Family governance questions brought on by a generational transition. A dizzying array of investment opportunities. Technology that promises to streamline operations but is complicated to choose and implement.
As a family grows, the family office faces more complex decisions — and more people wanting to weigh in on those decisions.
“It is absolutely true that there is more complexity as our family grows,” says Bryn Monahan, senior consultant with Relative Solutions and board member with Foster Holdings, Inc.
Although complexity brings challenges, it can also be a catalyst for decisions that will help focus the family office and bring the family together. Family office leaders offer these insights into how to turn rising complexity into opportunity:
* Simplify where possible. If the family office can reduce the number of moving parts, the team can give more attention to those that remain.
Monahan says that over the past few years, her family has merged trusts where possible and created new structures that better manage the growing family.
These efforts have included “moving a few household foundations to donor advised funds so that the staff doesn’t have to worry about managing them, and can focus their efforts elsewhere,” Monahan says. They have also invested in technology, both by purchasing more up-to-date solutions for their internal use and by investing in tech companies that are focused on family office reporting tools.
* Strengthen communication. It’s important for everyone to understand how the family office will evolve as the family expands and new generations take over.
And succession-related transitions do not happen only at the death of the current generation. Some parents, knowing that their children will be the ones to carry on the family office, are getting the next generation involved now.
“These parents are really encouraging the younger generational to start putting their fingerprints on it: How does this office need to serve them? What is the purpose of it?” says Peter Begalla, founder of JPB Consulting Group.
Anticipating the wealth will continue to grow and the family office will be serving more households as the family grows, these families are working to define processes that will allow the office to evolve as needed.
* Stop activities that no longer serve the family. Some family office services may have worked well when the family is smaller, but are no longer feasible or desirable with a larger group.
“We did a deep ‘stop doing’ list awhile back, to streamline service offerings and do bare essentials,” says Alexander Degwitz, family council chair and head of GEMIS, the family office of the Maldonado family. “We only take care of administration of holding companies and real estate portfolio property management.”
To help make this clear, they call their family office the “Family Accounting Office.”
* Divide and conquer using a clear framework. Unchecked complexity only grows across generations.
“You can surrender to complexity and just try to somehow catch up — but that’s a lost cause,” says Peter Moustakerski, CEO of Family Office Exchange.
Instead, Moustakerski suggests breaking complexity into more manageable pieces using a four-quadrant model: internal (in-house projects) versus external work (taxes, for example); and tactical (taxes and compliance) versus strategic work. Strategic tasks are likely what the family cares most about: This may include next-gen education, activities that keep the family together or the reputation of the family in the community.
“If you create a two-by-two framework, you can start arranging your priorities and the activities for the family office — then use that to decide what you can outsource or, in some cases, just stop doing,” Moustakerski says.
The framework can generate discussion about important questions, such as the core purpose of the family office.
“It starts to force both the owners and the family office executives to start with values and purpose, which then leads into: How do we then structure this?” Moustakerski says.