all
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