Education Of Family Office Options

“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.