Considering a family office? Here’s what you need to know

Family finances

Families can benefit from having dedicated staff to manage their wealth, but there are key factors to consider.


By Alan Binnington, Private Client Director, RBC Wealth Management

Family offices are nothing new. The Rockefeller family office that was founded in 1882 is still going strong, managing some US$43 billion in assets for a range of families, individuals and global institutions. What’s new is the increased availability of multi-family office services offered by financial institutions. But what exactly is a family office, and should every family have one?

There are about as many variants of the family office as there are families. For a smaller family whose principal asset is a family business, the family office may simply be a personal assistant who, as well as dealing with business administration, assists family members with more domestic matters such as paying the cleaner and gardener, and making travel arrangements. At the other end of the scale, a large family with significant wealth may have a family office with staff ranging from investment advisers, lawyers, property managers and philanthropy directors.

Francesca Powell, director at Omnium Private, a London, UK-based firm that provides executive assistance to private clients, says many family offices have humble beginnings similar to the Rockefellers. “Lifestyle services can be an integral part of how family offices start. Institutionalising these services has been a trend, assuming that you can deliver when family members need you most,” she says.

Wealth determines the type of office required

Once a high net worth (HNW) family determines the need for a family office, the first consideration is the volume of work and the attendant cost. While it’s tempting to dispense with third-party advisers and administrators to bring everything in-house, underutilised staff may not be worth the cost. “The general rule of thumb is that it typically costs about 1 percent of the assets being administered,” says Mike Reed, managing director of the multi-office family team at RBC Wealth Management London. “If you think about a family with £15 million in net wealth, they may not be able to hire beyond a very small team.” It may be more efficient to confine the family office to a limited number of key services, and to bring in other third-party service providers as needed.

The next consideration is breadth of knowledge. Hiring an in-house lawyer, for instance, might not make sense if that individual lacks a broad range of legal expertise. Similarly, an in-house investment manager might not have access to all the research tools of an external adviser. Therefore, it may be a more effective to hire specialists to liaise between the family and external advisers.

“We have found that a specialist team of lawyers who understand and work together on family offices can be a very efficient complement to a lawyer on staff,” says Ashley King-Christopher, partner at law firm Charles Russell Speechlys in London. “Using external counsel also maximises the family office’s access to the protection of legal professional privilege, including the confidentiality of their communications with and advice from their external counsel.”

In an arrangement like this, the in-house lawyer doesn’t provide all the legal advice for the family but instead ensures that the external lawyers are properly instructed and effectively managed. Similarly, the in-house investment expert can provide appropriate input in relation to manager selection and monitoring, rather than making all the investment decisions themselves.

For families with significant wealth, their assets may be sufficiently large and complex to justify a team with wide-ranging expertise. Families may also consider joining with other families to establish a multi-family office, which can create economies of scale. This is effectively what the Rockefeller family did, albeit over a period of more than 100 years.

The pros and cons of pooling resources with other families

A major advantage of a multi-family office is the sharing of overhead costs. A multi-family office makes it possible to fund a wider range of expertise than a single family office.  It also makes it easier for the professionals to provide truly objective advice because their livelihood is not tied to one particular family.

There are, of course, drawbacks. Those concerned about privacy and confidentiality may be wary of exposing the family business to outsiders. This is particularly the case where some family members may have a formal role within a multi-family office and other families do not want them to know intimate details about their affairs. Conflict may also arise between the families, and this can prove difficult to manage, particularly if one family is more dominant. However, as the number of families sharing the office grows, the multi-family office becomes increasingly more like a financial services institution.

How multi-family offices benefit high net worth families

Financial institutions that offer multi-family office services cover a broad spectrum. They may provide dedicated teams servicing individual families, drawing in additional expertise as required, and deploying team members to assist other clients during periods of reduced activity. Alternatively, family office services may simply mean that the institution provides some of the services that a family office would typically provide, such as fiduciary administration, as well as investment and philanthropy advice. The investment function is often outsourced, though this also varies widely from a fully discretionary mandate to an execution-only service.

HNW families often give significant thought to succession planning, creating structures such as trusts or foundations to hold the family’s wealth or shares in the business. It is common for the trusteeship or the provision of council members to be outsourced in order to provide a degree of independence of individual family members. On occasion, this may be done in conjunction with a family council or family charter.

Many families set up philanthropic programmes, which they may coordinate through their own staff, although a number of financial institutions now have specialist philanthropic teams to assist them. With growing interest in impact investing for philanthropic ventures, financial institutions are starting to apply more conventional investment methodologies to the selection and monitoring of charitable projects. They can also help families articulate their goals and assess how well they are achieving them.

Using a mixture of in-house and outsourced services can provide a useful check on the dependency of the family on their family office. It’s not unheard of for family members to resent the degree of control wielded by the chief executive of their family office. This is often the case where families have failed to identify or communicate their objectives to the chief executive or the wider family group. A family constitution and council can assist in resolving disputes and reducing tensions, ensuring that the family office can concentrate on its administrative responsibilities.

Family offices become more essential as needs become more complex

Families with relatively simple assets find it useful to appoint someone, whether family member or staff, to coordinate external advisers. As the asset level and complexity increases, so too does the case for establishing a multi-family office or outsourcing select services.

Either way, it’s useful to consider which functions could be outsourced, whether for reasons of cost or complexity. HNW families should also consider creating a family constitution, or at the very least a mission statement coupled with a family council, to reduce the likelihood of the family office becoming embroiled in dispute.

Whether it is small or large, managed in-house or outsourced, a family office should always be driven by its ultimate goal: to align interests, make it easier for the family to manage its assets, and enhance communication and cooperation.

This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.

The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.

This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Royal Bank of Canada.

Clients of United Kingdom companies may be entitled to compensation from the UK Financial Services Compensation Scheme if any of these entities cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. The Channel Island subsidiaries are not covered by the UK Financial Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands) Limited in Guernsey and Jersey are covered by the respective compensation schemes in these jurisdictions for deposit taking business only.

Let’s connect

We want to talk about your financial future.

Related articles

What’s your multi-family office’s personality?

Family finances 8 minute read
- What’s your multi-family office’s personality?

How trust beneficiaries can navigate disputes

Family finances 7 minute read
- How trust beneficiaries can navigate disputes

How to support the next generation during a recession

Family finances 9 minute read
- How to support the next generation during a recession