Family offices: The emerging alternative to traditional wealth management services for HNW families

Fasken Partner Corina Weigl explains the latest trend in wealth management

Despite recent economic upheavals, there has been a worldwide surge in wealth creation over the last decade. As a direct consequence of this, there is a greater demand for services to manage the assets of high net worth individuals and their families. Traditionally, this has been the realm of various advisors, including family lawyers. However, recent trends suggest that a broader and more tailored approach has been gaining popularity: the family office. Since this is a phenomenon new to Canada, we asked Corina Weigl of Fasken to outline and explain what these wealth management services are, how they work, and why they may prove a strong alternative to more established advisory and governance structures.

What are family offices and why are they used? Are they restricted only to high net worth (HNW) individuals or families, or can they be used by a broader range of private clients?

Family offices can be understood as a full-service financial and corporate wellness concierge for your family (called a “Single Family Office”), or for a number of families (called a “Multi-Family Office”). Family offices centrally manage all of a family’s personal wealth needs. They advise on everything from tax planning to corporate governance, from estate planning to strategic philanthropy. Services are tailored to the needs of your family and are designed to maximize and perpetuate wealth. The purpose of a family office is to manage the business of the family.

For very HNW clients, it may be worth establishing their own Single Family Office (SFO), where your family is the only family being advised. Otherwise, a Multi-Family Office (MFO) structure may be a suitable approach, and can offer advantages like the possibility of economies of scale from numerous families sharing the costs of the offered services or broader investment solutions being made available, leading to better outcomes for all of the clients served by the MFO.

Generally, a Multi-Family Office is useful once a family has liquid wealth worth $20M or more, whereas a Single-Family Office approach requires a far higher threshold given the cost to operate. This is not a hard limit, however, as family offices are able to tailor their services based on your needs. Potential clients can also take advantage of the family office professional network, even if they do not need to an employ an office themselves. 

Often, family offices do not have highly specific expertise in every area and employ technical advisors to help with particular issues and transactions. The benefit of a family office is that they have an in-depth knowledge of your family and your business, and a general understanding of the subject matter at issue. This allows them to communicate the needs of your family, to the experts they then engage on your behalf. This guarantees that when they face a problem they cannot solve, they can bridge the gap between your family’s needs and the best people to address them. 

What are the differences between using a family office as opposed to an in-house personal or family lawyer? What are the benefits to using the former over the latter?

In-house personal or family lawyers may not be as well-versed in the myriad of legal, tax, accounting and financial planning issues and opportunities relevant to the needs of a family with wealth. A family office will bring required skill sets together all under one roof. Generally, in addition to legal, they have various experts on staff. They are broadly equipped to handle any of the financial, business, corporate governance, estate-related, or tax-planning issues that could come up throughout the course of evolution of a family and its needs. That diversity of experience is difficult to replicate using a family or in-house personal lawyer, because it is nearly impossible for one advisor to possess all of the expertise required to service the needs of a family with wealth. Shared expertise is far more powerful than the expertise of a single person.

Another difference is the power of the family office network. If a family office does not possess the kind of expertise that your family needs given their core business, they will invariably know someone who does. A family or in-house personal lawyer may not be aware of these family office networks.

The main benefit of using a family office is that services are tailored specifically to the needs and desires of your family. The expertise of the family office practitioners can be focused either solely or significantly on your family’s matters. There is also significant cross-pollination of ideas and strategies within family offices that could lead to benefits for your family, based off some of the strategies employed for other families. There is also no competition for resources or time from other types of clients.

Which factors should prospective clients consider when determining whether assembling a family office is appropriate and/or necessary for them?

Some families will require more support than others, whether that is due to having more capital, or a more complex financial situation or a larger family to be served by the family wealth. Family offices also provide more than just financial advice; having access to many professions in one place is one of the ways that family offices can become not only professionally, but also financially preferable.

There are several family offices whose practices are already established and active. These are generally MFOs that have the capacity to take on new families as clients. The benefit of using an established office is that you will not have to establish the office yourself. The downside is that you may have already engaged an independent professional whose practice conflicts directly with the MFO’s. While those cases can be easily addressed, it is something to be mindful of in the context of employing a family office and an independent professional simultaneously.

With that said, there is nothing preventing clients from keeping their own professionals employed, while also using a family office. Often, clients are encouraged to stay connected to their independent advisors, in addition to using the services of a family office. This lack of exclusivity means that clients can take advantage of even wider professional networks.

What is behind the worldwide increase in the use of family offices for wealth management?

It is difficult to attribute any one reason to the increased use of family offices worldwide. Rather, it is likely a combination of factors such as:

  1. the family’s personal and financial circumstances are global, making compliance and planning challenging;
  2. maintaining privacy and confidentiality is regularly being challenged;
  3. the sheer growth in wealth, globally.

What we do know is that the state of the family office industry in any jurisdiction depends on the existence of wealth, and wealth that is intended to be multi-generational. Primarily for this reason, the market in Canada is relatively new in comparison to the US, Europe and Asia. As the wealth in Canada becomes more mature, we expect the demand for family offices to increase.

In this regard, it is important to bear in mind that family offices across Canada are unregulated. This means that they can vary widely in terms of their areas of expertise, their size and their quality of service. This makes it even more important to come to an informed decision about how to form or employ a family office.

How do single family offices operate differently from multi-family offices? When should a HNW family consider joining a multi-family office rather than managing their wealth independently?

Single family offices can dedicate all of their resources to a single family and are naturally able to respond more quickly and efficiently to their demands since there are no other clients’ concerns to be dealt with simultaneously. Single family offices are, unsurprisingly, more costly to employ and require time and resources to implement. On the other hand, multi-family offices manage the demands of multiple families, and practitioners in these offices need to juggle the needs of their clients more actively. This lack of exclusivity does make these services more affordable though, and are favoured for families whose net worth does not climb above $250M.

Generally, once a family’s liquid wealth climbs above $20M, it may be time to consider employing a Multi-Family Office.

Outside of wealth management, what are some of the other services that family offices can provide?

The benefit of using a Multi-Family Office is that you are immediately connected to an entire network of professionals, including lawyers, accountants, consultants, investment bankers, and so on. If clients do not already have a professional hired, the MFO can refer someone competent and trustworthy.

Family offices also help with the overall governance of a family business, if that is the source of income for the family. They can encourage good governance, advise on strategies to build or uphold it, and guide families from an informal to a formal governance process including the appointment of a board. Family offices can ensure that your family’s business and affairs are in order in case any trouble arises, and can implement strategies for mitigation and prevention of any situation.

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Corina Weigl is Co-Leader of the Private Client Service group. Her practice is focused on estate and family business succession planning. She develops customized strategies for wills, trusts, and tools designed to protect a client's property, such as domestic contracts, Corina leverages legal and tax regimes to protect multi-jurisdictional property and family interests. She is also active in the Firm, currently holding the position of Chair of the Firm’s Professional Development Committee, having been Vice-Chair of the Business Law Section for many years.

Corina relies on a variety of tools to implement structures designed to facilitate a successful estate and business succession plan for clients. She also provides strategic advice to executors, trustees and beneficiaries in respect of ongoing administration issues or when faced with estate litigation regarding fiduciary accounts.

Corina also advises on charities and not-for-profit considerations, advising clients on legislative, tax and regulatory implications of their philanthropic goals.