Family Offices


Along the technology journey toward automotive automation and self-driving cars, experts frequently talk about five levels of automation, ranging from no driving automation whatsoever (Level 1) to full driving automation (Level 5). Today’s family offices might think about a similar spectrum when considering where they are in harnessing the power of automation to improve the way they get from here to there.

We may not have flying cars already like Back to the Future led us to expect, but surely we’ll have regular self-driving cars soon, right? It seems like that topic is a common headline in automotive news lately. However, the reality is a little different, as explained by this article in Forbes:

“Despite the hype that liberation day will dawn soon, and cars will drive themselves, there’s no realistic chance that full-on self-driving will be available before 2030, and then only in a tiny number of top-of-the-range sedans and SUVs, according to consultancy Accenture.”

Level 5, according to the article, is a state of automation that assumes control by a computer with no steering responsibility for humans.  And that level of total control is still some time away: “A L5 system that can drive from door to door in the whole of Europe and North America at least, for at least 80% of all itineraries and with 0 accidents and disengagements” is at least a decade away, researchers say.

When you zoom out and look at the big picture, all cars do essentially the same thing, but other considerations determine the make and model you buy. One factor could be the degree of self-driving, and a more fully automated self-driving car may imply a higher-value luxury car.  And yes, Rolls Royce has a self-driving concept car.  Of course, the other option is a Rolls Royce with a chauffeur!

So, what’s the analogy with family office operations? 

Business operations in a family office revolve around processing data and information, moving it through various defined processes to achieve the desired outcome. It’s perhaps analogous to driving a car from point A to point B, obeying all road rules in the most efficient way possible while avoiding potential obstacles and problems. Is it easy to see the benefit of a “self-driving family office”?

In most family offices today, the core problems to be overcome are the lack of an integrated technology system and the resulting reliance on manual processes and procedures.  To use the self-driving car analogy, these family offices are at Level 1 or 2, at best. They’re relying on human work to do almost everything in their offices.

Is self-driving possible in family office operations?  Yes, and you do not have to wait until 2030.

Depending upon the business process and workflow, Level 5 is attainable. Fully integrated family office software is at the pinnacle of family office technology. This next-gen tech provides a platform that automates the business processes and workflows behind transactional work—ultimately enabling family office professionals to focus on data-driven analysis, recommendations, and decisioning—what all family offices should strive to be spending more time on.

Here's one example of how an integrated platform can help family offices automate critical processes and improve accuracy: Say that a custodian incorrectly enters a digit for a capital call transaction and sends the wrong amount. The exception reports that an integrated platform can automatically generate will catch the mistake the same or the next day, allowing the error to be rectified quickly and with minimal impact to operations, instead of the mistake going unnoticed for potentially weeks.

Another way integrated family office software can immediately improve efficiency in a family office is through automated reporting. In many family offices, data is siloed, and creating a unified, holistic report to share with family members and stakeholders can take staff days or weeks to produce. At the same time, they cross-check spreadsheets and compile them. This is both time-consuming and mistake-prone. Fully integrated platforms centralize all the information so that data is quickly compiled into customizable, interactive reports that can even be automatically generated. This automation frees up staff to do higher-value tasks, improves accuracy, and reduces risk. Just like the Level 5 self-driving car of our dreams!

We might be waiting more than a few years for a car that drives itself while the “driver” naps or reads, but the future is now for family offices. Take advantage of all a fully integrated technology platform can do for your team. A family office leveraging technology, like the coming Level 5 automobile, can drive itself. Imagine what your family office can achieve with its own personal chauffeur and a fully automated self-driving platform.


Family goals should drive family office decisions

The “office” in a family office is not necessarily a physical structure. Rather, it is a shared and agreed-upon approach to managing the family’s wealth.

Family offices take many forms. They can be fully staffed, stand-alone operations. They can be entirely virtual, outsourced organizations under the direction of the family. Or they can be something in between. As the saying goes, “If you’ve seen one family office, you’ve seen one family office.” In other words, a family office is unique to the family it serves.

More families are creating family offices to serve their specific needs. According to a 2019 Campden Research report, the number of single-family offices in North America grew by 41% over the previous two years.

Despite the growth in popularity of family offices, many families with multigenerational wealth still struggle with whether to create a family office at all. Is it needed? Does the family have the time and capacity to manage a family office? At what level of wealth does a family office make sense?

Define your goals
As with any significant endeavor, follow the advice of Stephen Covey: Begin with the end in mind. Ask yourself (and the broader family): What does the family hope to accomplish by establishing a family office? What are the goals for investments? Should there be goals related to next-generation education? How about philanthropic goals?

Additional issues to consider
Architecture, governance, succession planning and education: With goals in place, explore how the family office would be governed. No off-the-shelf structure exists for a family office, precisely because there is no off-the-shelf set of goals for a family office. Governance should be informed by, and in service of, the goals of the family.

Address questions such as whether assets should be held directly or in trusts, and whether some or all of those trusts should be dynasty trusts. Discuss whether the older generation will be in complete control of the office or whether younger generations will be involved with governance and decision making.

As every generation eventually will pass, identify future leaders of the family office, how they will be chosen and whether future leadership will be concentrated in a single leader or a committee. As families inevitably expand over the generations, build in the ability to adapt to meet the needs of those future generations. What works today may or may not (likely not) work three or four generations from now.

Complexity of life versus complexity of structure: With any major decision — and the creation of a family office ranks up there with big decisions —  it is important to weigh the pros and cons. Compare the potential financial benefits against the complexity that could be added to your life (and your family’s).

“Renting” versus “owning” family office resources: Family offices take many forms. They can be fully staffed, stand-alone operations where the family “owns” all aspects of the office. That can provide for more control and autonomy. It can also be a waste of resources. For example, if the family isn’t large, it may not make sense for a single-family office to develop family education programming. It may be more practical to “rent” this function from a firm that offers next-generation family education.

It also might make sense to outsource family meeting facilitation. Family meetings require honesty and transparency. If the facilitator’s income is solely dependent on the family, that can create a conflict of interest. An employee of the family should not be the one to tell Grandma and Grandpa that decisions they have made are hurtful to other family members.

Weighing costs and benefits
The conventional wisdom states that a family office doesn’t make sense if a family’s net worth is less than $500 million. That is oversimplified. The better question to ask is, “Given the family’s net worth, and considering the family’s goals, what should the family ‘rent’ and what should the family ‘own’ in terms of a family office?”

For example, you may decide to hire a full-time CFO (who often is also the family business’s CFO), but you may decide to “rent” an impact investing or philanthropy consultant. Don’t get hung up on attaching the need for a family office solely to your family’s net worth. Rather, make the decision based on your family’s specific goals and needs.

Bill Rudnick is senior partner, general counsel, and co-head of family office services at Cresset Capital Management (

Navigating shareholder dynamics in a family office environment

Family business owners are typically laser-focused on building a successful, competitive, innovative company that will grow and flourish over time. However, an interesting thing can happen as a family business becomes successful. Over time, a family firm can take on a role beyond being an operating company. It can also begin to function as a family office.

This happens almost by default, without anyone taking much notice. Family members begin to access business proceeds for personal uses. The business files tax returns on behalf of family members and manages their investments. Before you know it, you have a full-fledged family office operating within your family business. 

Having a family office embedded within a family business is not inherently a good or bad thing. I’ve seen it work, but there must be very clear parameters for family members as well as employees of the business. Without transparency and alignment as to processes, procedures and expectations, things can go very wrong. Take this example:

I once worked with a very successful family business that had been in operation for multiple generations. It started out simply, like most family businesses, but over time had grown into a highly profitable, diversified business enterprise. Not surprisingly, the operating company eventually took on the role of a family office in many respects. However, the family didn’t come together to define how that family office would function. Instead, the patriarch of the family made decisions unilaterally. He used company funds to buy properties and art without seeking the family’s input. Worse, he refused to let any other family member have a voice in how the business’s profits were invested on behalf of the family, nor did he allow for equitable distributions. In short, there were no communications, no alignment on roles and responsibilities, no buy-in from family members and no exit strategy.

As you might assume, things didn’t end well. Frustrated family members ended up leaving the business and, in turn, the family office. The family’s wealth dissipated, destroying nearly 100 years of sacrifice and hard work in building what was once a thriving, successful family business … and family.

Sadly, this phenomenon — sometimes referred to as going from “shirtsleeves to shirtsleeves in three generations” — is all too common among family businesses. Roy Williams and Vic Preisser wrote in Preparing Heirs; Five Steps to a Successful Transition of Family Wealth and Values that most family wealth is lost because of a breakdown in trust and communications within the family, not because of bad financial decisions.

Below are five recommendations to help ensure a family office that exists within an operating business makes the business — and the family — stronger and more successful.

1. Communicate, communicate, communicate. A family office that operates in an environment of secrecy and on a “need-to-know” basis breeds dysfunction. To avoid that situation, communicate frequently, focusing on respect and transparency. Everyone in the family should have a voice and, importantly, should be listened to. Bring all family members to the table to clearly define the family’s goals and expectations for the family office. Work collaboratively to align on strategy and vision.

Make sure everyone in the family understands the history of the family business as well as its culture and values. Often younger generations who have not worked in the family business may not know the story of how the business was built. Give them that base of understanding, and they will likely be much morevested in and committed to the ongoing success of the business and the family unit behind it. 

Furthermore, discuss the purpose of the wealth the business has created. What are the family’s expectations around how the wealth will be spent? What are the causes or charities the family wants to support? Who decides that? What are the expectations regarding lifestyle spending? Discuss these topics openly and honestly, and document what you’ve agreed upon.

Include children in conversations about the purpose and direction of the family office. They might not be equipped to fully understand investment strategies and philanthropic goals, but they can be introduced to financial literacy concepts at an early age. Help them to understand the value of money and what it can do (for good and bad). You don’t have to talk specific numbers in terms of net worth, but teach them the responsibility that comes with wealth.

2. Define family members’ roles. It’s amazing how few families with family offices embedded within their businesses have discussed who does what. This can breed not only confusion, but also contempt. Family members can come to resent other family members who appear to be “calling all the shots” for the family office. If they feel ignored or devalued, they might be more likely to question decisions made by those in control.

The key is to clearly define each family member’s role and make sure it aligns with their skills and interests. Clarify the different responsibilities of shareholders who are active in the business and those who are not. All shareholders, however, should have visibility into the day-to-day operations and should understand the business’s values, objectives, competition, marketplace and performance.

3. Define compensation. Another sticking point with many families is how, and how much, family members are paid by the business. Are salaries for family members commensurate with the marketplace? Do those running the business receive a larger share of equity?

Many patriarchs/matriarchs believe they have to treat all their heirs equally when it comes to ownership in a family business, as well as distributions. They don’t. Think about it: If you have a child who is a schoolteacher and another who is a successful hedge fund manager, they likely don’t need an equal share of your assets. The key is to openly engage in a conversation with them about who needs (and deserves) what. From my experience, when those conversations happen early on and with extreme transparency, the vast majority of the time the family members involved will support parents’/grandparents’ intentions.

4. Agree on an exit strategy. As much as you might want them all to stay, there will inevitably be certain family members who don’t want to be involved with the family business, and who prefer to manage their personal wealth outside the family office. When that happens, take a breath and remember this: family first.

It’s normal for family members to want control over their assets, some more than others. They should understand that they are free to take their own path with their wealth without risking alienation or ill will from the rest of the family. More often than not, when they have that freedom, they will choose to stay. After all, family dysfunction festers when people feel they can’t make their own decisions.

Sure, make the case for staying with the family office, which can include a greater cumulative impact on philanthropic causes and better economies of scale. However, in the end, make it clear that those who choose to leave are still loved and valued as family members.

Agree upon protocols for family members who want to leave the family office and take their assets to another wealth manager. Also, develop a buy-sell agreement for family shareholders who may choose to exit the business. Document those plans and secure buy-in from the broader family.

5. Develop a shared vision for the future. Nothing can bring a family together like aligning on the long-term impact they want to have. What are the causes the family wants to support? What is the shared vision for making the world a better place? What are the values that allowed the family to have the success it has had? Particularly for younger generations, helping to establish a long-term vision can provide a powerful sense of ownership and purpose going forward.

Where do you start? Begin by gathering the whole family together (virtually if you have to) and develop a family mission statement. Identify family values. From there, establish a strategic plan for both the family business and the family office. That might involve expanding the business, preparing to sell it or transitioning it to the next generation.

Planning for the family office can include diversifying into a real estate holding company, amplifying philanthropic efforts and establishing rising-generation governance committee. The key is to have the vision for the future be a shared vision. That’s what gets family members from every generation excited.

Barbara Young ( is senior managing director and co-head of family office services for Cresset. 

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact     


Family office decision factors

Advisers offer these suggestions for families considering a single-family office (SFO):

• Solicit feedback from the family about potential benefits. Is the primary purpose to bring the family assets under one umbrella, or are you mainly interested in personalized and confidential services? Do you want your family office to promote the well-being and unity of the family over generations?

• Decide if your asset levels are sufficient to offset your fixed costs. Families with lower assets who desire a wide range of services will likely pay a sizable percentage of their assets for their office. “If a family has $100 million and requires services and employees that [total] $5 million, that’s equivalent to a 5% annual fee. If a family has $1 billion, a $5 million cost for their SFO [single-family office] would be 50 basis points,” says Nichol MacManus, director of 1818 Family Office and managing director of Brown Brothers Harriman & Co.

• Consider that you’re developing an organization. “Launching a family office is as complex as starting any other family business, and it needs a clear business plan for the professional design of the office,” says Sara Hamilton, founder and CEO of Family Office Exchange, a peer-to-peer network for high-net-worth families and their family offices.

• Decide how services will be provided. “If family members already have outsourced service providers (money managers, lawyers, accountants, etc.), is the SFO intended to replace those people or work with them?” asks Jennifer Pendergast, a professor of family enterprise and executive director of the Center for Family Enterprises at the Kellogg School of Management.

• Recognize the potential downsides. Overseeing a single-family office can be costly and time-consuming. Is there someone in the family willing to undertake this task to ensure it meets the family’s expectations?

• Do your homework. MacManus advises organizers of a single-family office to reach out to other single-family offices, multifamily offices and consultants to pick their brains. “Families don’t know what they don’t know, because they haven’t been in this business. Go out and see what the landscape is like,” she says.

Hamilton suggests taking the time to participate in workshops on how to design a family office, “to make sure you understand what you are getting into.”

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    

COVID-19 raises cybersecurity issues for family offices

The move to working from home revealed vulnerability to phishing among family offices that had not set up proper controls for remote access.

As family offices scrambled to respond quickly to the health and safety issues and the economic turmoil caused by the COVID-19 pandemic, they also had to contend with another threat to their organizations.

Since late January, cybercriminals have been disguising themselves as trusted banks, merchants, co-workers, IT administrators and the like to trick people into divulging sensitive data, according to PwC US.

Proofpoint Inc., a cybersecurity company, reports that “coronavirus-related email lures now represent the greatest collection of attack types united by a single theme” that the firm’s research and detection team has seen in years, “if not ever.”

“These phishing emails may use scare tactics to trick users into interacting with malicious links or attachments, or direct them to websites designed to steal their credentials. Any individual within an organization can be targeted,” Proofpoint says.

Working in this treacherous landscape could be particularly dangerous for those family offices whose staff are making their first foray into working remotely.

Danielle Valkner, U.S. family office leader at PwC, spoke with Family Business Magazine about the challenges facing family offices.

FB: Have cybersecurity issues been a concern among single-family offices as COVID-19 has forced staff to work remotely?

DV: Many family offices have been very deliberate in the past in prohibiting or limiting remote access due to confidentiality concerns. Now they may find themselves in a situation where they are scrambling to set up the proper remote access in a well-controlled way at a time when fraud campaigns are spreading quickly. Business email compromise (BEC) scams that are designed to trick victims into transferring sensitive data or funds have skyrocketed in recent months. These scams also look to steal login credentials so [cybercriminals] can infiltrate your organization and compromise your systems and operations.

FB: Could there be an impact on the family’s privacy or safety?

DV: Wealthy families are always a high-profile target for cybercrime. Now that most of the country is working remotely and many are transacting more via email, it is more important than ever to be on high alert for fraud and safety issues. Your employees are your first line of defense, and it is critical to provide education and alerts to employees to [urge them to] be skeptical of email communications and requests from unfamiliar sources or even those that may look familiar on the surface. Common recent attempts include phishing and BEC emails disguised as government announcements with official-looking logos as well as emails with subject lines of interest to your business in light of impacts of COVID-19. [The emails] may attach official-looking documentation such as invoices, shipping receipts and job applications with harmful malware or ransomware embedded in them or links to fraudulent educational, healthcare or charity-related sites that can open the door for malicious activities and threats.

FB: Are family offices simply trying to find their way through this without a map, like every other business and family?

DV: Most likely. Transitioning to remote work at home can be done without compromising security. At a time like this it is important to consult with the experts and ensure you have the tools and risk management processes in place to enhance your monitoring and detection of threats, educate your employees and protect your assets, data and devices.

FB: Will the pandemic fundamentally change the way family offices operate going forward?

DV: Yes, I believe so. The current environment is certainly testing operational, financial and risk management capabilities. It is essential to identify your critical data, processes and reporting needs to drive decisions and enable proper risk management and controls. Family offices should be evaluating their processes and tools to ensure they have the capability to gather, aggregate, report and distribute critical information as well as execute and manage required activities in a well-controlled and timely manner. The current environment may expose some gaps that will need to be remediated. Also, the entire business community is learning the power of digital collaboration tools, which will undoubtedly have an impact on how we conduct business and operations going ­forward.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    


Single-family office nuts and bolts

Eric Allyn knows his way around an operating company.

Born into the family that owned the Welch Allyn Inc. medical device company in Skaneateles Falls, N.Y. for 100 years, Allyn could tell you all about ophthalmoscope design when he was in elementary school. In adulthood, Allyn ran company business units, headed specialty markets in Japan and served on the board of directors for seven years. “I was raised to be a good steward of the family business,” Allyn says.

Since the 2015 acquisition of Welch Allyn by Hill-Rom Holdings for $2.05 billion, Eric Allyn has been finding his way in an entirely different business — the Allyn Family Office. It has not been easy, even though the Allyn family has had a family office in some form since 1992.

“It’s an entirely different thing than running an operating business,” says Allyn, who oversees the family office and serves as its chairman. “Most of this has been new to me.”

Many family enterprise leaders like Allyn face the challenging and complex task of setting up a single-family office to manage the family’s wealth, investments and other needs, sometimes after experiencing a liquidity event. Allyn refers to it as “Family Business 2.0.”

“It should be viewed as creating a new business. I worry that families don’t realize the amount of work required,” says Jennifer Pendergast, a professor of family enterprise and executive director of the Center for Family Enterprises at Northwestern University’s Kellogg School of Management. “You need to set up a corporate structure, agree to policies and procedures, hire a team, set up governance structures [and] determine a strategy,” such as what services will be offered and to whom, and how the office will be funded.

The term “family office” covers a sweeping array of unique organizational structures. In general, a single-family office can be defined as a private, family-owned entity that manages a family’s private wealth and other family matters. Under the federal definition that excludes single-family offices from regulation under the Investment Advisers Act, a family office is wholly owned by family clients and is controlled by one or more family members or family entities. It serves no clients other than family clients.

The design and activities of a family office can be as creative as families themselves. Some exist primarily for the purpose of investment management and wealth preservation, while others provide a smorgasbord of services that might include philanthropic planning, next-generation education and family reputation management.

Raphael Amit, a management professor at the University of Pennsylvania’s Wharton School, stresses one key quality of a family office that makes it distinct from a private asset management company.

“A family office addresses the needs of an affluent family in a more holistic way through a range of activities that enable family unity, harmony, happiness and health, as well as activities that enable financial wealth preservation and creation,” Amit says.

There’s a lot at stake for families who embark on the single-family office endeavor. Consider that advisers suggest a family have at least $100 million available for investment to make the operation of a single-family office financially sensible.

What’s more, there is no one playbook for setting up a single-family office, says Nichol MacManus, managing director of Brown Brothers Harriman & Co. and director of 1818 Family Office, a multifamily office. The strategy the family uses to develop its office is not always linear, either.

“It’s just so different for every family,” MacManus says.

Pendergast echoes that. “Each SFO is different depending upon the problem the family is trying to solve by creating it.”

Families should view the creation timeline in “years, not months,” Allyn says. His advice to other family business owners is not to wait until the need for a family office is urgent.

“Have a family office well in advance of ever considering selling the family business,” Allyn advises. “I can’t imagine where we’d be without one. It’s imperative to have a family office more than a year before the sale.”

A new challenge
Over time, family offices have evolved from being primarily money managers “to something much broader with a goal of creating continuity, cohesion and engagement across the family for generations,” Pendergast says.

To Steve Lytle, a fourth-generation member who serves on the board of The Agnew Company, a single-family office based in Vancouver, Wash., the investment part of a family office is “pretty straightforward.” Much more difficult is “the business of ownership,” which he defines as the process of building and executing a system that supports the family’s long-term objectives and principles.

“We want to build a system of governance, decision making and communication that provides us with the best opportunity to own [family assets] well now and in future generations.”

Unfortunately, many families starting a single-family office just “jump in at the deep end of the pool,” says Robert A. (Bobby) Stover, Americas family office leader at Ernst & Young LLP. For example, they’ll run out and buy an operating company.

“They know they want something but they don’t have a plan,” Stover says. “It’s like taking a child to a toy store and saying: ‘You can have anything you want.’ ”

Gary Katz, managing director of Downtown Capital Partners, a family office in White Plains, N.Y., says creating a family office “should be daunting for people whose life experience was to run a successful operating company. A family office is a different animal. It’s a different skillset.

“Just because you’re a brain surgeon doesn’t mean you can do heart surgery.”

Many highly talented entrepreneurs who have run successful operating companies discover they simply don’t enjoy being a chief investment officer and making passive investments, Katz says.

“It’s just not the same level of adrenaline you get from running an operating business,” Katz explains.

Most U.S. family offices are only a few generations old, according to Joan Crain, global wealth strategist with BNY Mellon Wealth Management.

“I’ve seen a couple that have lasted five generations,” Crain says.

She’s also seen some family offices being dissolved.

Sometimes future generations “unwind” family offices created by the wealth generators if they can’t see the value of an organization that was designed by a patriarch or matriarch to meet the founding generation’s needs, Pendergast says.

Following best practices
While “there’s no right or wrong” to the creation of a family office, there are best practices, Crain says. Good governance practices should be the thread running throughout the process, including such things as the responsibilities of owners versus managers, she says.

To begin, families are wise to deliberate among themselves to determine what they’re trying to accomplish with a single-family office.

Asking “why” also can become the basis for the family’s mission statement.

Some families might primarily be interested in investment management, while others may want the organization to focus on philanthropy or NextGen education.

The Agnew Company, for example, is chiefly an investment company that manages a diverse portfolio of assets, including timberlands, commercial real estate, marketable securities and alternative investments, Lytle says.

“Every family should make a thoughtful assessment of how they would benefit from either an MFO [multifamily office] or a SFO [single-family office] before they make the decision to start one,” says Sara Hamilton, founder and CEO of Family Office Exchange, a peer-to-peer network for high-net-worth families and their family offices.

For most families who have started a single-family office, the benefit is family control. A single-family office offers customization, including a framework created specifically to meet the needs of a large, multifaceted family. The office protects the family from prying eyes while managing risks and information flow.

In some cases, the family office becomes the new family business after an operating company is sold, creating the glue for the family, Pendergast says. Post-sale, the family office provides the family identity once conferred by the operating business.

Depending on the asset level, some families might be interested in using their wealth to have family office staff take care of the management of nannies, household staff or private jets.

“Agreement on what services the office will do and, more importantly, what it is not designed to do, is essential to manage expectations of the owners,” Hamilton says. “And developing the specific measures of success for the office will help in the hiring process and in the performance management process.”

The most common service family offices provide is the ability to leverage the family’s collective assets for the best professional services, such as investment, legal or tax advice, in the most cost-effective way, according an article co-written by Crain called “Key Considerations When Creating a Family Office.” The next most-common service is centered on providing the family and family office executives with timely data and analysis of complex investments, trusts and estate plans, and the like.

Setting a mission
Advisers recommend that families develop a mission statement for the family office as well as a constitution (also known as a charter). Ideally, the mission statement should mirror the values of the family the office will serve, Hamilton says. Crain notes that the best practice is for family members to come together to craft the statement as a group.

“You need involvement from all levels of the family,” Crain says. “The worst thing is having an outside adviser do it.”
Crain had a client family who convened a meeting to hammer out a mission statement. But when the family came together, the father had written it himself.

“I felt sorry for him because he had spent a lot of time on it,” Crain says. “But we got input from all the children. If we had just gone with what the father had written, they wouldn’t have felt like it was theirs.”

Candid conversations among family members will result in a mission statement that really clarifies a family’s desired outcomes, Lytle says.

Amit says the vast majority of the nearly 200 family office mission statements he’s seen define their purpose as managing the family assets to promote family unity, harmony, happiness and health.

The constitution or charter spells out governing principles for the family and family office that are intended to endure for generations.

“The constitution is constant and is the guiding principle,” Stover explains. “The laws may change; the principles stay the same.”

Crain suggests families develop a shareholder agreement, policies governing who can work in the family office and a code of conduct. There should also be provisions for family members to exit the office, she says.

Families might also want to create an investment policy statement. Pendergast says an investment policy is needed if it the family office is managing money for family members.

“There may be a blanket policy statement for all clients of the family office, or accounts may be managed separately for different clients who will each need an investment policy statement,” she says.

Not all families feel the need to develop a collective investment strategy, Hamilton says. That could lead to problems down the road, she cautions.

“Through the generations, if you don’t have a set of collective investment vehicles to organize the investment alternatives for each household, that process of making individual investment decisions becomes unwieldy if you are dealing with 20 households and 12 to 16 different asset classes for investments,” she says.

Another critical decision for families starting a family office is its legal structure,  such as a limited liability corporation or a corporation.

State law will determine the limitations on liability and the legal life of the structure. The family office does not need to be based in the state where the family resides. Families should consult their legal and tax advisers to determine the structure that is most advantageous for them.

Building a business plan and team
Family offices should have a strategic plan and a business plan, Stover says.

The strategic plan should spell out the results and opportunities the family wants to see in 10 or 20 years. The business plan should list the actions that are needed to get those results in Year 1, Year 3 and Year 5.

The business plan should include an operating budget and should spell out how the family office will be funded.
Family members or households generally pay fees or the family agrees to another arrangement, such as funding the office through a trust, Pendergast says. If the office manages money, family members typically pay a fee based on the assets under management, she adds. 

“Typically, SFOs are set up to break even, not to be a money-making entity. The fees charged to family members are set so that they break even,” Pendergast says. “If the family finds that the fees are more costly than what they could get via outsourced providers, then the family office leadership and board need to justify why the family should pay more.”

Staffing needs will depend on the kinds of services the family office will provide, such as investment, philanthropic management and concierge services. Depending on the family asset levels, the staff could range from a handful to hundreds of people.

Hamilton says that because of the complexity of family structures and the importance of risk management today, the latest trend for larger families is to hire someone with a legal background to lead the family office, instead of a person with an accounting or financial planning background.

“As family offices have become more popular in the last 20 years, it has become easier to recruit talented managers into this industry,” Hamilton says. “There are search firms that specialize in finding talented office executives, and today, retention of talent has become more of an issue than the actual recruiting process.”

Compensation, of course, will factor into the cost of running a single-family office and will be an important consideration, particularly if the office hires a CEO, CIO, attorneys, accountants and other staff.

Other operating costs include technology and cybersecurity protections (see page 53), as well as office space.
The Allyn Family Office, which performs wealth management services only, employs four accountants, one attorney and one paralegal.

Governing body
Family offices, like family businesses, need good governance.

“As a best practice they should have an advisory board at a minimum,” Stover says.

“Just like any business entity, a SFO should have a board,” says Pendergast. “Most don’t have independent directors, but I think they are a good idea.”

Independent directors can bring diverse experience and skillsets to the family office, widening the lens on decision making, including investments.

Lytle says the Agnew family has a family ownership council, which concentrates on “the business of ownership;” a board of directors for The Agnew Company, focused on “the business of investing,” and a board of directors for the family foundation, which addresses “the business of philanthropy.”

Once the office is up and running, the process is far from over, as Allyn can attest. His family office is still evolving after nearly 30 years.

Just as in any business, fine tuning and tweaks to the organization will be needed, including budget honing and performance assessment.

Since a family office is typically planned around generational stages of development, over time the approach might change, Hamilton says. Leadership transitions, for example, are often the time to review and restructure the services and the approach to serving the needs of the family, she says.

“Every family office evolves in its role, just as the family itself evolves through the generations,” Hamilton says. “What works effectively for a founder and his three children in Gen 1 and 2 is dramatically different from what is needed by the same family when they are a Gen 3 to 4 family group with 50 to 60 households to oversee and coordinate.”
As Lytle puts it: “A family office is a means to an end, not an end in itself.”                                                             

Maureen Milford, a frequent contributor to Family Business, last wrote about holding companies.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    


Direct investing strategies for family offices

Family offices have traditionally focused on passive investments, allocating capital to funds and sponsors in a limited partner (LP) capacity. For those raising capital, family offices were often viewed as the most desired investor base because of the meaningful size of their checks, which often came with few strings attached. In recent years, this dynamic has changed materially. As family offices have become more seasoned and more sophisticated, a passive LP role is no longer the desired structure.

The change has been driven by families’ desire for a more direct role in the management of their investments in order to increase control and net returns. Many families created their wealth from their own privately held businesses, so the role as investors in private companies is a familiar one. For many of these families, direct investing can be an opportunity for an older generation to get back into day-to-day management with younger generations playing integral roles as a shared experience.

These families tend to invest in companies that operate in the same industry as that of the legacy company, or a related industry. This strategy gives them a decided advantage relative to industry-agnostic funds. Families with LP interests in private equity funds generally have not been granted a board seat or otherwise been involved in management of the companies in which the funds invest. Over the years, these investors have begun to question whether the funds are providing value commensurate with the fee structure.

Making direct investments in companies can be difficult for family offices at first. Many will build out a team internally to generate deal flow (receipt of investment proposals) and provide the appropriate operational support to the business. This can often prove to be an inefficient use of time and capital. A phased process with assistance from external advisers can often give the family office staff the opportunity to try out team members without committing long-term capital upfront.

Co-investments and club deals can often be an effective stepping stone. Co-investments involve lower fees and more control than LP interests in private equity funds as well as a layer of day-to day oversight. Club deals, where the family partners with other similarly minded families, are the logical continuation of this process. This structure will reveal more of the potential operational weak points that a family office needs to address by hiring staff or through external partnerships.

Setting goals
As with all investment strategies, the key starting point is to identify the goals of the endeavor. The obvious answer is profit, but there are many other considerations. Is training of a younger generation a driver of the investment? How long will the duration of the investment be? What industry or other features of a company are we targeting? How will the investment fit within the family’s broader portfolio?

Every party to the endeavor must have a clear plan for the direct investment and allocate where the responsibilities for the various aspects will sit. Without goals established beforehand, mission creep can lead a family office down unwanted paths or cause them to waste time on investments that are not properly aligned with the family office strategy. Most family offices decline the vast majority of opportunities that cross their desk. Getting to “no” efficiently pays future dividends.

When seeking out direct investing opportunities, family offices have features that distinguish them from the usual players. Flexibility is one of the main reasons why working with a family office appeals to companies. In contrast to institutional investors like pensions and discretionary funds, family offices are not constrained by very specific mandates. This flexibility enables family offices to work toward the optimal solution for a specific opportunity.

One example of this is family offices’ reputation for providing “patient capital.” This makes family offices more appealing than funds that require an exit in three, five or seven years. as is typical with professional investment funds. However, that competitive advantage should be tempered to align with the family’s total wealth, liquidity and strategic goals across their portfolio.

A family’s history in an industry can also give them a leg up on the competition when chasing deal flow. However, the privacy that many family offices fight so hard to maintain can sometimes be a disadvantage for direct investments. While anonymity is desired, it limits sector name recognition. As mentioned previously, internal infrastructure and controls can often be a weakness of family offices. Many family offices were originally an extension of an operating business that the family controlled. While the accounting, legal and operational functions are likely to have been built out as needed over time, most family offices lack the necessary structures and processes to handle multiple direct investments.

Getting into the game
How do family offices get into the direct investing game? There is no one strategy that fits all; however, the family office must efficiently leverage and grow its network of valuable relationships. Like the oft-quoted real estate phrase “location, location, location,”  a critical asset to develop is “deal flow, deal flow, deal flow.”

Any family office will already be in contact with independent sponsors, investment funds and other family offices. Office staff should immediately begin to leverage those relationships in a more organized way. A focus on quantity and quality of investment opportunities is of the highest priority. Certainly, family offices will have a web of experienced professionals, such as lawyers and accountants, but a wise family will seek out advisers who not only provide substantive recommendations but also propose potential deals and provide advice outside the scope of their professional engagement. These counselors should be supplemented with industry partners to perform diligence and sector advice, including insurance and regulatory experts.

Experience proves it is impossible to predict who will introduce the next valuable investment. This approach will allow a family office to gain experience, deploy capital more efficiently, share resources and cement relationships for deals and exit opportunities. This can be tracked in parallel with assessing the speed at which internal resources should be added: to increase talent and expertise in sourcing deal flow, conducting due diligence, negotiating direct investments, analyzing market trends, understanding transaction documents or providing technological support. The conclusion may be that it is too expensive to build out these functions internally. However, it must be noted that more family offices are being formed each year and a higher percentage are actively pursuing direct investing. In order to identify and close quality investments, it’s necessary to establish a formalized approach to business development, proprietary deal flow and analysis of market trends.

Even large, established family offices sometimes lament their perceived lack of deal flow compared with professional investment funds. A direct investing strategy will take time, patience, fortitude and some investment. Yet a family office seeking higher returns and greater control in its corporate equity investments is likely to conclude that a direct investing capability is essential to achieving their goals and a competitive advantage.

William N. Haddad is a partner in Venable LLP’s corporate practice (

How to manage the challenges of an embedded family office

Many successful family businesses have a form of family office embedded in the company. It may start with the CFO helping family members with their taxes, or someone in accounting setting up the books for a family member’s outside business, or perhaps someone advising a family member through the purchase of a house or car.

Over time, this often becomes two or three employees supporting the owners’ outside needs, plus one-off support from staff in IT, legal and other departments. Many families don’t think of this as a family office. As one founder told me, “The business is my family office.”

The pitfalls
This is not necessarily a bad thing. A family office embedded in the business can be the most cost-effective way to manage risks to the family while supporting their wealth and endeavors outside the family firm. However, there are several challenges to an embedded office, which require careful management or may even result in the family deciding to separate the office from the business.

Distraction. Business staff should be focused on growing the business and serving its clients. Supporting family members’ personal acquisitions or handling their separate needs may distract company staff from their primary roles. It is difficult for even a senior staff person to explain to one of the owners that an upcoming tax deadline or new technology release won’t leave them time to support the family member’s personal request.

Privacy. When business staff also support the family, they may not be as diligent about protecting the family’s privacy as dedicated family office staff would be. They might not be discreet when the president of the company asks about her brother’s personal financial matters, and they might be tempted to tell co-workers about the new sports car a family member is buying.

Fairness. Is it fair when family members who work in the business are able to make greater use of business staff for personal needs than family members who do not work in the business? In some situations, large shareholders don’t have the opportunity to take advantage of business staff, while minority shareholders who work in the business leverage staff extensively.

Risk. A family office should reduce or mitigate risk to the family, perhaps by providing advice and support as family members make large acquisitions, ensuring they have adequate property and casualty insurance or providing technology and cybersecurity support. If family members outside the business are not comfortable using the business staff, then the family isn’t mitigating this risk as intended.

Part-time focus. When the family office consists of business staff who support the family on the side, those staffers might not perceive the family office as their full-time job. It is unlikely that anyone is providing strategic planning, being proactive about risk management or even looking at how to most effectively support the family’s needs. For example, someone in accounting may provide paychecks for household staff, but is anyone in the organization performing background checks on those staffers?

Control. An embedded office can fall into a “no man’s land,” where everyone assumes somebody else is providing proper oversight and control. In one case we know of, nobody was reviewing business credit card expenses for the embedded office — accounting considered the task to be the responsibility of “the chairman’s office,” and the family had never thought about doing so.

Cost and value. When the family office is embedded and split between parts of the business, nobody knows how much the office really costs. When we identify the various pieces and assign costs to them, owners are often shocked at how much they are spending on a family office. Family members also may not truly appreciate or value the services they receive when they don’t know how much they really cost, how much time various staff put into those services or the level of expertise they are accessing.

Mitigating the challenges
Embedded family offices can take many forms, and most of the above challenges stem from staff splitting their time between the business and the family. Some offices are embedded within the business legal entity but are actually a separate department or group that is fully dedicated to the family. Such an office can operate as though it were completely separate.

A hybrid version we see involves a small number of staff fully dedicated to the family (perhaps in the CFO’s office), who oversee family requests. These staff in turn may leverage business employees and relevant expertise. This version minimizes the size of the office, provides dedicated staff and still leverages the skills and capabilities of the larger family business. This dedicated team also allows the family to create specific controls, measure costs and focus on key risks involving the family.

In one family office we recently designed, business staff were clear that they enjoyed providing support for family members — it was different from their day-to-day job, and they didn’t want to lose that. Some hybrid solutions, such as the one described above, can accommodate that desire.

Why some businesses choose to separate the family office
Some people perceive embedded family offices as temporary, filling a need until the family or business is large enough to support a separate entity. That may be true, but not necessarily. Many families maintain an embedded family office for generations, and don’t see any reason to change.

However, there are several reasons that a family may choose to separate the family office from the business. Here are a few such reasons:

The family is planning to take the business public. Such families will want to carve out any personal support as quickly as possible, so advisers and analysts are not confused by the functions. It is extremely rare for a public company to house a family office (although we are aware of a few), and it is not something we recommend.

The family is planning to sell the business. While we often see provisions within such transactions providing the family six months or even more to carve out the family office, there may be value to separating the family office before the transaction is in progress.  One such reason is to ensure that staff whom the family wants as part of the family office will not be included in non-solicit arrangements with the new owners. We have seen scenarios where a family wanted the business CFO to run their new family office, but since they didn’t plan it before the sale, they were not able to hire the person.

The family is looking to receive outside funding for the business, perhaps for future growth or liquidity. Depending on the source and amount of such funding, they may be able to maintain an embedded family office, but it is likely that, even if the family maintains control, the new owners will prefer to have personal services separated.

The family decides that its privacy needs are not being met or business staff are being distracted. While there are ways to mitigate these challenges, as described above, the simplest way remains separating the family office from the business. Many families have concluded that these challenges are insurmountable, leading them to a separation.

While there is no definitive research itemizing the number of family offices, embedded or otherwise, we believe there are more embedded offices than separate ones. Carefully considering and balancing the goals and needs of the family and the business enables you to  decide if an embedded office can continue to support the needs of both.         

Charlie Carr, CFP is the president of Big Canyon Advisors LLC and a frequent contributor to Family Business magazine.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact                                   

How to determine whether your family office is successful

Last year, someone asked me a simple question that led to quite a bit of thought and discussion: How do I know if my family office is successful? The most common initial answers (investment returns, tax benefits) feel flippant and incomplete. One former family office president said, “I considered each year a success if I didn’t screw anything up … (long pause) badly.”

What became clear is that very few family members or office leaders had thought about this question. If they measure success at all, their assessment is based on total expenses or investment returns, because these are the easiest factors to quantify.

If you don’t know how to define success, then how can you properly do strategic planning or decide where to focus new resources?

Derailers of success
We believe that most initial responses to this question are derailers of success rather than measures of success. In other words, good performance in these areas does not define success for the office, but poor performance can take the office off the track toward success. Here are a few examples:

Investment returns: Great investment returns generally do not make a family office successful, but messing up investments can make the office a failure. If a large investment flames out, or even if returns significantly trail their benchmarks, the family may place the blame on the office and its leadership.

Taxes: The family office might minimize tax liabilities and provide excellent tax planning, but this may be viewed as just doing its job. Losing an IRS audit or realizing that the family could have saved millions of dollars with better tax planning before selling a business or investment may define failure for the office.

Fraud: Discovering that an employee stole from the family or perhaps uncovering how an outsider successfully committed fraud may make the office appear to be a failure. If there wasn’t any fraud last year, or at least none that you are aware of, the perspective may be that the office did what it was supposed to do. But does that mean it was successful?

Service: Most family office staff will go to extreme lengths to provide any service or support that the family desires. Often, such efforts become expected and don’t constitute success, whereas not doing so may be an irritant or failure in the family’s view.

Total cost: One family member told us he viewed the family office as a bottom-line number: “Do we really need this many people?” We doubt many people consider staying within budget to be their definition of success.

Each of these things may be compared to the starter on your car. When you turn the ignition (or press the button on many cars), you don’t think about whether or not the car will start, unless you recently had problems with it. Being able to start the car doesn’t guarantee that the journey will be successful, but if the car does not start, the journey will likely be a failure.

What is success?
The definition of family office success will vary, depending on the family and the office. What is the purpose for the family office? Most often, even when the family hasn’t defined it explicitly, the purpose is to promote the family’s legacy. How well does the family office support the family’s vision and hopes for the future, in addition to supporting their financial ability to pursue these dreams? This likely has more to do with maintaining family unity and cohesion, maximizing the family’s human capital (rather than financial capital) or seeing an entrepreneurial spirit and passion persist in future generations.

In the earlier analogy of starting your car, the car is a means to support your journey, whether that is to the grocery store or on a vacation. A family office is part of the means for a family to achieve its vision or legacy — the vision or legacy is more important than the office.

One family told us their family office’s purpose was to “remove the burdens of wealth from the talent [next-generation family members], so they can focus their time and attention on the business.” For this family, success can be measured by how much work has been removed from the family members. Another family told us that the founder has very strong values, and they will measure success by whether or not the values remain after the founder passes away. This is harder to measure, but an admirable objective.

It is not an easy exercise, and it requires being intentional in thinking through your purpose and identifying how you will define success.

Measuring success
Once you identify how you will define success, you need a reporting dashboard to track it. This should be a one-page report, measuring not just the primary measures of success, but also the derailers. A good report will track what will make the office a success, as well as factors that could prod the family to say it is a failure. The measures should be both short-term (e.g., How we are doing this year?) as well as long-term (e.g., How we are doing over five years?).

The easy metrics are typically the derailers: total expense, investment returns, tax liability and fraud. How do you report on fraud? If you were a victim of fraud, you obviously report that. If you are not aware of being a fraud victim, perhaps you report results from accounting controls or from your regular ethical phishing tests (because you are doing those, right?).

How do you measure family members’ entrepreneurial spirit and passion? One family decided that a partial answer was to track the percentage of family members whose earned income is at least as much as the distributions they receive. This is not a clean proxy, but it’s moving in the right direction. Another family tracks level of academic degrees earned and ongoing educational efforts.

One might wonder how the family office can impact or influence these results. Once you understand the vision and desired legacy for the family, the office leadership can get creative in helping them move toward that vision. If education is a big part of that, then the family office can help each family member find ways to further their education or participate in relevant conferences or seminars. If entrepreneurship is important, the office might find relevant speakers for the family retreat as well as provide one-on-one coaching.

Supporting a multigenerational family legacy is never easy, but don’t let the challenge deter you from putting in the effort. Start with intentionality, then add creativity from your leadership team and a lot of hard work — and prepare to celebrate the success of your family office.    

Charlie Carr is the president of Big Canyon Advisors and is a frequent contributor to Family Business Magazine. 

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact                                         

Championing the future

Dramatic change is on the horizon, and multigenerational businesses are facing critical transition issues as ownership in private companies and substantial wealth are transferred between generations. Because few families are ready for these transitions, the family office will play an increasingly important role in supporting the family.

The Family Office Exchange (FOX) has worked closely with families, family office executives and advisers for more than 30 years. According to the 2019 FOX Family Office Benchmarking Report, the rising generation is often unprepared to take on a leadership role.

This FOX proprietary study found that while 41% of families identified “helping the rising generation become productive adults” as one of their top three priorities, 78% of respondents lacked a formal program to educate their rising generation.

FOX has identified three fundamental tips to guide family offices in planning family education programming:

1. Take a more strategic role in helping families prepare future leaders. A key succession challenge is that the rising generation is unprepared to take on a leadership role. Family office executives should become the champion for family learning and design or work with outside experts to institute programs beginning at an early age. Key building blocks for this program may include fostering personal identity and growth, increasing financial acumen, teaching leadership skills, defining the responsibilities of shared ownership and engagement, and providing training in family governance and participation on the board.

Families that do this well form multigenerational committees to develop goals related to family learning. In time, these working groups evolve into a family education committee. Committee members work together to create family learning tracks, set education expectations and plan learning events. With structured assistance from a learning champion or consultant, families reap the rewards of engaged and educated participants. 

2. Focus on family values. All learning programs should be anchored to the family culture, history and values. FOX experience suggests that family learning not only prepares future leaders but also can bind the family more closely together. Common approaches include:

• Exploring and understanding how shared family values can be articulated in the future.

• Openly discussing the family culture and where divergent views may reside.

• Tying family values into core learning programs on topics such as investing, philanthropy and wealth transfer.

Families that focus on shared values and regular communication are more cohesive, better organized and able to work together effectively. Many families begin rising-generation education, or in-law onboarding, by focusing on the family history and values. In some cases, families also focus on finding meaning and purpose in life, in conjunction with these values, before embarking on a specific education curriculum. This “family first” approach provides a foundation for all future learning. It gives learners cultural roots before they begin technical education.

3. Understand that one size doesn’t fit all. Families often span multiple generations, geographies and levels of sophistication. Family learning requires thoughtful planning and customization to meet the needs of the entire family. Programs should also address multiple styles of learning and provide different educational settings, including peer groups, family groups, individualized coaching and online learning.

Families that have thriving and productive rising-generation members allow for autonomy and belonging. It is important to encourage the rising generation to express their personal identity and choose learning opportunities that fit their life paths. It’s equally important that all family members feel a sense of belonging and understand the education and participation that is expected of them. This includes family attendance at industry learning events, in-house programs, education sessions at family gatherings and meetings with consultants. 

A family that is committed to education will also create a pathway for engagement with the family business, including such options as traditional employment, customized learning experiences and an idea lab. The idea lab provides a way to capture the innovative suggestions of all family members who aren’t interested in an onsite experience and provides an appropriate way for them to offer input. It creates engagement and shields company staff from an unexpected call from a family member. Each pathway offers a customized approach for those who want to engage on a different level. Allowing flexibility in how family members engage with the business can work well to accommodate everyone in a diverse family.

The priorities and focus on family education will differ for each family, but the family office can play a key role in making the case for a well-thought-out plan and emphasizing the importance of preparing for transitions.

Mindy Kalinowski Earley is chief learning officer for the Family Learning Center at the Family Office Exchange (

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact