As families grow and become more diverse, a one-size-fits-all approach to the family office can become difficult to maintain and even counterproductive. When the family office no longer meets the needs of the individual family members, the office that was meant to foster family unity can end up instead being divisive.
“This is a classic challenge, particularly for larger offices, where you have an extended family group, multiple generations or multiple family lines. They all have different needs,” says Eric L. Johnson, U.S. Family Office Tax Leader for Deloitte Tax LLP. “Equal is not always fair. There’s always a struggle: Some family members or family lines use the office more than others, but are they actually paying their fair share, commensurate with how much they use the office?”
When it comes to investments, services and even participation in family office governance, family members may have different requirements.
“To serve these differing needs effectively, a family office must consider family members’ stage of life, liquidity profile, risk appetite and long-term ambitions,” says Rebecca Gooch, global head of insights for Deloitte Private. “Furthermore, with the average family office being leanly staffed, finding the right balance between in-house capabilities and outsourced expertise is essential. This balance allows them to scale up or down as families evolve, ensuring they deliver personalized and flexible support.”
Structuring the family office in a way that gives individual family members or branches some autonomy and their own identity can be a good approach.
“Families design and engineer the family office structure to promote engagement. But it’s a balancing act: They’ve got to read the family and their stage of life,” says Peter Begalla, founder of JPB Consulting Group. “More and more, family offices need to tailor their investment opportunities, services and even governance participation on a per-household basis. People want to be able to toggle these on and off.”
Experts offer several suggestions for achieving this level of flexibility in the family office:
* Listen. It’s important for family members to understand how the family office gathers and acts on family members’ concerns, Begalla says.
“If fees are too high or risk is too great, is there a known pathway for member sentiment to be heard and acted upon if appropriate?” Begalla says.
* Plan for varying — and changing — levels of engagement. Different family members will seek different levels of participation in family office governance and investment decisions — and for some, this may change over time.
“It’s a matter of phase of life and the capability of the members. Some trust the advisors to take care of all of it and talk to the family office twice a year. Others want to participate, to be closer to the action,” Begalla says.
* Offer choices. Johnson has seen family offices successfully differentiate their services using what he calls a “health club model.”
“Think about a health club, where you might join for an annual membership fee and go to the gym. But if you wanted to climb the rock wall or use the spa, that’s an extra charge,” Johnson says. “That’s how many families have done it: They’ll have a base fee for a certain set of services, and then other services — such as serving as the general contractor for a home the family member is building — are above and beyond and may be available for a one-time charge.”
* Tailor charges as well as services. Family offices might use different compensation models, mirroring how third parties charge.
“If the family office is managing investments on behalf of family members, they might charge based on a percentage of AUM, like a fund manager, whereas if the family office is providing tax services, they might have a fixed fee for how much it would cost to complete a tax return. Or if the family office is doing some sort of financial planning, they might charge an hourly rate,” Johnson says.
* Be clear. Regardless of the approach, the family office needs to define what services they are providing to family members and what they are not.
“Being able to say, ‘We’re not providing particular services’ really is just as important as saying, ‘We will provide a service for you,’” Johnson says. “Different offices handle this differently. Some say, ‘We do everything for our family members, whatever they ask,’ and while others say, ‘We only provide investment services, nothing else.’ It really runs the gamut — there’s no one-size-fits-all.”