Thinking of setting up your own family office? Setting one up can be a complex and time-consuming process. But it can also be hugely rewarding, helping to protect and grow your family’s wealth for future generations. Here are four tips to keep in mind as you embark on this journey.
1. Define your goals
Before you begin the process of setting up your family office, it’s important to take the time to clearly articulate the purpose and goals of your organization. Why do you want one and not to use a private bank or wealth manager? What do you want your family office to achieve? How involved do you want to be? Will it be focused solely on managing your family’s financial assets? Or will it also provide additional services such as philanthropy, succession planning, and estate planning?
No two family offices are the same. Some only focus on investments, outsourcing all the professional and other services. These are more accurately described as private investment offices. While others staff lawyers and administrators, outsourcing all the investment services, and focusing on family services. By defining your goals upfront, you’ll be able to better concentrating your efforts and resources, and ensure that your family office is aligned with your long-term objectives.
2. Assemble the right team
Building a strong team is crucial to the success of your family office. In finance, like most service industries, your people are your main asset. The team may include experienced financial professionals and lawyers, or support staff and administrators. Many private bankers are hired into family offices because of their experience working with ultra high net worth clients. However these bankers, accustomed to being supported by a large infrastructure, often do not transition well into a smaller organization. Family offices today often consider a hybrid approach to outsourced family office services.
In addition, the personality of every hire matters more than ever in a small organisation, so you must ensure you have people that fit with your culture and values. It’s important to choose team members who are committed to your family’s vision and who have the skills and expertise to help you achieve your goals. The team must also include assembling the group of key stakeholders and decision-makers within your family or advisors.
3. Establish Good Governance
Decision-making is an important aspect of running a successful family office. It’s important to develop a system for decision-making that is fair, transparent, and efficient. This may involve setting up a board of directors or a committee to make major decisions, or establishing a formal voting process for smaller decisions. Some families choose to control all aspects of the business, whilst other select a high quality and independent advisors.
Effective communication is essential for the smooth operation of any organization. This is especially true for family offices, where multiple generations and personalities may be involved. Establishing clear communication channels within the family office and with external advisors are critical to prevent misunderstandings and ensure that everyone is on the same page.
Decision making and reporting lines are equally important for your team as well as your family. Employees and advisors should know exactly what is expected of them, and allow them sufficient opportunity to grow in their careers and expertise. Compensation is a related and key consideration. How will management and the team be compensated? Will they receive bonuses or participate in the financial success of the family office, or even directly in the investments made?
4. Choose a suitable structure and location
There are several options to consider when it comes to the legal structure of your family office, including trusts, limited liability companies, and partnerships. Each option has its own advantages and disadvantages. It’s important to carefully consider the tax implications and potential liability of each option. A lawyer and financial advisor can help you determine the best legal structure for your specific needs.
Location is also important, particularly in Europe where there any many factors to consider; tax residence, costs, family ties and access to talent. If you are the decision maker, you may choose to keep your family office close by. But if you prefer to let your advisors direct the investment decisions, you may prefer to choose a location that is more efficient for tax planning and access to talented professionals. Some families relocate for tax purposes as often family offices are created once the family head retires from their professional activities. Increased use of technology in family offices is allowing greater options for remote work.
5. Identify your KPIs for success
To ensure that your family office is meeting its goals, it’s important to establish key performance indicators (KPIs). This will will be used to measure its success. In the words of management expert Peter Drucker, “what gets measured, gets managed.” These KPIs can be both financial and non-financial. They may include metrics such as growth in assets under management, family satisfaction, and philanthropic impact. Once you have identified your KPIs, it’s important to set targets for each one and develop a plan for tracking and monitoring progress towards achieving them. Is your goal to grow your assets, or preserve them? Is impact or socially responsible investing important? Will you measure success based on financial performance? Or other factors such as impact, family involvement, education, continuity or wealth transfer?
In conclusion, setting up a successful family office requires careful planning and organization. By defining your goals, assembling the right team, choosing a suitable legal structure, and identifying your KPIs for success, you can set the stage for a successful family office that will serve your family’s needs for years to come. Remember to also prioritize effective communication and decision-making processes. This ensures that your family office is running smoothly.