Managing a family office for one or two wealthy individuals can be challenging, but the goals are generally clear. But when the family office achieves its objectives and grows wealth for subsequent generations, that success brings with it additional complexity. Instead of just one person setting the direction, there may be conflicting goals from different family members. And young family members may not understand much about the family office in general.
“The challenge we have as a family office is getting the rising generation to understand that this is their family office as much as it is their parents’,” says Steve Gardner, vice president of Unity Hunt, the family office of the Lamar Hunt family. Lamar Hunt, the son of oil tycoon H.L. Hunt, was the principal founder of the American Football League (AFL), coined the name “Super Bowl” after the AFL merged with the NFL, and the owner of what is now the Kansas City Chiefs, still held by the family. The office serves Hunt’s four children and their descendants.
Family offices face a number of challenges as the family expands:
Getting buy-in from family members at different stages of life.
Getting the rising generation to articulate just what they expect from the family office can be tricky because they may not know what’s possible.
“We asked our G4s, ‘What can we do for you?’ and they said, ‘I don’t know what you do – I don’t know what to ask for,’” Gardner says.
As the family gets to the third and fourth generation, it can become more difficult to keep everyone using the family office.
“Someone who’s got an entrepreneurial spirit and feels the rest of the family is not being entrepreneurial enough may want to take their money and grow their own infrastructure,” Gardner says.
It’s important to help family members understand the advantages.
“There’s a synergy of scale and knowledge,” Gardner says. “With large families, there’s a lot of legacy and history that’s important to understanding where the family’s investments are now, and what they’ve tried and decided they’re not doing anymore or what they have tried successfully.”
Educating family members.
The Hunt family has a long history of using trusts to pass assets from one generation to the next, Gardner says. As each generation matures, the rising generation members have to consider how they want to structure their own estates.
“We have the job of educating them: Should you use a trust or an LLC or some other entity to protect your wealth, both your existing wealth and any wealth you’ll inherit in the future?” Gardner says. For the Hunt family, this is complicated by the family’s investments in the sports industry, where league rules can affect how some investments are held. “There are always nuances and variances to the businesses you’re in.”
Before getting into this level of detail, though, family members need a basic education about the family’s wealth.
“Education in a family office is a daunting task. The first question is, at what age do you start educating, and to what sophistication do you educate?” Gardner says.
Gardner approaches education from two angles: fundamental education about budgeting, cash flow, reading a balance sheet and how trusts work; and a more detailed look at specific assets that the family owns. He involves the parents — in some cases providing parents with information to give to their children, or doing a presentation for parents and children together.
“When you’re talking to the younger generation, the relevance of what you’re telling them sometimes becomes lost, either by the dollar number or the notion of what it means to be an owner or a steward,” Gardner says.
Managing differing views on transparency.
Once there are multiple family units being served by the family office, the directive about how much information to share can become complicated.
“You have a family member who will say, ‘Be transparent and tell my children everything,’ and you’ll have a sibling of that parent who will say, ‘I want my children to be motivated so I’d prefer not to tell them – I want them to go out and find their own job and learn on their own and not fall back on a trust,’” Gardner says. “Then your challenge becomes: Cousins talk.”
There are understandable reasons for parents to take differing approaches — and for their children to want more information.
Members of the rising generation may want to know, for example, if they need to be setting aside savings for their own children’s college educations.
But their parents may not be ready to share detailed financial information. They may still be young enough that they anticipate the number may change substantially before their children inherit, for example. Or they may want their children to focus on saving money on their own rather than waiting for an inheritance.
In some situations, though, the directions given to the family office may not be the only thing that matters.
“I think some parents don’t realize that their kids can Google the family and the family business,” Gardner says. “They know a lot more about it than you think they do.”
