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
Family & Education
Tech Platform & Control
Family & Business Information Continuity
Tax & Wealth Planning
Wealth Transfer Planning
Investment Structure Design
Foundation Mission & Strategy
Family Foundation Operations
Due Diligence Follow Up
Charitable Giving Outreach
Monitoring Of Outside Council
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
Investment Policy & Guidelines
Manager Selection & Oversight
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 .
Fraud Prevention & Protection
Security Cyber Risk
Family Finance Operations
Property Mgmt .
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