INSIGHT ARTICLE  |  August 20, 2021

Creating a family office and sustaining its success starts with a thorough assessment of your family’s priorities, objectives and capabilities. Whether your family is considering forming a family office or evaluating one that already exists, these 10 questions provide a framework to position your family to thrive.

1. How do you define success as a family and for the family office?

Many of us would prioritize passing down our values ahead of assets to our children and grandchildren. While some families have clearly defined and widely shared values, many have not sat down together with multiple generations to discuss goals, ideals and legacy. Defining shared values is critical before a liquidity event because it helps guide decisions through the transition.

The shared traits of highly successful entrepreneurs and professionals often include discipline, grit, passion and an unyielding work ethic. Conveying a fortune to a young person before they are ready can challenge these essential characteristics. Establishing appropriate guidelines, educating younger generations, and documenting the hard work and sacrifice that developed the family’s fortune will create a framework for multigenerational success.

A family that defines success as it specifically relates to wealth can structure and focus its family office accordingly. It enables the family to measure success with clear objectives and benchmarks. For example, if philanthropy is a key family objective, the family office can set goals and develop processes for supporting the communities and institutions the family holds dear.

2. What is your purpose for building or maintaining a family office?

After a family office has clarity on family values and a definition of success, a mission statement is a natural and important next step. The statement might simply formalize the objective to manage the family’s wealth, but it also could incorporate the importance of philanthropy, education and preservation of core family values.

3. What is your investment profile—including overall objectives, size and allocations of assets, tax implications, and risk profile for each capital pool?

While this might sound straightforward, the answer is often complicated and difficult to specify, especially after the family has spent years investing with a clear focus on its operating business.

Clarifying the overall allocation and investment objective for each capital pool, as well as the individual investments in each capital pool, requires an inventory of traditional investments, alternative commitments, direct investments, real estate holdings, artwork, and all assets—and identifying the location and entity that hold each investment.

4. Are your family’s multigenerational objectives best suited for a single family office, a multifamily office or a virtual family office (a family office with an outsourced chief investment officer or chief financial officer functionality)?

While asset size and complexity may be a reasonable guidepost for whether to build your own single family office, join a multifamily office or hire an outsourced CIO, many other criteria factor into that decision. Consider privacy protections, controls, customization preferences, budget, the family’s desired involvement in office functions, the complexity of the investment program and many others.

A trusted advisor with experience helping families make this critical decision can identify the structure that best aligns with your family’s objectives and nuances.

5. What governance framework exists within your family office to facilitate decision-making and enhance office functions?

Informed, timely decisions enable a family office to achieve the family’s objectives, and supporting those objectives with organizational structures and processes is critical.

The new family office benefits from considering the family’s values and the family office mission statement when mapping out key governance pillars, such as a family constitution, the family office board, investment committee, audit committee, environmental, social and governance committee, direct investment committee and any other committees that align with the family’s goals.

Established family offices that regularly review their governance structure and processes effectively sustain each family office’s success for future generations. This ranges from a reevaluation of high-level family objectives to a more specific assessment of the size, terms and effectiveness of each committee.

6. What are the main challenges you face as a family today and in the future?

7. What wealth strategies and planning tools will help you meet your family’s multigenerational goals?

Ensure that your trusted advisors are coordinated and working as a team to deliver the optimal strategies, and are up to date on objectives, spending needs and philanthropic goals.

Quarterly meetings are recommended, especially at the inception of a single family office, the start of a relationship with a multifamily office, or the development of a virtual family office.

8. What systems run your investment performance reporting, tax management and accounting functions?

Family offices that make decisions using integrated, real-time data stay on top of their performance objectives. Technology has advanced to where a customized, comprehensive, cloud-based platform can capture, display, interpret and clone data in ways that enable office employees, family members and advisors to dial in on strategic business decisions and functionality of the family unit.

For example, RSM’s FamilySight can fully integrate back-office functions such as tax compliance, portfolio management and financial aggregation to bring an enterprise-level view into focus.

9. How can technology help your family office sustain success?

Customizable automated systems for financial reporting, bill payment, document storage, mobile device management and human resources are improving the timeliness of information, the thoroughness of reports and reducing risk. Consider which of your office functions need improvement and how technology can create value by increasing efficiencies.

When it comes to technology that enhances office functions, there is a continuum between benefits and value. Finding the right balance for your family office depends on your priorities and budget. Regularly assessing those enables your family office to drive and maintain progress toward its goals.

10. How do you manage data and store documents?

Comprehensive document storage and retention practices ensure a family office has secure access to critical personnel and family financial records. Updated practices and policies can help mitigate concerns about the potential loss of key information and facilitate a faster response to sensitive or urgent matters, such as a cyber incident, material health event or family business transaction.

Cloud technology can help secure and back up important documents and data. It also enables automated processes that save time.