As the leader of a 100-year-old family office I am often asked, “What are the keys to success for a family office?” The reality of course is that the answer varies by family, but if I reflect on all the families we have worked with over the last century, I think there are seven key pieces of advice I would share with anyone who is thinking of starting a family office.
1. Define the purpose
Why are you starting a family office in the first place? What is the purpose? What do you want to accomplish? What does success look like? What are the biggest risks for your family in starting a family office? Answering these questions clearly – and documenting your answers – will provide an essential foundation for your family office.
2. Be Brutally Honest
What are your strengths and weaknesses as individuals and as a family? What are you really good at and where do you bring substantial value? People often confuse this with their desire to be good at things, but that can be a costly confusion. A lot of families want to be great investors, but few are. For instance, how strong is your family as a group of investment thinkers, researchers, and implementers? What is your track record?
3. Establish Clear Governance
Agreeing on and documenting a well-defined governance framework that outlines the decision-making processes, communication protocols, and conflict resolution mechanisms for the family office is key to success. Many families jump over this step and just defer to senior family members. But this can set up the family for failure because there is no consensus and too few people actually own the decisions. By contrast, a well-defined governance structure helps a family maintain unity and ensures that everyone understands the rules and expectations.
4. Define Roles and Responsibilities
Who is responsible for what? Determine who will be accountable for each aspect of the family office, such as investment management, financial planning, legal matters, tax compliance, reporting, cash flow management, trust management, and overall administration. Clearly communicate these roles to all family members involved to avoid confusion and ensure that things get done properly.
5. Engage Professional Advisors
Seek advice from experienced professionals, including financial advisors, accountants, lawyers, and wealth managers. These experts can provide guidance on investment decisions, tax planning, legal compliance, and other key areas that are beyond the expertise of any family members. Engaging professional advisors ensures that the family office operates efficiently and in compliance with all relevant regulations.
6. Hold Regular Family Meetings
Regular family meetings provide a platform for open communication, discussion of family values, and alignment of financial goals. These meetings should include all family members and cover topics like investment strategies and results, philanthropic activities, and succession planning. Regular family meetings help foster strong relationships and enable the transmission of family values across generations. They also provide a great opportunity to facilitate clear lines of communication that builds trust among family members.
7. Preserve Family Harmony
Prioritize the preservation of family unity and harmony above all else. Develop a strong family culture based on trust, shared values, and mutual respect. Implement mechanisms, such as professional mediators or family governance committees, to address conflicts or disagreements and find mutually agreeable solutions. Fostering a positive family dynamic is probably the most important component of the long-term success of the family office.
As I noted at the start, every family is unique and will need to find the family office structure that best meets its particular needs. But following the seven steps outlined above can get any new family office off to a good start.
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