It takes a lot of time and dedication to establish and build wealth, whether it was acquired personally or inherited through sudden wealth. After all that hard work, it would be a shame for it to be squandered. Successful people know it’s easy to get on top, but hard to stay on top! So, what do you do to ensure your wealth remains intact? There are a variety of wealth management solutions available to affluent Canadians, one of which is a single family office.

In this article, we’ll explore what a single family office is and how it contrasts to other similar options, like private banking and multi-family offices. We’ll also cover the pros and cons and aspects to consider when determining if a single family office is right for you. Keep reading to learn more!

Related Reading: Small Business Tax Deductions in Canada

What is a single family office?

A single family office provides financial services to an ultra wealthy family. Their operations are very narrow in contrast to other wealth management firms. Their sole purpose is to exclusively manage the financial and personal needs of the members of the family.

Furthermore, a single family office has the following responsibilities:

• Manage financial and personal affairs. A single family office behaves like a private concierge for families. Much of this involves financial affairs, like collecting payments, paying bills and bookkeeping. However, it can extend to personal affairs too, like scheduling vacations, security management for properties, helping with hiring or termination processes, and so on. Ultimately, a single family office is highly customizable in the services they provide. 
• Bookkeeping and taxes. Affluent families require someone to help out with bookkeeping, which a single family office might handle. They might also prepare and file returns for tax purposes. In some cases, this is outsourced to an accounting firm, but it depends on the needs and preferences of the family. 
• Legacy and estate planning. Wealthy families have spent a lifetime establishing and building wealth. This creates some obstacles for preserving wealth for future generations and maximizing the legacy once senior members pass. A single family office helps you plan for estate hand off and continuing legacy. 
• Investment management. A single family office typically handles investment portfolios as well. This could be making buy and sell decisions, tracking gains and losses, and bookkeeping related to investments. 
• Education. Families who successfully perpetuate their wealth educate each of their younger generations about money management. This means passing on family values and how they prefer to manage their money. For the rich, money is still finite, so it’s important to educate and instill values into younger generations so wealth is preserved at the source. Often, a single family office helps out with this process. 

What is single family office vs multifamily office?

A single family office provides financial services to a sole affluent family. In contrast, a multi-family office (MFO) serves various families with wealth. A MFO behaves similarly to a traditional private wealth management firm. Whereas a single family office caters to one family, not many. In essence, it’s sort of like an employee or contractor who handles the financial affairs of the family. 

A MFO is much more commonly found due to the economies of scale that comes with sharing costs between several clients. In addition, they typically offer a higher quality of service because of education, developed skills, and expertise running a full time business. A single family office is much more narrow in scope and may require more involvement from the family members. While this can be more time consuming, it might be favorable to families who want to remain close to their financial affairs. 

What is the difference between a private office and a family office?

A private office is a division of a larger bank or financial institution that caters to high net worth individuals. They aim to deliver customized solutions while still sharing the cost and resources of the various clientele within the larger entity. For instance, Scotiabank has a private office for their clients who are high net worth individuals. A dedicated person is assigned to a wealthy person’s portfolio to handle investments, banking, payments and so on.

On the other hand, a family office is not connected to a bank or financial institution. Rather, they are a standalone entity setup for the purpose of catering to the family’s financial and personal needs. The downside of this setup is the single family office doesn’t have access to the resources of the bank or financial institution. This means higher costs to operate and reduced access to industry knowledge. But on the plus side, the financial setup faces less bureaucracy and is far more customizable to the family’s needs. We’ll take a closer look at the pros and cons of a single family office in the next section. 

Related Reading: What is power of attorney?

What are the benefits of a single family office?

A single family office has numerous advantages, as listed below:

• Highly customizable. It is up to the family’s discretion to determine what responsibilities a single family office oversees. This customizability can be advantageous to ensure your family’s operations runs smoothly and the services are useful. 
• Privacy and trust. A single family office usually means you’re dealing with one person, or a small group of people. This allows for more privacy and trust since the relationship usually lasts a lifetime and is completely under your control.
• Less bureaucracy. Working with banks, financial institutions, and wealth management firms comes with a certain methodology that is often bureaucratic. A single family office can bypass this factor and allow you to handle your financial affairs however you see fit.

What are the disadvantages of a family office?

On the contrary, there are some drawbacks of family offices to consider, as follows:

• Higher costs. It costs more money to start and continue a single family office because there is no cost sharing between multiple clients. 
• Demanding setup. The family must decide how they want the single family office to be setup and operated. This can be really demanding, especially if the family isn’t already well versed in financial management. You might make more mistakes while learning the appropriate workflow than if you work with established, seasoned professionals. 
• No regulation. Banks and financial institutions are subject to laws and regulations that impact their operations. While this allows for less bureaucracy, there is greater risk since single family offices are not subject to the same level of regulation.

How does a single family office work?

A single family office focuses on catering to the financial needs of one affluent family. Their sole and primary focus is overseeing financial affairs of members of the family. In some cases, their reach may extend to other personal affairs that overlap with finances, like travel management or property oversight. Often, wealthy families seek out single family offices as a solution to unique financial circumstances and the ability to centralize and control their assets. 

Moreover, a family office does not manage multiple portfolios for numerous families. In addition, they do not work under larger entities, like a bank or financial institution. They are a stand alone entity set up for the purpose of catering to a specific family. For this reason, their services are customized to the needs of the family and often come with a higher price tag as a result. 

Is a single family office regulated?

No, a single family office is not subject to the same regulations that banks, financial institutions and wealth management firms are subject to. Rather, they are private practices and the respective management is determined by the oversight of the family. For this reason, the family should take care to understand financial principles, like internal controls and separation of duties, to ensure their wealth is protected. In addition, they should ensure they have a close relationship with the single family office, particularly in the beginning, to establish and build trust in relation to their finances. Ultimately, there is more risk when working with a family office because of limited regulation. Families interested in using this service should proceed with caution.

Related Reading: The Important Role of Central Banks

Choosing Wealth Management Solutions 

The type of wealth management solution you choose for yourself and your family depends on your needs and preferences. Some prefer to use a single family office, whereas others need private banking or a multi-family office. When choosing a wealth management solution, check in with your family values, objectives, and needs. This will help you choose an option that works best for you. 

If you need help choosing a solution for you and your family, Wealth Management Canada is here. Complete this quick questionnaire to find a wealth management solution today!

Read More: Wealth Management Importance: The relationship with your wealth manager