“If you’ve seen one Family Office….you’ve seen one Family Office. Each Family Office is unique
because it’s defined by the goals of the family who founded it.” – Family Office Exchange
A Family Office is a highly specialized form of wealth management business that oversees the investment and financial needs of affluent families typically after the sale of a business that resulted in significant liquidity. According to Canadian Family Offices, the roots of family offices originated in the sixth century when a king’s steward was responsible for managing royal wealth. A 2020 Wealth X report on Ultra High Wealth – defined as families with net worths in excess of $30 Million – states that there are in excess of 11,000 families in Canada with a combined wealth of $1.2 Trillion. Although there are various views on how to classify the family office industry, I view it as three broad types of Family Offices as outlined below.
Single Family Office:
Many families with significant wealth have formed their own Family Offices (also known as a Single Family Office – ‘SFO’) with most of the key professional competencies staffed as ‘in-house employees’, which can include investment, accounting and sometimes legal advisors. Given the costs of operating an SFO, combined with the funding needs of a given family, there typically needs to be at least $300 Million of investment return generating assets for a family to economically afford such a business.
Multiple Family Office:
The Multi-Family Office (‘MFO’) is where two or more families come together to share the costs of operating a Family Office, thus reducing the impact on each family individually. Some MFO’s can also be ‘for profit’ businesses and are also known as ‘Commercial Multiple Family Offices’.
Virtual Family Office:
A Virtual Family Office (‘VFO’) creates an integrated team of a family’s professional advisors – investments, accountants & lawyers – who collectively act in a co-ordinated manner to provide holistic and enduring advice to the family on an advisory/consulting basis (ie: ‘Outsourced’), not as employees of an affluent family. This Virtual Family Office approach – given its variable cost structure – can work economically for families with a minimum of $30 Million of net worth – and occasionally for slightly lower net worths, depending upon a family’s unique circumstances. Although VFO’s can be structured by affluent families for their own utilization on a ‘cost-only’ basis, there are also increasingly some wealth management businesses structured as ‘Commercial Virtual Family Offices’.
Although the most suitable family office type for a given family will be primarily driven by the size of their investable assets – as it’s the investable assets that generate the ‘revenue stream’ for the family office to fund its business operating costs as well as the funding needs of a given family – the aspirations, desires, knowledge & experiences of a family to lead & operate a ‘wealth management business’ are also critical factors for consideration.