Determining whether to set up a FO depends not only on the family's overall net worth but also on how complex their financial affairs have become. Because the source of these families’ wealth is often not inherited wealth but created as a result of the sale or divesture of a business, investment, real estate, or another liquidity event, this complexity can sometimes occur almost overnight.
As in my anecdote above, family offices are often created out of the need to manage or extend wealth. Often, FOs are put in place to help families grow and maintain a legacy for their children or relatives while also advancing the family's goals through either a business, philanthropy, or both. The secret here is in the establishment of those goals, which is another area where some families struggle.
Where a FO can often provide significant value to a family, is in acting as an impartial and objective third party in the development of clear and focused goals.
Developing FO goals is not as simple as listing resolutions or hopes and dreams. Rather, it involves big picture thinking and planning with the family vision and legacy at the forefront. It can involve ownership transitions, leadership transitions and successful wealth transitions, all while navigating the rational tasks of running a business with the more emotional elements of family dynamics.
The elements of big-picture planning can include:
To achieve the family’s goals and vision, there is, of course, the day-to-day components that can either be managed entirely by, or supported through, the actions of the family office. These can include, but are not limited to:
While it is true that no two family offices are the same, there are some very clear common qualities among those that perform their function well. A good family office should:
A FO is made up of multiple advisors who work together as a cohesive team under the common goal of protecting the family. Team members can include accountants, investment advisors, lawyers, estate planners, and even psychologists and social workers.
At the centre of this family office team, and often the most pivotal role, is the Chief Financial Officer (CFO). While their title may vary, this person maintains a bird-eye view of the entire family situation and is the “point” person that the family can always call on. In addition to their financial acumen, the CFO in a family office is an expert in managing what are often delicate or complicated relationships while providing the highest level of client care. Along with managing relationships with outside professionals, the CFO quarterbacks, mandates, and reports on the work done by investment advisors, all with the utmost discretion.
In addition to the CFO, the professionals working together in a FO ensuring the family’s needs are met and nothing falls through the cracks, include:
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