For the ultra-wealthy, creating a family office offers several benefits, such as immediate and daily access to a dedicated team of professionals, risk centralization, wealth preservation, and, most importantly, a dedicated office allows a family to focus on its own wealth mission and legacy. As the population of ultra-high-net-worth individuals grows, more wealth creators are considering the single-family office option. But creating and maintaining a family office is no small feat. Single-family offices can be costly to create and maintain, come with “do-it-yourself” risks and can be hard to unwind once created.
Successful family offices have one thing in common—they are built on a thoughtful, deliberate foundation. Below are some of the foundational building blocks required to establish (and maintain) a high-value family office.
Understand the Family’s Vision and Review That Guiding Principle Regularly
A critical first step when creating a family office is to understand the who, the why and the what of the office and, just as important, to commit to a practice of revisiting these questions on a regular basis to ensure the answers still make sense and office stakeholders are still in alignment with those answers.
- Who are we and why do we want to work together with our own office? As the family office executive charged with setting up the family office, it is important that you spend time getting to know the family, their history and their current needs. If you understand the past and present, you can better prepare for the future.
- Why do we have a family office? At the outset, it is important to understand why the office is being created. If the principal or family has not already defined the vision of the office, you can help them craft these important guiding principles. Be sure to validate (and periodically revalidate) the vision with all stakeholders—family, staff, vendors and advisors—to ensure clarity of purpose and to set expectations for what the office will and will not be doing.
Make Formal Governance a Priority
A well-thought-out governance structure and process is one of the most critical building blocks of any family office. Clear lines of distinction between management and oversight and policies around reporting and responsibility can set expectations and minimize conflict or confusion down the road. As you develop your governance structure, carefully consider the distinction between governance (setting strategy and conducting oversight) and management (getting things done) and draw clear lines. This line drawing is often hard work for families. After all, it is their office, which is why family and staff should not be afraid to enlist the help of outside professionals when drawing the lines of authority.
Establish a Mission for the Office and Review Operational Tasks Regularly
Once the vision (answering the who and the why) for the office is set, translate that vision into a tactical mission for the office. What does the family want the office to do? Does the mission, the operational things the office is being asked to accomplish, align with the family’s vision for the office? Again, be sure to validate (and periodically revalidate) the mission with all the office’s stakeholders.
Run the Office Like a Business and Create Formal Management Plans
With a mission in hand, how is the office now going to get things done for the family? Every business should start with a business plan, and a family office is no exception.
Don’t just go to work. Be planful. Within the business plan, there may be several components or stand-alone plans to guide and align the thinking of the family and office staff, such as:
- Budget and fee-/cost-sharing plan
- An inventory of legal structures (LLCs and trusts) and the controlling fiduciaries
- Operations, staffing and vendor plans—mapping out who does what and how much it costs
- Investment philosophy statement, investment platform description, investment policy statement(s)
- Client service standards defining the work that will (and will not) get done for the family
- Risk, compliance and audit plans
- Family communication and client satisfaction survey plans
There is no single “correct” way to do this planning. In fact, the plans themselves may be less important than the commitment by family and staff to be “planful,” organized and deliberate about the work of the office.
Always Be Thinking About Succession and Enlisting the Next Generation
It might seem too early to begin thinking about succession plans and the next generation, but the most successful offices are constantly planning—some even have formal learning and development programs in place—to help nurture the next generation of family and staff leadership to ensure the longevity of the office. This succession work should be thought of as equal parts management training, risk mitigation and next-generation education.
Families that are fortunate enough to have created—or are considering establishing—a family office have an opportunity to do more than just solve today’s tactical problems. They can lay the foundation for an organization that will support the family and its legacy for generations to come. But to do so requires a commitment to a process and continually revisiting fundamental decisions on a regular basis. Obviously, there are myriad other decisions, big and small, to consider when starting a family office, but these building blocks can be the foundation to establishing a high-value office that grows with and serves multiple generations of the family.
William Parizeau is head of Fidelity Family Office Services.