Judy Lin Walsh is a partner at BanyanGlobal Family Business Advisors, which helps families that own significant assets navigate generational transitions. One key question families need to answer is why — or even whether — they want to continue to own the assets together. She talks about how families answer this question:
How can family office professionals help families decide during a generational transition whether they want to keep investing together?
Family office heads, particularly nonfamily members, can play a calming role that helps families find alignment. Sometimes families are actually vehemently agreeing with each other — it’s just that because that person said it, or because of how they’re saying it, other family members default to disagreeing. They might actually have more in common than they think. That is a unique value that a trusted family office person can add.
Are there any wrong answers to the question of why families want to invest together via a family office?
The one that’s always a red flag for me is if the only answer people come up with is economies of scale: It’s so that we can get slightly more favorable investment terms from the banks, or maybe we can get the law firm to cut us a discounted rate. I don’t think that is enough. It’s a pretty slim reason. There has to be something more meaningful for you to go through with the investment cost, because the family office is a business that you are jointly running. It’s a small business that is highly dependent on having all the principals engaged.
What are some of the practical reasons families want to keep investing together?
Some families have an operating company in addition to the family office, and their goal is to communicate in a unified voice to the operating company board on behalf of the shareholders, so they’re not getting dozens of calls from different shareholders that are saying different things.
There can also be complexities in the family’s estate plan where it just makes more sense for somebody who knows the ins and outs of the assets to handle the coordination across estates instead of taking a number at your local accounting agency.
What are some other reasons families give for keeping the family office?
If there is an operating company, that’s like the glue, the legacy. People are really proud of that and so they are more likely to engage — not just financially, but emotionally and intellectually.
For family offices that are post liquidity, they are in a different stage. What’s the glue? What’s bringing people together? It can be hard to get that sense of glue, especially if you’re multiple generations down the line and you’ve got cousins all around the world. Who really even knows their third cousin twice removed? A family office can help bring people together.
The other piece we often see is around education and NextGen development. I can go and try to find somebody to help my children, but we might be able to get a better resource if we are all kind of collaborating together. Those are also opportunities to bring people together on meaningful conversations and topics that matter.
What do families need to consider as they make this decision?
If you jointly own a family office together, it’s important for the shareholders to have some baseline knowledge of each other, because you are the owners of a significant asset. Family offices can be part of that bridge and that connectivity because you do have something in common: You’ve got this tremendous asset. You don’t need to be best friends with everybody who co-owns this family office with you, but you really do need to know them at least a little bit, so you can collaborate together.
