For many wealthy families, a family office isn’t something they just step into; it’s usually a partnership that develops over time as the family’s wealth grows and their needs evolve – and it provides the family with a team of professionals that help manage everything from investing to charitable giving to sibling squabbles.
Think the Westons, the Guccis, the Crown.
“Let’s say a family has built wealth over a number of generations. They hit the $100 million mark and they start to realize that maybe they should bring all this in-house because now they have more family members to worry about,” says Dan Riverso, chief investment officer at Jesselton Capital Management Inc. in Toronto, a family office service provider to one of Canada’s wealthiest families.
“It’s become more complex, and a regular bank is not enough.”
Working with family offices
Family office services can include everything from helping to grow wealth, capital preservation, structuring, family or business governance, accounting, asset custody or any objective the family defines.
But one of the most important aspects of their work is managing family relationships and ensuring wealth carries on.
“Families are pyramids and they grow with every additional generation. The leader in the family should set the tone and vision for the family, and then work with advisors and their children and their childrens’ children to basically chart that course,” Riverso says.
“Most families are actually quite good at that because they’ve built businesses. And building a business, you need a bit of a long-term view. But when you start getting into the generations that weren’t involved, they might lose that perspective a bit. And that’s where outside advisors are there to help.”
World views can change from one generation to another, and different generations may also hold different values. For example, the son or daughter of parents or grandparents who made their family money in oil may be an environmentalist and have very different ideas about how the company should be managed in the future.
And while Warren Buffet famously still lives in the first house he bought back in 1958 and drives an old car, it’s possible his kids might want to live a bit more of an opulent lifestyle.
“Society changes and the views of the younger generation change over time with society. We’ve obviously gone through a major shift over the past 50 years or so. Younger people today are more aware. They’re on social media, they’re more socially conscious,” Riverso says.
“A lot of it comes down to stewarding, ensuring they understand how the wealth was built and the purpose of that wealth going forward.”
That’s a part of the succession planning role of family offices: who will participate, who will take over one day and what happens if somebody wants to break rank. There can be many ways to facilitate those wishes while keeping the rest of the family focused on the original goals so that the wants of every individual in the family are met.
Issues can also arise because of a lack of experience – or if a patriarch or matriarch passes away suddenly and a young heir is left in charge of a business he or she has limited experience with or wants to sell.
“Perhaps some of the younger generation only wants to be involved in charitable giving, (but) if they’re carving off, say 5% a year, out of a $100 million portfolio, that’s $5 million a year,” Riverso says.
“It’s a full-time job to actually manage that level of charitable giving, to meet different charities, decide how you want to position it, what types of causes you want to support.”
Given the number of ways each family member can be involved in a family business, family offices provide a key role in communication and guidance that’s completely different from managing capital or ensuring the practical needs of the family are met.
“A lot of work went into building the wealth,” Riverso says. “Our work is just about maintaining that and ensuring that that wealth can be put to good use and support the family and future generations.”
Watch Dan Riverso discuss family offices in more detail here.