While the family office concept has been around for decades, it has seen significant growth in the past 10 years. We attribute this to many of the factors driving other changes in the business world: greater home connectivity and access to information, as well as the tremendous amount of change and upheaval in the wealth management market. But why start a family office? More families are turning to the concept as they search for a customized, cost-efficient strategy for gaining greater control over their assets, but at the same time offering flexibility for future growth. The model is also well-suited to succession planning by helping to prepare the next generation for their own success, and passing along crucial lessons to family business heirs.
Managed well, the family office is a powerful vehicle that can bring families higher financial returns, greater efficiency and oversight, centralized support for a multigenerational continuity, and better coordination across the family’s initiatives. In this article, we outline many of the reasons why starting a family office could help to ensure the success and sustainability of a complex, generational enterprise.
Prepare the next generation
One of the greatest challenges facing the family office is preparing the next generation of leaders to come from the family, which starts as early as the formative childhood years. Developing future human capital is important, and every family office member, no matter their age, needs to prepare to become self-sufficient, possess a drive to succeed, be committed to helping the wider community, and strive to be business-savvy. With this in mind, it’s also important to recognize when limitations exist due to an individual’s preferences, talents, and abilities.
Every generation has different values, so outgoing generations need to remember that what success looks like may evolve over time.
Define your family office’s investment focus
Successful family offices generally have a clearly-defined investment focus, which is most frequently based on their expertise and past experiences. This core strategy sets a good foundation on which to base future investment decisions.
However, investment history shouldn’t always define the future. The world is changing all the time, and while it’s not necessarily advisable to chase the next big thing, it’s helpful to stay up to date with current and future trends. An example area of keen interest these days is investing in environmental, social, and governance (ESG) areas, as well as other technologies and initiatives that have a positive impact on the planet. A trusted advisor can help you to stay abreast of these trends and make decisions about whether they’re passing fads or the beginning of a new legacy.
Secure your family office’s legacy values
Speaking of legacy, most people want some degree of control over how they’re remembered. Defining a clear set of values (ideally in writing) forms the foundation for the successful future of the family office. It’s a good idea to host regular family meetings to discuss the family office values and allow the next generation of business leaders to learn how to uphold them.
The family office legacy is also defined by its philanthropic activities. Choosing a specific cause or organization helps a family office make a significant impact. This choice should be a collaborative one—gaining the buy-in and enthusiasm of every family member will go a long way to ensuring a lasting legacy.
Never stop learning and growing
By nature, the family office can teach many important life lessons to younger generations. These days, there’s a plethora of learning resources available at the click of a button, but they can’t replace the value gained when older family members to spend time with their successors. Imparting their knowledge helps the next age group understand the family’s priorities and benefit from learning about past experiences. It also encourages them to seek guidance as they continue to evolve and prosper.
A well-run family office offers many benefits
While there are many different approaches to structuring a family office, there are some common strategies that can benefit almost any enterprise. Families that work with an experienced advisor stand to gain the following:
Higher probability of meeting financial goals
A structured family office environment increases the likelihood of family members having important conversations about their financial goals and guidelines. Having this information out in the open—while utilizing an investment governance system to oversee performance—helps families to make targeted investment decisions aimed at their specific goals.
Reduced risk of theft and fraud
With a dispersed portfolio that includes many moving parts, it’s absolutely essential to work with asset managers you can trust. Many of the common fraud and theft tactics can be circumvented with some intentional oversight and controls.
Informed family members
Families who use family offices say that their family members are more informed about the other areas of the family enterprise, including investments, businesses, and philanthropy. As a hub of information and reporting, the family office enables greater transparency and trust.
Seamless generational transitions
Perpetuating a family enterprise for generations requires support in planning and executing the numerous dimensions of generational continuity. The family office can manage various aspects of succession preparation to ensure that nothing is being forgotten and to keep the process moving along.
Your in-house family office management professionals
At GunnChamberlain, we offer a range of family office services that can be incorporated into your family’s succession planning and support across generations. Our services include:
- CFO services
- Tax compliance
- Outsourced accounting and bookkeeping
- Bill pay and bill approval process
- On-the-ground asset management
- Payroll and state income tax filings
- Financial compliance needs