FA Magazine May 2023 | Page 37

Creating The Scaffolding Of The Family Office
It ’ s important for these firms to keep a number of things in mind :
They must set their mission , vision and purpose . Too many family offices jump straight to deploying capital without having a North Star . They have to start out with key “ existential ” questions : Why does this business need to exist ? Is the goal to maximize returns ? Is it to invest in industries where the family already has strong connections and heritage ? Is the office ’ s mission to drive societal change ? It ’ s import to their success that they have a crystal-clear view of their goals .
Teams can ’ t neglect family governance . To manage the expectations of family members , every family office should have a constitution , employment policies , in-law policies and spending policies . This allows for clarity of expectations and a framework for conflict resolution . Collectively , these policies will promote a stable foundation for day-to-day operations .
It ’ s important for the family to determine which members will play a role in leadership , investing , giving and governing . And they must set guidelines for what each of these roles mean , assess who is capable of filling them , and describe how the founder or family members should interact with the business . Without a clear definition and behavior to match , family office teams can become paralyzed by the owners ’ meddling and the unclear lines of authority .
Teams can ’ t neglect corporate governance either . Like any business , family offices should have formal governance and clear decision-making processes . An investment policy statement should clearly specify the areas where the team can make decisions autonomously , and where decisions need to be elevated to a “ higher power .”
For more formal periodic reviews , or to make decisions on investments and opportunities “ outside the norm ,” families should strongly consider structuring a board or investment committee with qualified independent directors who can bring a fresh perspective on outside best practices , help the business see around corners , and fill in gaps in expertise that the family and the team in place don ’ t possess .
Offices have to be thoughtful about insourcing and outsourcing . The remit of a family office is vast : No organization can have unique competitive advantages or cost efficiencies in all the things they do , so the family and team must be deliberate about what should be both insourced and outsourced . There should be a focus on outsourcing commoditized functions , while the office should build unique capabilities to advance the inhouse part of their mission .
The Scope of A Family Office
Strategic Services
Family & Education
NextGen Education
Governance
Succession Planning
Technology
Tech Platform & Control
Family & Business Information Continuity
Cloud Computing
Tax & Wealth Planning
Tax Compliance
Tax Planning
Wealth Transfer Planning
Investment Structure Design
Charitable Giving
Foundation Mission & Strategy
Family Foundation Operations
Due Diligence Follow Up
Charitable Giving Outreach
Legal
Monitoring Of Outside Council
Document Preparation
Regulatory Compliance
Contractual Review
They need to get the team and incentives right . Since trust and privacy are so critical and recruiting can be challenging , family offices often enlist “ trusted stewards ” ( accountants , friends or longtime employees ) to work in them . But if these are not the right people to lead the team or pursue the mission , it can cause problems down the road .
They have to measure what matters . It
Investments
Investment Policy & Guidelines
Asset Allocation
Manager Selection & Oversight
Direct Investments
Research Performance Benchmark ’ g & Reporting
can be difficult to define and measure ( and capture ) success . Frequently , family offices measure it in investment returns , and the governance is aligned with that . But these are multifaceted organizations , and the metrics should reflect that . The office also has to look at risk , returns , liquidity , transparency , efficiency and progress in its the mission .
While these steps seem to simplify what ’ s actually a complex industry , it ’ s shocking how many family offices don ’ t address these basic aspects of business management .
But the number of family offices is set to continue its dramatic expansion , and regulatory scrutiny will only increase , so the industry must mature with its growth . Every family office should be thinking of itself not only as an “ office ,” but as a “ business ”— and with that , there
Risk Mgmt .
Insurance
Fraud Prevention & Protection
Security Cyber Risk
Financial Controls
Family Finance Operations
Concierge Services
Property Mgmt .
Communications
Bookkeeping & Reporting
Cash Mgmt .
Budgeting & Forecasting Analysis
Human Resources / Talent
Office Procedures & Policies
Mgmt . of Operating Companies
is a need for good business management . By using the best practices for strategy , governance and education , these offices will be poised to maximize their investment returns while effecting positive change in society .
LIZA TRUAX is a partner at family business and family office advisory firm Wingspan Legacy Partners .
MAY 2023 | FINANCIAL ADVISOR MAGAZINE | 35