Role of the Family Office
Some family offices are simple, consisting of a registered investment advisor and a few ad hoc services. Others are complex, involving many non-family advisors and 3rd party external service providers. No matter the size of your family office, the dynamics will be complex. The family office’s role is to serve the family and manage its assets. Here are five ways to implement this and build trust between the family office and the family.
Trust is the Big Picture
The family office has to manage the family’s assets, and its staff primarily interact with and answer to the family’s decision-makers. However, the family office is also engaged in serving the interests of the family as a whole. It may even negotiate differences among family members. Ultimately, the family office should hold a big picture view to empower the whole family to flourish. As the role of family governance and education comes to the forefront of family’s needs, the family office is now expected to help build the qualitative wealth of the family, such as leadership skills in the rising generation and relationships between generations.
With such a tall order, it is easy to see how family members could feel dissatisfied with the family office when the family’s expectations do not match the services provided by the family office. Dissatisfaction stems more often from a mismatch of expectations, or even mistrust, than from an objective evaluation of performance. Thus, it is imperative for the family office to build trust with the family. It can do this through clear and positive expectations, communication, and outcomes.
1. Anticipate Needs
Wealthy families and the family offices that serve them each have plenty of reasons to be buried in their day-to-day tasks. Family office staff members may often find themselves simply reacting to projects the family drops in their laps. Or they may struggle to catch up on routine administration, paperwork, investment activity, and accounting.
However, in order to fully serve the family, the family office needs to spend time thinking about what might be coming next. For example, many families are facing an imminent transition of generational leadership as the boomer generation retires. Has your family office helped the family develop a succession plan and training opportunities for the rising gen?
Another area on which to think ahead is talent. It takes foresight to predict for, attract, and retain top professionals. Spend time considering how to develop the family office’s talent. What do you want your team to look like in the next five years in order to better serve the family’s needs. Anticipating needs applies as much to the family office as it does to the family itself. Investing in the family office’s human capital will let the family know you are serious about providing the best services possible, ultimately for the family’s human capital growth and development.
2. Focus on Family Members
It is easy for family office staff members to get caught up in managing assets and dealing with compliance issues. Take the time to focus on family governance and education by scheduling specific meetings that allow family members to work through personal goals and aspirations.
An education curriculum does not have to be complex to be effective in raising the general financial literacy of the rising generation. For example, you could hold monthly sessions in which a family office member, family member, or another external expert presents on a topic. Keep the lessons engaging and interactive, on a topic that is of broad interest.
Keeping the family engaged with governance could be something for a Family Assembly or Retreat. Spend time together reading, writing, or revising a family constitution. Make sure that family members are all in agreement on the mission and vision of the family. It will be much easier for the family office to serve the family if there is clarity about where they want to be in ten years and beyond.
3. Cultivate Team Mindset
The family office is an interesting hybrid of personal and professional. Each family and family office will have its own style and relationship. One thing is necessary, no matter the setup: the relationship needs to be a team. The family office–whether serving a single or multiple families–has to see itself as part of the family team, not merely as a professional entity providing services to a client.
When the family members know the family office staff is on their team, they will recognize the importance of working together to accomplish goals. They are also much more likely to trust the family office. When conflict does arise between family members and the family office, resolution of that conflict will be much more successful if there has been proactive and ongoing communication between both parties. Unless there has been a prior total breakdown in trust, there is likely a path forward together.
4. Be Calm and Confident
No one likes to be around others who are frazzled and appear on the breaking point. Family office staff may indeed have these feelings on the inside. However, it is critical that they master those feelings and provide that sense of calm and confidence. If they do, family members will be more comfortable to approach them and know that whatever they need will be taken care of. Of course, in order to be confident, you need to be prepared. Spend the time to get yourself prepared for whatever is on the agenda. Family members appreciate it when you have taken the time to prepare yourself for them.
When speaking to family members, family office staff may want to spend a couple minutes in chat and pleasantries before launching into business. If the family member prefers to-the-point conversation, that is good as well. However, provide context for the communication and project confidence. Not only will this build rapport, but it will put the family member at ease. Always begin from a place of calm rather than panic, even when delivering some “bad news.”
5. Act Like Professionals
Competence and good outcomes form a large part of trust in a relationship. The family office space was once exemplified by the saying, “If you’ve seen one family office, you’ve only seen one.” While families still have unique needs and want personalized services, the landscape has changed. Over the past two decades, organizations such as the Family Office Exchange have identified best practices for the family office. Out of this structure comes the responsibility for family offices to professionalize the quality and broaden the scope of services.
In their groundbreaking 2022 paper Wealth 3.0, Grubman, Jaffe, and Keffeler argue that we are now at a time in which family offices should be professionalizing their services. This includes collaboration. At a time when family offices are moving into virtual offices, how does this look? One possibility is the use of a private family trust company to act as the family’s hub for integrating 3rd party services providers, family office employees, and family members. This way the family can retain centralized governance over the family office and trust assets, while being able to make use of the best talent and expertise that 3rd parties have to offer.
Demands on family offices are complex, but they also have great possibilities and resources available. Tapping into these possibilities requires partnership with the family–a partnership gained through trust. With these five steps to building trust, the family office is poised to provide top notch services for generations to come.