Family Office an insider's perspective

You have probably heard the term “Family Office” recently. Having personally worked in several family offices, at a dinner party or networking event, 9 times out of 10, after the “what do you do?” question, my response would get a raised eye brow, a curious look and a “what the heck is that?”. Some initially thought I worked in the social services field. It’s always been interesting trying to truncate the answer into a 30-second snippet so as not to bore my conversation companion (and I’ve failed on the self-imposed 30-second time limit many a time). This series will definitely take longer than that, and (hopefully) give you clearer understanding of what a family office is, how they work, and if appropriate, how they can help you or a family you know.

While these organizations have been around for hundreds of years in Europe and Asia, they are relatively new to the Canadian landscape. The first appearances of family offices in North America are usually attributed to the likes of J.P. Morgan and John D. Rockefeller, where they separated their personal financial affairs out of their operating companies. The most notable Canadian family office is probably The Woodbridge Company Ltd., the holding company and primary investment vehicle for family of the late Roy Thomson, which owns among other things, The Globe & Mail and a majority interest in ThomsonReuters.

What exactly is a Family Office? The simplest definition is a team of professionals who work for a wealthy person or family, and separate from the family’s operating business, assist the family with both their personal financial needs, along with their personal growth and legacy needs.

Family offices, however, come in many shapes and sizes, but can basically be boiled down to 3 types:

1) Embedded Family Office;

2) Single Family Office; and

3) Multi-Family Office.

The Embedded Family Office

This is the most common type of family office, and most people who have one of these likely wouldn’t even call it a family office. An embedded family office is just that – a family that owns/operates a business, and has the company’s assistants making personal appointments for the owner, the CFO and accounting team paying the family’s bills and doing their taxes, and maybe the legal person/team or other administrative staff providing other services to the family, in addition to their regular jobs within the company.

The Single Family Office

The most under-the-radar type of office is the single family office (“SFO”). Many families don’t want to draw attention to themselves and their level of wealth, and even go so far as to discourage staff from saying they work at a family office to maintain their privacy. A typical SFO team would include a lawyer, accountant, administrative assistants, bookkeeper, property manager, and sometimes even investment professionals, all on the payroll working exclusively for the family. This team can also manage household staff, any personal interest businesses that the family may own, as well as art experts, pilots, etc. that the family may want/need to employ. As a full service proper SFO would cost (at a minimum) about $2 million per year to operate (salaries, facilities, IT, other infrastructure, etc.), a family would generally consider this type of family office once their net worth reaches a level of around $400 million, give or take.

The Multi-Family Office

Originally borne out of families interested in a single family office, but not wanting to (or being able to) spend the necessary funds, a few families would join forces and hire a team that they would share, and therefore bring down the cost to each family. While some of these family driven multi-family offices (“MFO”) still exist, most MFO’s are now professional driven businesses, where accountants, lawyers, investment professionals, etc. join forces to provide services to families.

Now that we’ve gone over the basics, our next posts will look at a traditional view of family offices, a modern view, the family office as a service business and the pros and cons associated with your own dedicated team.

Our estate planning posts consider estate planning issues at a high level. Before you commence any form of estate planning, please consult with tax and legal advisors