How to build your family office for the future

Along with the families they serve, family offices are always evolving. Or at least they should be, experts say, if they want to meet the complex issues that lie ahead.

In their 2023 book, Wealth 3.0: The Future of Family Wealth Advising, U.S.-based authors James Grubman, Dennis T. Jaffe and Kristin Keffeler sketch out the evolution of family offices in North America.

Before the 1980s, during the “Wealth 1.0” era, the founder of the family enterprise usually held sway, with minimal family involvement. He—and it usually was a “he”—was advised mainly by technical specialists in law, taxation and so on.

With the turn of the millennium, however, came a new emphasis on the family, with broader representation across the generations. In addition, a broader range of professionals began offering guidance, and the emotional and human aspects of wealth management emerged as worthy of discussion.

Today, we are entering a third stage, according to the authors. “Wealth 3.0” fosters greater collaboration among advisors and establishes the sector “as a true professional field, with standards and accepted practices built upon a solid foundation of education, training and research,” they write.

As this new landscape unfolds, what qualities will Canada’s family office professionals need to succeed, and how will they meet new challenges and increasing complexity? We asked three Canadian experts for their thoughts.

Wealth transfer and its implications

Many things in this world are unpredictable, says Tom McCullough, chairman and CEO of Northwood Family Office in Toronto, “but how long people live is relatively predictable, and this transition is actually happening.”

He is referring to the estimate that by 2026, Canada will have seen a historic wealth transfer of more than $1 trillion in assets from older generations to their heirs within just 10 years.

“If family offices are going to survive for the future, they are going to have to figure out how to serve the needs of multiple generations,” he says. That means building a staff that understands younger family members and can help educate them effectively.

Families are changing in other ways, too.

“It’s not just transition, it’s globalization,” McCullough adds. “Now, people have blended families. There are different definitions of gender. When you get to estate-related issues and spousal trusts, it gets far more complicated, and family offices have to be increasingly good at managing complexity.”

Finally, McCullough says, “If family offices are going to adapt going forward, they always have to stick to first principles: You have to be trustworthy and independent. The main thing that we’re trying to do is serve the family and give them someplace that they can trust.”

Multiple skills needed

In the near future, an advisor’s skills will need to be multifaceted, says Patricia Saputo, a Certified Wealth Transition Coach and CEO of Placements Italcan Inc. in Montreal. She is also co-founder, executive chairperson and strategic advisor to Crysalia, a consultancy that helped her own family office and now assists others dealing with succession, governance and other issues.

“Training will be on the skills and human relationship side, and about being able to blend the two to ensure that communication flows both ways,” she says. “It is not just about the financial and investment capital, but also the human, social, intellectual, symbolic and cultural capital that need to be blended.”

Services will be increasingly tailored to the family’s needs, and therefore staffing “will need to adapt to the changing needs of future generations.”

Also, single-family offices offices will need to ensure that a “bridge” exists between the office and the family members so that their needs are met. A family member should hold the role of “family champion,” Saputo says.

Alignment and education

At each generation of a successful family, three factors tend to work against the successful transition of intergenerational wealth, says Carolyn Cole, founder of Cole and Associates, a Vancouver- and Toronto-based firm that provides family office strategy and design.

“One is lack of alignment,” Cole says. “Second is lack of communication around decision-making. Third is failing to ensure that all the stakeholders have baseline education on the topics they will have to make decisions around.”

To stay relevant, “the single-family office needs to find alignment at each generational level and to close the experience gap between the founding leadership and the next generation,” she says.

Cole says that multi-family offices must learn “to engage each generation to find alignment” and “to purposefully educate, one-on-one, future inheritors based on their individual learning styles and living geography.”

Many multi-family offices are heavily focused on their own geographic location, she says, but don’t have the ability to support families that are spread around the world.

Finally, Cole says, “most multi-family offices in Canada have an underlying sales product, whether that be insurance, investment, tax or legal services, and multi-family offices are currently being created to say they can be all things to all families, which may cause them challenges in delivering quality expertise in the future.

“To succeed in the multi-family office space, they will have to become open to working with their clients’ service providers that complement their expertise.”

Technology

Family offices of the future will increasingly face fresh technological challenges.

The main one is cybersecurity, Saputo says, and AI is another. “Understanding who has access to the data is important to ensure protection for the family and the wealth.”

But technology can help, too. “Reporting technology and data aggregation are important to ensure the family has the entire picture and not just bits and pieces,” she adds.

McCullough calls emerging technology a double-edged sword. “It can add ease and simplification, but it adds complexity as well,” he says. “AI is just one example.”

More women taking the reins

Cole foresees a more subtle—though no less significant—challenge for family advisors.

“Multi-family offices are often filled with very experienced men, and there is a significant trend of women taking the reins of the family wealth,” she says. “There may be a disconnect in the future between those running the wealth and those who are advising on it.”

For example, most technical service providers are focused on technical outcomes, she says.

“Tax advisors are often focused on specific numbers without considering that a tax decision can disrupt other family dynamics,” Cole says. “However, women are likely more focused on how to keep the family and the family dynamics whole. There’s a disconnect when the service providers aren’t necessarily tuned in to the way that women approach wealth.”

Regional variations

The needs of family office clients are evolving differently in Canada than elsewhere, Cole says.

“I think we’re defining something specific to Canada, which is the reason we can’t compare ourselves to any other country,” she says. She points out that “many considerations on the technical side, such as taxation, are often geographically defined.”

In Europe, she says, “some countries have more advanced service offerings, but that is because they are much further along in their multigenerational wealth transfer. North America is much newer at it.”

Saputo points out that the policies and procedures of a family office in its early stages tend to be fairly informal, but by the third or fourth generation, they often resemble those of a more institutional environment.

“In Europe, you may have more advanced single-family offices, as they have been around longer,” she says. “In Canada, [the sector] is much younger, so there are more informal SFOs that are trying to figure out the governance piece. The U.S. is somewhere in between, with obvious exceptions in each geography.”

All these considerations will be in play as the great wealth transition—and the professionals who will be advising families—evolve.

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