As English Poet William Blake once professed, “hindsight is a wonderful thing but foresight is better, especially when it comes to saving life or some pain.”
Family Office Leaders may well be incredibly successful, accomplished and well-networked individuals but their wealth and life experience does not prepare them for life within a Family Office. They are uniquely individual and widely unresearched and while offering an exciting, autonomous and personalised way to manage wealth, the learning curve can be steep and mistakes can be frequent.
With that in mind, we thought we would share the 5 things Family Office Leaders wish they knew before founding to help others embarking on a similar journey.
“I wish I spoke to other Family Offices first”.
When approaching anything in life, we like to follow in the footsteps of others. From analysing consumer reviews before making a new purchase or performing a background check on prospective employees, we like to trust the word of others before embarking on any decision and when it comes to founding a Family Office, peer discussion can be an equally as powerful thing.
Today’s Family Office Leaders say they wish they spoke to others before blindly walking into the unknown and say had they of spoken to others they would have made less mistakes, achieved best practice earlier and kept the family behind the office together.
There are no resources, no textbooks, no seminars and no universal best practice on how to run a Family Office. They may have been around since the early 19th century, coined by the family of J. P. Morgan in 1838 and popularised by the Rockefellers some four decades on, but they are still a relatively new concept. There are thought to be less than 10,000 Family Offices globally, the majority of which have grown out of the financial crisis of 2008 and ongoing disenchantment with banks. This means as a community, we have little over a decade of research on Family Offices and so without talking to another Family Office, you won’t learn much.
We spoke recently to a Family Office Leader who said had he of learned from others to begin with, he would still have a family today.
“I think families thinking of setting up a Family Office should talk to others. We have since done a lot of talking and are now members of an organisation where there are lots of families like ours, lots of very wealthy families having very open and honest discussions. When you hear them you know you are not alone. Had we had heard it before I’m not sure we would have believed it, we thought we were a very structured, happy family that everyone had bought into then all of a sudden, the whole set-up is hit by something and you didn’t see it coming and when it’s coming you are very unprepared for it.. I definitely think to be open early and hear what obstacles; visible and hidden, lay on the road ahead would make a lot of sense and keep the families behind the offices together.”
“I shouldn’t have rushed”.
High Net Worth families set up Family Offices predominantly to streamline and address their complex wealth management needs. In this instance, wealth management includes everything from investments, tax, accounting, legal, secretarial, personal, concierge and any other services that the family needs and deems appropriate for them.
A successfully set up Family Office primarily enables centralisation of all decision making. It ensures that there is a proper governance and management structure, provides privacy to the family, aligns interest, allows the family to be able to pursue their real interests and passions, reduces costs, potentially increases returns, provides delineation between the family owned businesses and the private family wealth and can be instrumental for intergenerational wealth transfers.
Setting up a family office requires a multitude of considerations and a great deal of time. What may be right for one family may not necessarily be right for another. From cost and operating market infrastructures to finding the right talent, all of these items require time and when the objective of the Family Office is to preserve wealth for generations to come, taking an additional month or even year to properly structure your Family Office with good governance, ample resources and sophisticated strategy can do more good than harm. This is what KPMG Head of Family Office London, Jo Bateson had to say:
“Do not rush as you may miss some of the nuances along the way. Articulating your strategy and roadmap will take time. Learn from peers, be patient and ensure you create something that is fit for the future and its stakeholders. My advice is to research, research, research. When you establish your business and create a strategy you commit countless hours to crafting a business plan, strategizing and thinking of the best and most effective ways to bring your vision to life. You need to do the same for your Family Office goals by establishing and articulating from the outset what you want to achieve (and what is realistically possible!), who is going to be involved, what roles they will each hold and how your strategy will come alive. And of course, making sure everyone is aligned and the vision is communicated before you even start researching the best options is paramount.”
From our experience, there is a balance to be struck between performing ample due diligence and not procrastinating. You must take the time to speak to peers, do your research and align your long-term objectives with other family members and key resources but it is equally as important to not take too long in establishing your Family Office because there are huge savings to be made
“We compromised on culture”.
We have been helping Family Offices find their perfect hires for over a decade and during that time, have been able to develop an understanding of what works well and what doesn’t. It often includes Cultural Fit and how Family Offices, often in their early stages, opt for impressive names and convenience while compromising on culture.
In the world of Family Offices, anything is possible and the professionals hired to do the unthinkable have to be problem solvers, agile and absolutely committed to the cause. Most importantly, they have to be the right Cultural Fit which is an often forgotten part of the hiring process that should really be the first step.
This is a workplace where it is more than just business, it is personal. You are recruiting into a team that is managing, growing and protecting family assets. It is an environment where your hires may be required to go above, beyond and beside what their job title suggests and above all, they must be able to fit perfectly into your family as well as your team.
This means thinking less about the prestigious university they graduated from, the Big 4 Accountancy Practice they just left or their relation to the family and thinking more about your Family Office’s organisational cultures and subcultures and thinking about who might complement those cultures by considering personality, EQ and diversity.
Family Office Founder Steven H. Hirth believes culture is everything. “Louis Gerstner who is famous for many things, the most famous being that he turned around IBM, said that his predecessors were also capable of turning around IBM except they forgot a key component which is culture and if one does not understand culture, its people and what culture means, you cannot turn around a company. Every Family has its own culture and if one does not take the time to understand the culture of its family office, it won’t survive.”
“I lost control of my funds”.
While Family Offices are unregulated entities, there are still rules to follow and some are more stringent than others. This is particularly the case when thinking to philanthropic structures and family foundations which both fall under the remit of the Charity Commission.
Every penny that is spent, donated or invested is scrutinised by the governmental body in the UK and it means once it’s in – it’s in, meaning you can plan to donate x amount but you should not physically place it into an account for that purpose until the time comes to make change.
This isn’t of course because Principals change their mind about ‘doing good’. In fact, it is actually to create greater change by being dynamic. Taking the Coronavirus pandemic as a prime example and ringfenced funds for longer-term conservation projects if earmarked within a charity could not be reallocated to make immediate change to save lives. It is important to keep your funds for giving fluid and unfortunately it is something many Family Offices do not find out until it is too late.
This is what Family Office Principal, Anders Johansson had to say: “Avoid allocating all our earmarked funding for Philanthropy directly to the Foundation as once it is in – it is in. Should your circumstances change in the future this part of your wealth is for all practical purposes, inaccessible. The Foundation is, and rightfully so, kept under the watchful eye of the Charity Commission. They may for example not always have the same view as you about what qualifies as charitable activities. Impact investments in rural Africa is a good example. Can they really be charitable? It can therefore be prudent to let your Family Office undertake some investments or other engagement where the charitable objective can become the subject of debate.”
“We didn’t think it would happen”.
While we earlier touched upon the importance of taking your time to plan and structure your Family Office. It is equally as vital you look to the future and work backwards.
Family Office Leaders are often incredibly powerful, successful and high-profile individuals who have generated their wealth in the public eye and opted to structure a Family Office in order to preserve and grow it privately. Their success and sometimes fame can often make the conversation around succession difficult and understandably so, after-all who wants to plan their takeover before they have even begun?
While it is a difficult conversation, it is unavoidable because without it Family Offices and the family behind them are left with little control after the sudden death of a leader. This unfortunately happened on more than few occasions during the pandemic. The sudden loss of a Family Office Principal meant not only did the leadership of the Family Office remain unknown but there was often little understanding of the direction and strategy of the Family Office outside of the former Principal. Their families wish they planned for the future and advise every other to do the same because they, like many, thought it would never happen.
A Family Office Director in New York spoke of the importance of succession and contingency planning, particularly post-pandemic. He said: “Even in the most recession and pandemic-proof environment from which Family Offices often benefit, professionals in the space are approaching the market cautiously. And no one can deny that this period has been a wake-up call related to contingency planning and matters of succession. COVID-19 has ignited conversations around mortality and how Family Office leaders and Principals need to seriously consider succession planning and wealth transfers. Estate and gift taxes are part of the equation but the discussion is much broader and the pandemic has accelerated the need to have these kinds of conversations (early). Principals recognise that they cannot beat mortality and it is time to ensure that their heirs are both educated and well-prepared to lead, make prudent decisions and place strong advisors around them to preserve (and grow) wealth.”
These are five simple conversations to host within your family before embarking on the establishment of a Family Office but there are many more and the most important way to discover the learning curves ahead is to speak to Family Offices and the advisors that exist within the space who see not just the workings of one Family Office but several each and every day. Do your research, ask for help and think about the impact you want to make tomorrow with your actions today.