Advisor reflects on why the industry is ill-defined and outlines its key characteristics
In the last twenty years, the rise in worldwide wealth has been reflected by the growth in the number of organizations tasked with simplifying the wealth and lives of the world’s most affluent families – family offices. The 2020 Global Family Office Report by UBS, a survey of family offices spread across 35 countries, found that 69% of family offices surveyed were established in the past 20 years
Worldwide wealth is continuing to increase. The 2020 Wealth-X Billionaire Census notes that the billionaire population increased by 8.5% globally in 2019. In Canada, our billionaire population grew by 2.2% to 46. As more families contend with significant family wealth and the increasing complexity surrounding this, we can expect to see sustained growth of the family office industry and demand for ultra-personalized services.
Single family offices are the most traditional and well-known structure of a family office. It is generally held that only families with $100 million in investable assets or a net worth of at least US$1 billion can justify and sustain the cost of a single family office. This cost is commonly cited as representing roughly 1% of the total assets under administration.
It is not known exactly how many single family offices exist. When we look at Canada and consider that only billionaires or families with at least $100 million in investable assets can sustain the cost of this model, it is tempting to claim that we at least know that there are only as many single family offices as there are families that meet these criteria. Just like the industry itself, this may not be as clear as it seems.
Let’s look at some examples of single family offices. Though the family office industry is not new, it is ill-defined. There is good reason for this, as serving a single family means that these organizations mirror the unique circumstances of the family. Single family offices are inherently unique, just as no two families are the same.
As a family’s wealth and the complexities surrounding it increase, it makes sense for the family to approach a trusted advisor to centralize the management of their family’s affairs. The creation of a single family office can be the ideal solution for these families. Wealth management is the cornerstone of the family office, and it is not unusual for this trusted advisor to be an investment manager, accountant, or lawyer. Though not insignificant, it is clear that the resulting cost of this level of single family office can be sustained by families who do not meet the threshold of US$1 billion.
On the other end of the scale of single family offices are those such as Bayshore Global Management, the single family office of Google co-founder Sergey Brin. With a net worth of $86.5 billion, according to Forbes Real-Time Billionaires List at the time of writing, you can be sure that Brin’s single family office far exceeds a single trusted advisor. As reported by Bloomberg News last month, Bayshore Global Management has multiple offices globally, recently expanding into Singapore. With such a divergence in the organizations operating as single family offices globally, let’s identify the staples of a single family office.
1. Serving a Single Family
The distinguishing feature of a single family office is in its name – it serves a single family.
2. Unparalleled Customization
The family chooses the specific services their family desires and the individual professionals that provide these services.
3. Dedicated Service
The family is guaranteed the sole attention of the professionals they engage.
4. In-House Services
Single family offices, by their nature, have services that are provided in-house. However, even the largest single family offices do not exist in complete isolation. It is necessary for in-house employees to consult with external specialists with nuanced knowledge of particular issues as they arise.
5. Wealth Management as Core Service
As the need for a family office arises alongside an amassed net worth, wealth management becomes a core service of a family office. This generally includes investment management, tax planning, estate planning, and insurance planning. Does every single family office provide these services? The short answer to this is no. Single family offices may offer less, or extensively more, services than these standard wealth management functions.
In Canada, the term family office is not regulated. In the current climate, to be called a single family office simply requires a single professional that provides services to a single family of wealth.
When we look back at our often quoted rule of thumb that families require a net worth of at least US$1 billion or $100 million in investable assets to sustain the cost of a single family office, it is clear that this term is generally used today to distinguish a model which is extensively more than these minimum requirements.
In my next series of articles, I will explore the multi-family office model, how it may be easier to be considered a single family office than a multi-family office in Canada, and why despite this, some single family offices are converting to the multi-family office model due to their additional advantages.
Marvin J. Schmidt (CIMA, CFP, TEP, B. Comm) is the Founder, First Vice-President and Senior Investment Advisor of The Schmidt Investment Group at CIBC Private Wealth Management, an award-winning multi-family office and wealth management practice in Canada. Marvin is recognized as a top wealth strategist and leader in the investment industry in Canada. In 2020, he received the award for Canadian Advisor of the Year in the national Wealth Professional Awards.
Visit www.TheSchmidtInvestmentGroup.ca to learn more about Marvin J. Schmidt and The Schmidt Investment Group.
CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc. “CIBC Private Wealth Management” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. Marvin J. Schmidt is a First Vice President and Senior Investment Advisor with CIBC Wood Gundy in Edmonton. The views of Marvin J. Schmidt do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.