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 multiple non-family advisors and external service providers. No matter the size or structure, the dynamics of a family office are always multifaceted. The role of the family office is to serve the family and manage its assets while supporting long-term success and harmony. Here are five principles for building a family office team and establishing trust between the family and its advisors.
Trust is the Big Picture
The family office is responsible for managing the family’s assets and interacting directly with key decision-makers. But it can also serve the entire family’s interests, including resolving internal differences when necessary. A high-functioning family office holds a big-picture view—one that empowers all family members to flourish.
Increasingly, family offices are now expected to counsel on family governance and education topics. Family office advisors are therefore tasked with helping build the family’s qualitative wealth: leadership skills, communication, and intergenerational relationships. While we believe this is a good direction for the family office industry, it does come with its challanges, as qualitative wealth is more difficult to define and success cannot be numerically analyzed. As a result, a conflict may arise between the interests of the family’s quantitative and qualitative wealth. If priorities and goals have not been clearly laid out ahead of time, a there may be a misalignment between expectations and services provided. The resulting dissatisfaction with the family office may occur not because of incompetence, but because of mistrust and a lack of communication.
To succeed, the family office must build trust through clarity, transparency, and reliable outcomes. A trusted family office team begins with shared goals and ongoing, respectful communication.
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 baby-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, confidence requires preparation. Spend time as a team to thoroughly prepare for whatever is on the agenda. Also, try to anticipate what is on the family’s mind and unplanned topics of conversation. 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.
Summary
The demands on today’s family office are substantial—but so are the opportunities. When the family office team commits to trust, professionalism, and proactive service, it becomes a true partner in generational success.
By following these five principles for building a family office, your team can build trust, deliver meaningful value, and support the flourishing of your family for generations to come.