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Post: Is It Time To Rethink Your Single-Family Office?



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Karl represented the archetype of the self-made man. He built a successful real estate business and then a single-family office (SFO) managing $300 million+ in assets. After his passing, some members of the family, which by then comprised three generations of adults dispersed across the U.S, said they wanted to have access to some of the family’s capital to deploy independently. But other family members felt just as strongly that things were going well and there was no need to change the status quo.

This scenario is not uncommon. A single-family office that was originally launched to serve a small group of related people can often be too limited to address the complex needs of an extended, multigenerational, geographically dispersed family, particularly during times of upheaval, growth, or transition.

Here are four common scenarios that may cause a family to rethink their family office:

The Family Has Become Too Big

By the time there is a third or fourth generation in a prosperous family, the number of family members and their individual wealth administration needs are likely to be beyond the capabilities of the original family office. For example, I know of one single-family office that was created following the sale of the family business for more than $100 million. Twenty years and three generations later, the SFO was serving 17 households with more of the youngest generation becoming adults every year. This SFO, which was originally created to manage the family’s investable assets, could not keep pace with the expanding number of households and their disparate needs. Ultimately, the family decided to keep the SFO focused on their investments while outsourcing things like household planning and budgeting, individual tax preparation, and accounting, to an established multi-family office with more resources and expertise.

When your family gets too big and diffuse in its needs, think about where the family office is adding real value, and then outsource everything else. This can be a difficult process, but if it is ignored, the family office will almost surely collapse, leaving hard feelings among family members in its wake.

The Family Office Leader Is Retiring

Another common scenario is when an executive who has been the family office leader, or an integral part of the organization, decides to retire or leave the firm for another job. Such an individual can be extremely difficult to replace, both because there are a limited number of people with the skillset and professional experience to run a family office and because it is difficult to build the kinds of trusting relationships with family members that are needed to run a family office effectively

I’ve worked with many SFOs grappling with this type of issue. Generally, it takes longer than expected to recruit a suitable replacement that has the requisite skills and temperament that fits the SFO’s organizational structure and family culture. It’s always a good idea to see whether the retiring executive can stay for an extended period to help with the transition. But often times many SFOs will take this opportunity to merge with another family office or join a successful multi-family office.

Technology Is Inefficient and Outdated

Staying current with the latest technology is another major issue for many single-family offices these days. In some cases, the changing needs of a growing multigenerational family go beyond what the original family office is accustomed to delivering. Meanwhile, outdated software and systems that can’t be integrated are sources of frequent frustration, not to mention worrying about cybersecurity and data loss if a SFO’s system gets hacked. In fact, as cybercrime and cybersecurity become bigger issues, the technology gap for SFOs is likely to continue to grow and create increasing risk for family members.

Family Members Have Grown Apart

As families get larger, progressing through the third, fourth, and fifth generations, personal connections are not likely as deep or as meaningful as they were when the family office was founded. By that point, the extended family is likely widely dispersed geographically, with individuals having very different philosophies and political leanings. Sometimes in these cases, the healthiest solution is for those family members who wish to go in a different direction to split off, letting those with a shared vision develop a new phase of the office.

In the case of the family I mentioned at the start, the conflict got to the point where they were uncertain if their single-family office could continue. It turned out there was a consensus that the family office should continue doing the things it did well and that affected the whole family, including enterprise accounting, governance, trusts, and educating and mentoring younger family members. The family also agreed to make liquid assets available to individual households to invest or spend as they chose. This also gave them the opportunity to put some privacy around their own household budgets and tax filings. Finding a balance between the existing family structure and the desire of some family members for a degree of financial independence allowed this family office to evolve to serve the needs of today’s family members.

To determine if you need to revamp your own family office, start by listing what your firm’s core competencies are and what is most important to you as a family. Areas that are important and that you or the family office have strong expertise or skill in are areas you should focus on. Things that are important but not core competencies can be outsourced to a trusted partner. The items that are neither core competencies nor of meaningful interest to the family should be monitored but not require much ongoing attention.

The real key to determining whether changes are necessary will always come down to whether your family’s needs are being successfully met and how hassle-free is the current experience. If you’re finding that your family office operation is becoming harder to manage and more expensive than it’s worth, it is probably time to rethink your family office from the ground up.

Lora Helmin

Lora Helmin

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