As families grow and generations expand, so does the complexity of the family office. More family members mean more preferences, more goals, more requests. What may have started as an office focused on the needs of the founder can, over time, evolve into a multifaceted organization with dozens of stakeholders engaged in an ever-widening range of activities.
“I found that complexity in a family office is directly correlated to the complexity of the family we serve,” says Josh Miller, CEO of Minot’s Light Management Inc. “Layer on technology, and the complexity increases exponentially.”
“You’ve got the size of families, you’ve got technology and the world getting more complex, and now you’ve got family members each wanting to do more and more and more esoteric activities,” says Peter Moustakerski, CEO of Family Office Exchange. “You’ve got an exponential increase in the complexity of what the family office is being asked to do as a result of these three factors being layered.
This complexity — a natural outcome of family growth that is being accelerated by external trends — can be catalyst for renewal and adaptation in the family office.
A family office that was set up to serve one or two founders may need to evolve to meet the needs of subsequent generations.
“When you go from one person making all the decisions to having 30 cousins, complexity goes through the roof just naturally,” Moustakerski says. “A family office that 10 to 15 years ago was producing one report for one owner, on a scope of maybe three to five activities, now is producing dozens of reports for 20 to 30 owners or beneficiaries on hundreds of activities and who knows how many entities.”
Next-gen family members may have different interests than the family office founders, as well.
“Another layer of complexity is that the 30-something — or in some cases 300 — family members now all want to do something good in their lives,” Moustakerski says. “They want to build businesses, they want to start foundations, they want to do impact investing, they want to work in communities. Many of these things are quite esoteric and not day-to-day activities. Some of it might be just for personal fulfillment and pleasure — things like collections and art.”
Advances in technology are accelerating this trend toward complexity — for example, by multiplying the avenues by which family members can receive information.
“Another layer that multiplies that complexity is how fast the world and technologies are moving. This is creating all sorts of opportunities, risks, and challenges, whether it’s cybersecurity risks, or AI opportunities and or risks. It’s a multiplier of complexity,” Moustakerski says. “When you have 32 cousins, and everybody has different technology preferences and wants to see their reporting in 30 different ways, all of a sudden, your family office now has to create 100 versions of the same report that used to be just done for one owner.”
Family offices manage this increased complexity in a variety of ways. One is a focus on purpose and process.
“We focus on two guiding strategies,” Miller says. “First, when evaluating new technology, we always begin with purpose: How will this tool help us better serve the family and advance our mission? Second, we maintain a disciplined focus on process. By continuously refining procedures and anticipating where issues might arise, we ensure services are delivered as effectively and efficiently as possible.”
Another strategy is to add staff.
“We have used shared services in the past, but as complexity grew, we felt a need for a full-time dedicated CFO and may have to add dedicated legal resources, as well,” says Joe Tracy, CEO of Dot Family Holdings.
The complexity that comes with family growth can also lead to a re-evaluation of what the family office does or how it is structured.
This can happen, for example, if family engagement is dropping as the number of family members grows. If the office was formed after the sale of the family’s operating company, family members may start to focus more on their individual pursuits than on obligations like family office board meetings.
“Now the households are drifting a little bit, and the purpose of the wealth and why they’re banded together is getting a little murky. These are scenarios where the original purpose of the office has kind of faded, and engagement is decreasing,” says Peter Begalla, founder of JPB Consulting Group.
When family members realize this is happening, they may be able to focus on ways to renew the commitment.
Family members often realize just how complex the family office has become when they are planning for a generational transition — something that is happening frequently with the transition from the Baby Boomers to their children. Many family offices are finding that it’s time to reassess which services they need, and who provides them. In some cases, the incoming generation defines their needs differently than their parents. And sometimes the size of the portfolio or the family — or both — has grown to the point that the family office operations are more complex.
“The rotation of service providers is underway: ‘Let’s look at a new RIA. Do we need a new trustee?’” Begalla says.
This type of re-evaluation is a healthy practice for all family offices to undertake periodically. Managing the complexity that arises naturally from family growth can not only help family offices overcome an operational risk: It can help sustain family connections across generations.