AGILE FAMILY OFFICE QUADRANT

Our experience working for and with family offices leads us to view them as startups with a lot of money. We find this lens particularly helpful because we logically organize a multitude of functions into our proprietary Agile Family Office Quadrant™.

Identity

Every family is unique. Whether or not this uniqueness is documented in a family charter or simply discussed over the dinner table, family dynamics can become the proverbial flock of geese meeting a plane’s engine. Less than ten years ago, a Harvard Business Review article put the spotlight on the fact that 70% percent of family enterprises fail by the time grandkids take the helm– it’s “shirtsleeves to shirtsleeves in three generations.” Let us examine where the data fall. Only 3% of wealth loss is due to insufficient tax and legal planning; 8% is due to a lack of proper governance structure; 17% occurs because the youngest generation is not adequately prepared for creating and managing wealth. The largest percentage of families by far, or 42%, lose wealth because trust and communication in the family system erodes. For this reason, we start with Identity, and its expression through either a formal family charter, or through informal, but quality communication and strategic decision making.  

A family mission is often an extension of the operating business that has generated the wealth in the first place. In that case, the family office’s mission might be promoted through tactical  investments in a specific industry, generating ingenuity  that benefits the operating company. Some family offices choose to add ESG (sustainable) investments to their portfolio, which, in addition to being an environmentally and socially sound practice, elevates reputation and brand integrity.

Each successive  generation needs the education, skills, personality traits, professional network and relevant managerial experience to preserve the family’s capital and continue growing the enterprise while sustaining its hard-won positive reputation. The next generation also needs to embrace the family philosophy around spending vs. reinvestment, risk tolerance and other aspects of the family’s identity.  Philanthropy, art, and culture are wonderful facets for  expressing  family identity. And, of course, the family legacy is informed by a carefully curated reputation - the ultimate expression  of its strength and success.

Administration

Bill paying, domestic help, payroll, benefits, talent acquisition, curating art, servicing aircraft, setup of a family office – we place  all of these tasks and more into the Administration bucket. When sixty family members decide to hold a family reunion in the Amazon, someone needs to arrange the schedules and ensure physical security. When Wi-Fi and electronic devices need to be coordinated across five  residencies in multiple countries, a professional IT services firm saves time and money. When domestic help is hired, an employment law firm needs to  ensure that all employment laws are followed, and the family is protected from lawsuits and IRS inquiries.  

Investment Management

Investment management functions start with investment policy, which specifies the asset class mix, geographic and sector diversification, the amount of leverage and similar factors. Depending on the portfolio profile, legal and tax experts create appropriate investment vehicles. Investment professionals are hired, and vendors supporting the investment management activity, including finance, legal, tax, operations, fund administrators, prime brokers, technology and other vital functions are competitively selected.  

Wealth Preservation

Family offices take a defensive, risk-averse stance in many areas, including protecting their assets from outright fraud, which happens in cases where appropriate governance and controls are missing.  Privacy protection is paramount – data leaks can occur when appropriate cybersecurity measures are lacking. Generational wealth transfer is carefully structured and protected via vehicles such as family trusts and generation skipping trusts. It is essential that  family office stake a defensive posture in every aspect of their business – from managing investment risk to mitigating  risks inherent in their end-to-end operations, data and technology infrastructure.

To learn how to optimize your family office, please contact AlphaMille for a free consultation.