In a previous article we focused on how a family may go about “the Design of the Family Office”. In many cases the role served by a family office represents the administrative wing of the family’s government akin to its “Civil Service”.
In the context of a family, the family office’s function can be seen as a Civil Service so that its members enjoy the benefits of a coordinated supply of services.
In much the same way as governments seek to deliver public goods and utilities like, law and order and education, so a fully formed family office provides a framework around how the family participates as part of a broad collective ownership structure and across inter-generational families helps develop the human capital of the family, by offering access to financial education and social networks.
Some of the family’s needs may be provided by third parties, by for example, adopting a manager or the manager’s approach to its portfolio or outsourcing back office functions. In which case, the family office needs to provide a regulatory responsibility.
Here it can often mean that a fine balance has to be struck to ensure that the benefits of the family office and the skill sets employed within the family office do not become outstripped by the expertise of the third party providers, thus leaving the family questioning the need for its existence in the first place or worse, the family office acts to regulate the supply of knowledge and expertise to family members such that the family’s best interests are not being served – an internalized form of ‘career risk’ management perhaps.
In my experience successful CEOs of single family offices are consummate diplomats who offer an open mind with the capacity to understand and absorb new ideas and be capable of embracing differing points of view and expressing an opinion, which at the same time does not usurp or overrule the wishes of the family.
There is also a danger in larger family groups that the family office may also become of be perceived to be too focused on the needs of dominant family members rather than serve the interests of the family or community as a whole.
In these cases a common complaint from family members is how much they pay for the services of the family office. And in contrast, the family office executive may bemoan the extent of service creep that can occur. Again not an uncommon complaint from civil servants reporting to department heads at budget time.
Due to the potentially, broad multi-dimensional scope of even the most rudimentary family offices, the head of the family’s civil service, be it a family member or third party appointee really needs to be capable of offering a far sighted vision with the capacity to define the family’s policy and strategy across a number of different ‘departments’ and ‘portfolios’ including investment, compliance and education.
Due to the inherent complexity of wealth and families, the quality of the family’s ‘civil service’ should ideally be measured by a set of agreed deliverables and outcomes and the opportunity taken by the heads of the ‘civil service’ on a regular basis to communicate the costs and benefits associated with the operation of the family office to its client base.