Chairman's Message: The Real Thing - What is a ‘real’ family office?

When I started in the family office industry 18 years ago, a lot of people didn’t know what a family office was. When asked what kind of work I did, I replied that I worked with a family office. Several acquaintances asked if that was "birth control and family counselling?".

Times have changed! Almost a generation later, not only do more and more people know what a family office is. More and more advisors are claiming to be one. Family office seems to be a term that attracts larger clients, so many advisors (investment managers, investment advisors, insurance brokers, accounting firms etc.) have tacked on a few extra services and started to use the ‘family office’ term. That can make it very confusing for families who are trying to find a real family office.

So, is there such a thing as a real family office?Let’s start with single family offices or SFOs. These are family offices who work just for one single family. There are many different types of SFOs and they each perform different functions. Some might be just the CFO of the operating company and the admin assistant who hep the family with their personal bookkeeping, administration, and travel bookings. Other SFOs employ staff members who are distinct from the operating business and may look after investments, foundation activities, family education and administration. And still others are larger organizations who manage every aspect of the lives and financial affairs of multiple generations of one family. Every SFO can be tailored to the specific needs of the families they serve, and there are likely thousands of them around the globe.When we turn to multi-family offices (MFOs) which, not surprisingly, look after multiple families, the situation is a little different.

First of all, there are fewer of them – maybe in the hundreds. Second, they are usually commercial enterprises that aren’t under the control of a single family. This means that clients have to evaluate the MFO and select one that meets their needs versus tinkering with their own SFO. It means that the client families must make an assessment of the type of organization they are engaging and the services they offer.

In 2004, the Family Wealth Alliance (FWA) published a set of Multi-Family Office Standards to try to define the basic standards and definitions of an MFO. They updated then in 2020. This is a US-based organization, but the standards are applicable in Canada for the most part.The express purpose of this exercise was to help client families understand their choices and find a true family office that was likely to meet their needs. This was not an easy task because there are many different approaches to operating an MFO.The FWA settled on four standards or dimensions that define a real MFO. I have summarized them below, but the full description can be found on the FWA website at https://www.familywealthalliance.com/cpages/mfo-standards.

1. Whom do they serve?

• They have a primary focus on complex, largely multigenerational wealth and family structures, with a median of at least US$30 million net worth for the firm’s ten largest family clients.
• They are responsible for advising total aggregated client assets of at least US$1 billion.

2. What services do they offer?

• There are ten core services that have proven to be essential to most complex wealthy families. Most importantly, an MFO must be able to integrate and manage these services effectively and consistently to add value to the client relationship.
• The services include: Integrated Financial Planning/ Wealth Strategy; Portfolio Management; Consolidated Reporting & Technology; Estate & Wealth Transfer; Tax  Planning, Preparation, & Compliance; Risk Management; Fiduciary/Trustee Services; Lifestyle Management; Family  Consulting, Governance, Meetings, & Education; Strategic Philanthropy and Administration.
• MFOs provide a majority of these core services in-house and have management and/or integration planning responsibility for any that are outsourced, delegated, or shared with third parties or other intermediaries.

3. How do they deliver services?

• They demonstrate a client-centered philosophy in the firm’s mission and purpose. A MFO bases its value to client families on trust, customized services, full transparency, and open access to numerous quality outsourced provider firms.
• They fully disclose all fees and payments to be received from the client as a result of their engagement with the firm.

4. What experience do they have?

• They have appropriate origins, professional credentials, competency, and experience to implement and manage the core services essential to the client.
• They demonstrate professional involvement and commitment to the profession.
• They have a multi-disciplinary staff (e.g., CPA, CFP, CFA, JD, or other professional designations/ marks) that demonstrates professional competency and the experience required to serve complex client families.
• They exhibit stability in the firm’s ownership, management, and business continuity to ensure its long-term viability and capability to serve succeeding generations of the client families.

These standards are not perfect, but I think they paint a very good picture of the type of MFO client families should look for and can help them find a ‘real’ family office.