The 7 rules for protecting your family

Leading a successful business is hard, keeping a family happy is harder and doing both at the same time is a challenge fit for heroes – especially when several generations are involved.

A modern family office is a facility or collection of resources that pro-active families establish to directly support their members and to indirectly support their businesses. Traditionally, a family needed a lazy $100 million lying around to justify setting up a physical family office. Its mandate was to invest, manage and protect the family’s wealth and handle the legal technicalities of wills, trusts, tax and estate planning.

If a wealthy family didn’t want to start up its own family office it could engage the very expensive private client services of major banks or large advisory firms, or use the commercialised services of another family’s family office.

Although these ultra-high net worth families make their own weather and live like Gods, several satisfaction surveys indicate that many of them don’t get looked after nearly as well as ‘normal’ families that establish their own modern family offices.

Typically, these involve appointing a part-time family member and a trusted professional adviser (on modest retainers) to run the family office, supported by a network of professional advisers that usually also work for the family’s business. Costs are incurred on a fee-for-services basis, and the potential range of support services are as broad as the family’s needs make them. Consequently, their costs are much more bearable, and their services far more tailored.

Surveys by prestigious organisations such as the Family Office Exchange (USA) confirm that business families want two main types of service: (1) technical (wealth) services and (2) human services (relationships and sustainability).

‘Old School’ family offices are big on the first, but reluctant to engage in the second type of service, perhaps through fear of being embroiled in messy conflicts and other emotional stuff that could risk them losing an engagement with a lucrative client.

So, why establish a modern family office? Here follow 7 good reasons.

1. Plans and structures: It takes plans, resources, commitments and effort to produce and maintain a strong business and a happy family. These things don’t happen by chance, and having a dedicated, competent and enthusiastic family office means that it’s actually someone’s job to make good things happen.

2. Mutual obligations: Family beneficiaries are obliged to all other family members to live their lives in accordance with the family’s values, visions and plans and perhaps in line with a family constitution and/or a charter of mutual obligations. The modern family office is responsible for ensuring that obligations accepted and observed.

3. Separate decision making: Family stuff (including ownership issues) is dealt with in a dedicated family environment, so the business remains free to concentrate on business decisions.

4. Business and life education: A modern family office develops and delivers education programs for future generations, covering things they need to know and extra skills they have to acquire. These are things they won’t otherwise learn at school or University. 

5. Conflict and relationship management: Every family has its issues, tensions, rivalries and challenges. Most families take them in their stride but personalities, events and circumstances can conspire to make life anything from difficult to deeply toxic. Part of the family office’s remit is to defuse such tensions either using its own resources or by engaging facilitators, mediators or other dispute resolvers.

6. Generational transition and succession planning: While the business organises its own leadership and management continuity, the family needs to address similar issues including ownership and future directions for the family’s wealth. The Modern family office has an enormous role to play here as it helps generations to work side-by-side to build the family’s future, instead of one generation feeling that it must vacate the arena to make space for the next.

7. Capital Distributions: Outgoing generations need sufficient funds to be financially secure while leaving enough capital in their businesses to benefit, rather than trap, their successors. A modern family office gathers information about individual needs and wants, encourages future planning and facilitates negotiations to arrive at agreed outcomes.

A modern family office is therefore a co-ordinator, procurer and deliverer of essential support services to the wider family. The benefits it can bring – from homecare services to ownership strategies – provides a nuclear point of contact for the whole family and a wonderful reason for the family to remain intact and engaged over the long term. 

Jon Kenfield is an accredited family business adviser with The Solutionist Group and author of The Solutionist Guide to Family Business.