Plenty of Reasons to Make Such a Move
What used to be an obscure corner of the world of wealthy families has begun to go more mainstream over the past decade or so.
Whereas the term “family office” has existed for a long time, it used to elicit raised eyebrows of confusion, which nowadays have given way to nodding heads instead.
In many cases the confusion remains, but more people have heard the term and hence think that they know what someone is referring to when they hear it used.
Let’s dive in and look more deeply at this, from the perspective of the family who should be at the center of any family office, rather than the view of the professionals who work for such enterprises.
“If You’ve Seen One Family Office….”
Confusion about the family office space is compounded by the fact that no two family offices are alike, nor should they be.
They exist to serve a family, and every family is different and therefore has different needs, plus these needs evolve and change over time, meaning that they’re in a regular state of flux (or at least they should be).
This topic could take up an entire book (and it has) and I’m trying to hit a sliver of it in a blog post, so let’s get to the question in the title, “Why would a family even consider setting up a family office?”
On Inflection Points, Evolution, and Leadership
For a family to suddenly decide it needs a family office, there’s usually a catalyst, and the most frequent one is a liquidity event.
For readers unfamiliar with that term, think about a family that owns a business worth $100 million one day, but then sells it and suddenly has $100 million of “liquid assets” instead.
Such a family suddenly has a new set of priorities and needs, and a family office can be the ideal way to address those.
Other families create a family office when they reach various inflection points as they evolve, often when there’s new leadership in the family, thanks to a generational transition.
But let’s never forget that the family’s needs should be driving everything (although this is often the exception rather than the rule).
After the Why – When, Where, Who and How
The Why and the When are typically connected, as the event kicks things into motion, bringing up other questions.
I laugh when I see articles about the best places in the world to set up a family office, focused on jurisdictions that are advantageous for tax and investment reasons.
Regular readers know my penchant for focusing on the family’s human capital over its financial capital.
The Where may become a factor as things evolve, but is rarely a huge concern at inception, unless there are billions of dollars involved.
The main questions I suggest families focus on are all about Who and How.
Don’t Forget the Family!
I’m a firm believer in having some family members involved at some level, because the family office will be responsible for a huge amount of the family’s net worth, and like any family business, the owners can and should play an important role.
If no family member is qualified to play the top investment role or handle other important executive functions, it becomes paramount for someone from the family to at least become quite conversant and comfortable with these subjects.
There’s certainly at least an oversight role that needs to remain in the hands of competent family members.
One Person at a Time: Grow with the Flow
One of the most important parts of the How is the question of timing.
I almost always advocate for a “go slow” approach, because you really want to get the culture right.
Hiring a person and making sure they’re the right fit takes time, and when you set up a family office, you’re truly playing the long game.
You need to find competent people to fill the roles that you can’t handle within the family.
When you add more people, you want to make sure they all fit well together too, and that’s not something to rush through either.
And since they’ll all be serving your family, you’ll want more than one family member involved in the selection process too, maybe several.