The rise of family offices is about more than wealth management

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Although family offices are a growing economic force in markets around the world, they remain somewhat of a mystery to many people. For a long time in Europe and even the United States, wealthy families have been setting up offices and firms dedicated to their asset management. They were not very present in Quebec until a few years ago, but have recently become more common.

On April 5, CFA Montreal organized a panel discussion featuring representatives from three leading family offices to explore these little-known organizations, shedding light on what they are and what they do.

Panelists included Patrick De Roy, Chief Investment Officer at Fednav Investments; Annie-Claire Rousseau, President of Gilbert Rousseau Family Office Investments and President and Founder of Rousseau Capital; and Marc-André Blais, president of Heritage 3, a private family office. The panel was moderated by Caroline Phaneuf, a second-generation business family member who is also co-founder and director of Crysalia, a learning and development office for large families in business.

One major take-away from the panel was that family offices aren’t, or shouldn’t be, limited to managing wealth. Some of these firms offer concierge-style services that benefit all aspects of the family’s lives, both financial and personal, and these tend to be among the most successful such companies.

According to Blais, who has worked in both single-family and multi-family offices, whether it’s one family or six, everyone is looking for help with day-to-day management and understanding of their wealth, income, and philanthropic activities.

While the entrepreneurs at the head of family businesses are clearly business-savvy people, they often need help to understand the details of dry but essential topics such as tax policies and legal paperwork.

“If you talk like a CFA to an entrepreneur, you totally lose them. You have to put yourself on their level. If it’s someone who built their factory, their fortune, you have to put yourself in their shoes,” Blais said.

A notable aspect of family offices is the notion of generational legacy. Families often hope to pass on the values of a company’s founder to their successors, while also customizing the organization to suit the needs and preferences of all family members. That includes family preferences on philanthropy, impact investments, and choices related to the family’s carbon footprint or social justice commitments.

In Rousseau’s family office, there is an overarching investment policy to serve the family’s needs, but also policies for each member of the family. This is because not all family members have the same objectives or interests. “We also have to keep in mind the horizon of this portfolio, it has to pass several generations, so our decisions have to take that into account,” she said.

Even if every family office is looking for the same fundamentals, De Roy believes that the reality is different for each entrepreneur. This results in very different goals and environments from family to family. For example, some family offices are formed after an operating company was sold, while others continue to actively manage one or more businesses.

“The entrepreneur who has worked all his life for a company and who sells it gives us assets to manage and we have to ask ourselves what his role is, how he wants to be and how he wants to be involved,” said De Roy. “It brings a different dynamic to the investment team in place that manages the strategy.”

When there is an active operating company, the family office may be managed by a separate team yet still share some professional services or other resources with the company. Governance structures can range from very rigid and formal to much more friendly and informal. In some cases, an investment committee may be responsible for reviewing investment opportunities and making recommendations to the family. Opportunities must be considered in context with the evolving needs of the operating company, if there is one. Tax strategies also need to be factored in.

“It’s really my job to not have any surprises. I wouldn’t want our team to say to our boss, ‘You can’t make such and such an acquisition tomorrow morning, because all the money is in private placements and we can’t do anything,’” De Roy said. “It’s a big part of my role to be the bridge to the operating company.”

When it comes down to the final decisions on investing and managing the family fortune, it is the families themselves who make the call.

“We don’t make decisions for them. We accompany them, we have our advisors and consultants in tax, life insurance or other areas,” Blais said. “We put the information in the room and decisions are made. On the other hand, I make sure they understand what I’m talking about and that they are committed to the decision.”

For example, the families Blais serves were concerned about climate change, so the family office helped them calculate the environmental impact of their cars, boats, private and commercial airplanes, and so on, and helped them develop a plan to buy carbon credits and plant trees to offset those emissions. One of his clients also changed the operating company’s entire construction fleet to hybrid vehicles.

For wealthy families, establishing a family office can support them to manage intergenerational wealth transfer, establish tax-saving investment strategies, and take action on philanthropy or social impact strategies.

There is no formal rule about how much wealth a family must acquire before establishing a family office, but usually it is ultra-high net worth families who feel the benefits justify the expense. Ultimately, it is a business decision like any other.

“My father always said: It’s not what you earn, it’s what you save,” Rousseau said.

This story was created by Content Works, Postmedia’s commercial content division, on behalf of PBY Capital.

PBY Capital Limited is registered as an exempt market dealer and an investment fund manager with Canadian provincial securities regulatory authorities, servicing family offices and their professionals. For more information, visit: www.pbycapital.com. The opinions and information provided in this article are solely those of the writer and are not to be construed as personal, legal, accounting, taxation, or investment advice, or as an endorsement of any entity.