S1 E0 – What Is A Family Office?

(upbeat music) Welcome to the pilot episode of the pilot season of the Our Family Office podcast. My name is Adam Fish. I'm a client advisor at Our Family Office. Over the course of this season, we're exploring the areas of focus for a purpose-built family office and the ways in which a family office can improve the lives and relationships of Canada's wealthiest families. On today's episode, we're gonna be asking the question, what is a family office? And to help me answer it, I'm joined by our chief executive officer and co-founder Tim Cessnick. Tim, thanks for being here. - Adam, it is great to be here, and this is my favorite topic. So glad to talk about this stuff. - So let's jump right in. So in your view, what is, and that may lead to what is not, a family office? - Yeah, it's a good question. You'll get a lot of different definitions depending on who you speak to, but if you want to really break it down into what truly a family office is, it really is a group of professionals coming together under a single roof, professionals with different backgrounds, all possessing collectively a competencies that an affluent family needs. So they're working together to one roof to service a family, or maybe more than one family, depending on the group. - Yeah, and I think when you look at the services that a family office provides, it's nothing that you can't get elsewhere, but what is unique about a family office is the way in which these services are integrated. So if we think about, we talk internally about our six areas of service. So there's investment management, risk management, which is looking after insurance needs, asset protection, integrated planning, so tax and estate planning, that kind of thing, family continuity, family governance and family constitutions, the family education for the next generation, strategic philanthropy, which is a real area of focus with us, how do you give with purpose and family administration, tax preparation, bookkeeping, all those things. - Through the paper shuffling. - Right, all of those services, all those areas, an affluent family is gonna, they're gonna have those things anyway. - Yeah, every family needs these things addressed. Now, whether they hire people internally to look after us for themselves, or they outsource some of these things, is another question, and that really depends on the family and what their interests are, how much do they really want to manage a staff of people? What's the cost of all of that? So there are a lot of questions that come up when you decide, or trying to decide, should I hire these people internally, or should I outsource all of this? But, you know, typically what you'll find in a family office setting are investment managers, or portfolio managers, you'll find accountants with accounting, tax expertise, you'll find lawyers, and you may actually find, depending on the family, people with a psychology or communications background, where they're able to coach families around family dynamics issues. So those are really a lot of the core competencies you'll find, and generally speaking, those areas you talked about can probably be looked after by a group like that. - Yeah, and where I think a family office adds a lot of value is having all of those professionals that are serving a family under one roof. - Yeah, absolutely. We call that integration, and the reason it's beneficial is that, you can have really good advisors in all of those areas. So you can have a really good lawyer, good tax accountant, you can have a good investment advisor, a good insurance advisor, you know, a good coach or counselor for the family. But if those people aren't all getting together in one room at the same time regularly and asking the question, you know, what are the issues that this family has to deal with? And then discussing that and coming up with a single set of solutions that they all can agree upon and to bring that back to the family with one voice. If they're not doing that, then there are gaps. There will be gaps in the planning. And that almost never happens. You never get all these people at one time sitting together in a single room because number one, they could be geographically dispersed. Their schedule is all very different. - And they just don't work together. - Right, right. - That's not part of their work in their silos. And they may be excellent at what they do within that silo, but they're still in this one area. You know, I can think of a client family that has had trusted advisors for decades and, you know, in tax with their lawyers and those professionals are excellent, but they've created, or they had created a corporate structure and an estate plan that didn't account for the fact that one of the family's children doesn't live in Canada anymore. So there are all of these tax implications to that that would impact the estate plan, but nobody thought to ask that question because it wasn't anyone's specific job to ask it. - Right, right. And what you'll also find that is that even if you did get those professionals all together in one room at one time, and you talked about the issues, it would be very difficult, quite often, for them to come up with a set of solutions that they can all agree on because, you know, everybody thinks differently, but they also are all compensated differently. So, for example, you have a tax liability and you want to deal with that, well, the insurance advisor might say, well, by life insurance to cover the tax bill, whereas the accountant might say, well, let's eliminate the tax through a couple of strategy, we can implement, so you get this, there's some conflicts of interest a little bit there, so that's another issue. But I also, so that, these are hurdles that are hard to get over. Now, imagine that same group employed by the same, in the same firm. So, everyone has a vested interest to work together, they're all compensated the same way. They, they, and they're in constant communication. Right, they're actually, they're sitting beside each other every day. And probably on a weekly, at least a weekly basis, getting together and talking about your family. Right. This multi-disciplinary group, you can imagine how that's going to close gaps. Yeah, it's really the way I think about it is, it really is the best example of the sum is greater than the parts. Right. Is when you have it all together, you end up with better ideas, better solutions, better execution, then when you have disparate parts, even if each of those parts has a lot of value and is really experienced and has a lot of expertise in their area. That's exactly right. And the interesting thing is that the concept of the family office has evolved over a number of years, and depending on the country you're in, it may be more evolved or less. And when you talk about Europe, you talk about the US, there are a lot of firms that are call themselves family office firms and many legitimate firms that do many of the things we've been talking about. In other countries, like Canada, for example, it's a newer concept. And so I remember even up until probably five years ago, I spent a lot of my time just explaining to people what a family office is and what the advantages of it are because they would say, well, I have advisors, I don't need any more help. But now what we're seeing is, finally, a few years later, we have people actually calling who are looking for a family office because they now understand that this is the way that the most affluent families globally are choosing to get their advice this way. And I think it's also important to understand, as a client, as someone who's interested in a family office, that for most family offices, they're not going to tell you, hey, you have to get rid of all the professionals that you've built up, your relationships with over 30 years because it's us or them, right? Yeah, no, no. I mean, a family office should be able to adapt and work alongside your existing professional relationships, but augment those, ask questions that those professionals, it may be outside their purview to ask, and have that wider perspective. And actually help those other advisors to be the best version of themselves. Because, for example, if you're talking about a family office firm that deals with multiple families, that kind of firm will actually see a lot of different ideas coming from many different places. I think about the law firms, the accounting firms that we know around the country because of our clients, because who they deal with. So, you become a central repository of good ideas, and that those ideas can be shared among family members, different families. So, there's actually this great cross-fertilization of ideas that takes place when you have different families served by this single team. So, there's a lot of value in that as well. And that gets lost sometimes when people think, you know, I'm well looked after, but like you said, this is not about replacing or displacing existing advisors. In fact, what we're finding is we've actually received referrals from some of the lawyers and accounting firms that of the clients we work with. Because, it's important that we work collegially. If you're a family office, from you have to work collegially with everybody. And also, you need a method for figuring out who is doing what and who should get paid for doing what. Because you don't want to pay more than one person to do the same thing. So, that's really important. And there are ways to do that. Every family officer needs to figure that out. And of course, we have something called a service of summary, which is a list of everything they need to have. happened in the life of a family from a wealth management perspective, and it's sort of a document that identifies who's doing what, and then a firm should only charge for what they're doing. - Yeah, and when there is that preexisting outside relationship that a client family wants to continue, though it often, we can make their job easier because we can set very clear parameters around what their responsibilities are and what their responsibilities aren't. And they can have the comfort, especially if they've worked with us for a while, to know that the things that are outside of their purview, they're gonna be looked after properly. So they can focus on just the tasks that are under their responsibility. - Yeah, absolutely, and the family office team will see all areas of the client's life. So for example, the accountant may not understand what's going on with the portfolio because that's not their job to really look at that. Whereas the family office will see both the portfolio as well as the tax issues, and when it's multidisciplinary, you can raise issues for the accountants that the client works with, or the lawyers, and make their jobs actually more efficient and keep them in the loop on what's actually going on with the family because they don't necessarily have the time or resources to actually be that tied into every area of the family as well. - There's less obligation on them to be proactive with their client family is about what's going on because we're the ones reaching out to keep them in the loop. - And we're the ones giving them information. So even when it comes down to, for example, preparing tax returns, if we're not doing that and someone's got an accountant doing that, we're like that central place where all the information is gathered and then we can then pass it out to who needs it with the client's approval, of course, and it just makes their lives a lot easier. - So you talked a bit about ideas flowing in as a multifamily office because we deal with other families, we see other ideas. Let's talk a little about what the advantages are to what we would call a multifamily office. So that would be a family office that is shared among some number of families because I think that there's still a preconception a little bit that when someone thinks of a family office, they think of a billionaire family that has a family office that manages everything for that one family and it costs a million, two million, three million dollars a year to run. And so if I have 50 million dollars or 100 million dollars, that's not me, that's way outside of my area. But with the way that our office is built and the services that we offer, the economies of scale actually allow for a much broader range of client families to benefit from it. - Yeah, that's for sure. I think there are some families who will hire their own teams of people. The dollar threshold where that starts to make sense is probably about half a billion dollars of total net worth because the cost of running a team like that is not inexpensive. It's not uncommon to spend two to three million a year on not even the biggest team, but a relatively good team that's gonna have the resources it needs including everything from money-manager databases to software to just the right competencies. So not even expensive and most families are gonna say, well, we're not gonna spend that much money on a single group of team. With a multifamily office, one of the advantages is that you are sharing the cost of the team. The families are really sharing that cost of that single team. The big concern for some families is that they're gonna feel like they may feel initially like they're not getting the same time and attention and control over what that team does and almost like a dedicated resource for the family. But a good multifamily office will look at that by making sure every family feels like they are the only family that they serve. And that's why in any multifamily office, the teams that serve clients cannot serve 20 families. You just can't do that. Because you're not gonna be able to pay attention to every family like you should. So realistically, our experience has been that a team of three or four people can probably serve somewhere between, it depends on the complexity of the families and everything going on. Could be anywhere between at the low end, maybe five or six families, at the higher end, maybe 12 to 13 families. So, but when you get that team to client or staff to client ratios, families can start to feel like, yes, this is my dedicated team. - Yeah, and that's why we are very intentional about the pace at which we onboard new families. Where it is not an open door policy of, yeah, we wanna sign up as many families as we can. We aim to sign up one client family a month. So that we have the opportunity to give each client family the attention that they need that they deserve to really understand them, understand their situation, figure out the best ways that we can serve them and the ways in which each of our service offerings can be best used in their case. - And you know, Adam, if there's a family out there who's thinking of contemplating a family office model and maybe looking at hiring a family office, one thing they should be asking the fan, that group of professionals, that family office they're thinking about as they're interviewing people is how do you integrate the various disciplines that you need to serve the family? Where are they geographically located? Because in some firms you'll have the tax team in Montreal, you'll have the investment people in Toronto, you'll have someone else in Vancouver. How integrated is that really going to be? Ask how do they bring together the various people in the firm who are going to serve them? How often do they meet to talk about the family? Those are important questions because ultimately that's where you gain the synergy and the benefits of having that team. So it's an important question. - Yeah, I think it's a great point, Tim. And I know the old joke in the industry is if you've seen one family office, you've seen one family office. So there are definitely differences between them, but I think it's reasonable to have an expectation of a certain level of expertise and a certain level of integration when you're considering a family office. - Absolutely, and here's another question to ask is or to figure out is how was that family office practice born? Were they born out of, say, the investment world where they're really all portfolio managers and they bolted on a couple of financial planners or maybe a tax person? Because that's gonna change the culture of the firm and talk to really speak to what they are best at. And maybe it's investments in that case, right? But in other cases, it may be an accounting firm that says, hey, we wanna create a family office practice and many of them have done that. So, you know, they're strong in accounting and bookkeeping and tax, but they've bolted on a person or two, a CFA here or there where maybe they do some investment advice, gives them investment advice. What's there, what are they gonna be best at? So it's important to understand the genesis of the firm that you're talking to, to understand where are they strongest. You know, obviously when we built this firm, we really wanna be sort of second best in any area. So what we did was we brought together people with significant expertise in the various core competencies and really the firm was born out of an equal competency in all these areas, which is, I think, the right way to do it, but every firm's a little bit different so you wanna ask the question. - Yeah, and that's when we talk about being purpose built, we are, you know, the integration of these services and putting these services on an equal plane to each other in terms of importance is really built into our DNA. - And to be honest with you, you know, this won't come as a surprise. Anybody who's listening here, I think, but the most profitable side of the business for any family office practice is the investment side of the business because you can do the research on a money manager or an investment strategy and once you've done that research, you can apply that knowledge to every single family the same. And so you can really leverage the time of that team that does the research, whereas when you're getting into accounting, bookkeeping, tax preparation, tax planning, state planning, those kinds of things, it's very, very bespoke or custom to the individual family and it's time consuming and it's, but what's really important is that whoever you work with make sure that they don't sacrifice that stuff that is so important on the planning side into what we call integrated planning in favor of the investment management because it's the more profitable side. You wanna make sure, I mean, to be honest with you, I've often said to people, if all we cared about was making the most money we could, we would not even be doing any planning. We would just invest people's money. But, you know, come back to the mission. I think the mission or purpose of any family office firm is to make a positive, meaningful, lasting difference in the life of a family. And you can't do that by just focusing on the investment. - No, there's too many moving parts outside of just managing the money, right? The money is not the client, the family is the client. And to do proper planning for them, to put a governance structure in place, to make sure that the next generation will be educated and emotionally mature in heriters of wealth and will be in a position to steward the wealth throughout multiple generations. you can't just manage the money and have that happen. - That's what we call air preparedness and that's a really critical part of multi-generational families where you've got enough resources where they could go on for multiple generations. It doesn't happen by accident. It takes a very deliberate planning. You know, I've often said that money always transfers with a message and whether you craft that message explicitly or you just let it be assumed, it's going to transfer the message. And so we think it makes sense to actually craft the message, share it explicitly with the next generation, make sure they're prepared. But that's all part of what a family office really should be looking after. And so when you talk to other, talk to family offices about what they're gonna be doing for your family, you wanna ask the questions about that area that we call family continuity. It's not, has nothing to do really with technical investment management or technical tax planning. It's all about family dynamics, healthy families, transferring the right, different types of capital, if you will, not just financial capital, to the next generation. And that's a critical part of what any family office really should be doing. And this is why it makes it very hard for us to craft an elevator pitch for what we do. Because there really are, there's so many parts to it. And it's hard to just pick out one area that's important and say, yeah, that's what we do. It really is, it's all of these pieces together. And we really believe that they are all so critically important for wealthy families. - And you know, it's important that, regardless of the reason that a family comes to you as a family office firm, you have to treat them all equally important, importantly. It doesn't matter if the key issue are family dynamics issues, where they just need to communicate better, or whether their tax planning's been not very good, or their investment performance has been weak. And every family's got what we'll call a pebble in the shoe, if you will, as we call it. And we need to deal with those things, but every family is valued, and whatever the need is, we need to meet that need. And we can't sort of say, well, we don't really want to do that work. We don't want to do that kind of work. We just want to do this kind of work. It needs to be holistic to serve the family best. - Tim, thanks so much. This was great. - Thanks Adam. I hope you enjoyed today's conversation. Thank you so much for listening. Our family office is Canada's first purpose built, shared family office, and the our family office podcast is produced by Henry Shoe. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to like, comment, and subscribe, so you don't miss an episode. See you next time. The information in this podcast is presented as a general, educational, and informational resource only. While certain participants in this podcast may be registered to provide investment advice as a representative of our family office Inc. It's self-a registered firm in certain Canadian jurisdictions. This podcast does not provide individualized investment, financial planning, legal, tax, or insurance advice. Nor is it meant as a recommendation to any listener to buy or sell any specific securities or otherwise take any other investment action. 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