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Building a successful family office: Top 10 questions to answer

Conceive, build and maintain your family legacy


Authored by RSM US LLP

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.

Consider these three basic examples of mission statements with varying complexity and detail:

The mission of the family office is …

…to manage the wealth of the family members and to effectively preserve and protect wealth transfer to the next generation.

…primarily to educate future generations and ensure our core values endure. Our family office team will work closely with each family member to ensure our desired emphasis on social causes and protection of the environment are incorporated into our investment portfolio and philanthropic efforts.

…to develop the optimal structure and wealth strategies to preserve our wealth from the effects of taxes, and build a long-term investment portfolio with direct investments focused on cash-flow-generating investments that align with our core industry expertise, both as a family and within our internal investment team.

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?

Family offices face a variety of risks. Understanding those risks from the outset helps a family office manage and mitigate them with structures and processes that often can be supported by digital solutions.

Consider the following risks and associated questions:

  • Investment risk:  How do you measure potential downside volatility, liquidity and capital calls? How do you model different investment scenarios?
  • Operational risk: Do you have a tested business continuity plan in place? Are there redundancies that ensure smooth continuity or succession if a team member or service provider were no longer able to perform that function?
  • Cybersecurity: How are your systems protected? Are they capable of supporting remote work? Are your employees trained in good cyber hygiene?
  • Legal risk: What are the implications of your family office’s jurisdiction? How are service and staffing contracts drafted?
  • Data management risk: Do you understand the benefits of storing data in the cloud? What controls are in place to manage your employees’ and third-party providers’ access to data?
  • Audit risk: How prepared are you in the event of an audit?

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.

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This article was written by RSM US LLP and originally appeared on 2021-08-20.
2021 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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