Families start family offices for all sorts of reasons. Some want the family to have concierge services. Others want to invest together. Some have multiple reasons — and in some cases the reasons may not be clear even to the family.
“Never have I heard anyone say the mission is to give my son or daughter a job, but that’s also a reason people create a family office,” says Harvard Business School’s Christina R. Wing, who is also a founder of family business consultancy Wingspan Legacy Partners.
Clearly articulating the mission of the family office is crucial to its success, Wing says. An entrepreneur who starts a company does so after identifying a need in the market, and developing a product or service to fill it.
“But the people that are starting family offices, unless they were in investment management before, really didn’t dream of having an investment firm,” Wing says.
That means the family office needs a clear mission — one that will provide the foundation for future decisions, such as whom to hire, how to set up an effective governance structure, and how to measure success.
The mission could be to diversify the family’s investments away from the core business, for example. It could be to keep the family together. It could be to create generational wealth. It could also be to solve a problem, like providing clean water in areas that lack it.
The mission will dictate the type of team the office needs. If the family wants concierge services, for example, they need to hire someone who is skilled in that area. If they want to make alternative investments, they will need to hire people with that expertise.
“If you don’t know what your mission is, you don’t know what you’re building,” Wing says.
Likewise, the mission is the foundation for the business plan. If the goal is providing clean water, then the office’s focus is more on philanthropy than investing, and the team should understand how to provide clean water solutions. If the mission is to create generational wealth, then the business plan would focus on investments with a long-term horizon. The next step in that case would be to decide which types of investments should be handled in house and which should go to a wealth management firm.
“Once you know what the mission is, then you create the business plan to do that,” Wing says.
The mission also provides a guide for governance. The family can create an investment policy statement, for example, that gets into details — once the overall goal is clear.
“How do you govern something when you don’t know why you’re doing it?” Wing says.
How will the family know if the strategy is successful?
“You can only measure success if you actually have a business plan you’re executing against,” Wing says.
The measure of success may be different for different families. If the goal is providing clean water, then the measurement is not return on invested dollars, but rather how much clean water has been provided. And for a family that is investing with a long-term time horizon, absolute year-over-year returns may not be the best measure.
“Measurement is not only return on investment dollars. To some families, measurement is, Are we happy? Do our concierge services get done on time? Are we all getting along?” Wing says. “The measurement of success has to be about the business plan, not just dollars.”
