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How to Future-Proof Your Family Dynasty: Part 4.

Your Family = Your Keys to the Kingdom

Future-Proofing Your Family Dynasty. Your Family Office = Keys to the KingdomIntroduction

In our previous Family Office-related posts, we have discussed at length the more “technical” issues surrounding the formation and maintenance of Family Offices.

Here, we are going to have a closer look at ways and means to strengthen the family office’s link to the Family.

Family Offices have traditionally been created to manage a family’s financial affairs. But over the last decade, some Family Offices have evolved to serve a broader role in the Family’s Enterprise beyond wealth management and tax planning.

As families have become better informed about how to structure and manage their Family Offices, a growing number is embracing a Family Office with a larger, more pivotal role in advancing the family’s strategic goals. In doing so, these Family Offices are strengthening the important link between the Family Office and the Family.

How to Future-Proof Your Family Dynasty: Part 4.

Your Family Should Hold the Keys to The Kingdom

Multi-generation longevity, is for many, (and should be the goal for all Family Offices), the key objective of a Family Office. Hence, the creation of a long-term family dynasty is more likely to be assured with this in mind – and in practice.

So, the key question then is how best to achieve this?

A glib answer would be to ‘just focus on the family’.  Whilst this answer is insufficient, it does contain the fundamental essence of truth in it regarding the desired relationship of the Family Office to The Family, that is “The keys to the kingdom”.

Future-Proofing Your Family Dynasty -Schematic of the Family EnterpriseUse the Family Enterprise approach to construct the Family Office you need.

Family Offices that anticipate the family’s trajectory and increasing complexity, by taking a ‘Family Enterprise view,’ stand a better chance of achieving two outcomes: creating value for the family in excess of its cost and secondly, succeeding over generations (future-proofing your family dynasty, if you will). Adopting the Family Enterprise view means planning for the current and future needs of all of the family’s meaningful activities and financial interests in an integrated manner.

The entirety of a family’s meaningful activities and assets is called the Family Enterprise, which includes the core operating businesses, non-core businesses, real estate investments, tangible assets like art collections and family homes, philanthropic activities, governance bodies plus other pursuits that carry the family’s DNA and reputation. A Family Office is well served by mapping the family’s trajectory for each of these activities, and organising its services, time, management, staffing, and resources to meet the evolving needs of the total Family Enterprise.

With this framework in mind when constructing the Family Office, it is important to first conduct an assessment. This means identifying key issues, goals, and needs important to family members pertaining to family, enterprise and ownership continuity, be they financial or non-financial in nature. Family members should be given an opportunity to individually voice their key concerns, interests and needs — both current and anticipated, along with their priorities. Also useful before designing the Family Office is to understand the family’s purpose, strengths, aspirations and needs for their entire Family Enterprise.

Equipped with this information, the Family Office principals can design the right structure and devote an appropriate amount of resources to build a Family Office that is right-sized and outfitted for their specific family. Doing this will also help to ensure that the Family Office is one that will grow with the family.

Not only does this process provide the wealth owners with a good amount of useful information about the family’s needs now and in the future, it is also inclusive of the family members and governance groups that the Family Office will serve. No price can be put on the trust that is built when family members feel heard and represented in an organisation of which they are a beneficiary.

The Activities of a Strategic Family Office

Family Offices are well positioned to centrally manage many of the family’s strategic activities beyond the growth of its financial portfolio. These Family Offices direct and support critical functions including:

  • Implementing the long-term goals and vision of the family
  • Executing the Family Council’s agenda
  • Administering family governance
  • Designing talent development programs to prepare the next generation (with the Family Council), and
  • Other activities to improve the chances that the family, not just its wealth, thrives over generations.

However – have enough Family Offices made this shift? Today, there is no shortage of Family Offices that still spend a disproportionate amount of their time managing only investments and financial activities, giving little attention to the higher order, strategic activities that will help the family sustain its unity, talent, and momentum alongside its wealth. This therefore brings us to the matter of …

The work of the Family Office being driven by the family’s mission and vision.

The Family Office deserves to have a mission and vision that pursues the family’s multi-generational sustainability and success as a family.  This higher order mission and vision needs to be articulated by the principals and family. It then needs to be adopted by the Family Office team and governance group. Family Offices need to regularly examine their purpose and the strategies that will enable them to achieve the family’s goals both now and into the future. This requires regular attention to the path and development of the family and the pacing of its needs.

If your Family Office does not have a mission and vision, or if they need to be revisited, ask yourself these questions to help you develop or improve them:

  1. Do our Mission and Vision statements give the Family Office purpose and direction? Is it clear to us and our stakeholders what we are building and why we want to build it?
  2. What are the family’s financial assets and meaningful activities that we want to sustain through the next generation and are these being supported by the Family Office?
  3. In addition to supporting financial objectives, does our Family Office help the family achieve strategic, non-financial goals (e.g. preserving family cohesion, building family talent and maintaining momentum across generations)?
  4. Does our Family Office have an appropriate and well-functioning governance structure to achieve its mission and vision? Does the governance structure integrate well into the total governance system of the entire Family Enterprise?
  5. Are all parties clear about the goals and endeavors that the family wants the Family Office to achieve in the next ten, twenty, or one hundred years even? Do these goals lead to specific, concrete actions?

In pursuing the formation of the Family Office’s Mission and Vision, it pays to be aware of the….

Five Common Challenges of a Family Office

Every Family Office has a unique history and developmental trajectory. Nevertheless, history reveals that there are five common challenges in the evolution of a Family Office. As such, it has been shown that these are often the cause of a weak link between the family and the Family Office.

Wrong jumping off point: A Family Office often starts as an embedded Family Office within the family business followed by becoming a separate entity when the family, its complexity, its wealth and its risks outgrow the business personnel. As a result, it is not uncommon to see the Family Office founder first focus on setting up an office to efficiently manage investment activities, wealth structures, taxes, estate planning, and other categories of financial services that the family business’ staff can manage. Most begin here rather than comprehensively tailoring a Family Office that the family actually needs.

Lack of vision and mission: One essential function of a Family Office is to accompany the family in their multi-generational journey through ways that both respond to concerns/requests and help guide the family’s progress in a proactive manner. The most effective Family Offices do both well.

Too often, though, Family Office management does not see their Family Office serving this dual purpose and instead confine their Family Office to the role of reacting to principals’ requests. This limitation does not benefit the family nor does it motivate Family Office management. It is the outcome of a Family Office that lacks a clear mission (purpose) and vision that takes into account the family’s evolving needs. The Family Office is well positioned to understand the family well, to look ahead at the trajectory of the family, and recommend plans, scenarios, and solutions that will help the family achieve its long-term strategic goals. Still, it needs the mandate of a mission and vision from the family to do these.

Non-financial services are missing: The Family Office needs to invest in non-financial activities that support the family and its multi-generational continuity. These are projects such as unity-building and talent-building activities that strengthen the family and bolster its capabilities as active owners and board members. These non-financial activities also help the family through its transition to future generations as well as being fundamental pillars to maintaining an enduring family (Family Dynasty). Their returns may not appear on a financial statement immediately, but they do pay off over time and lead to long-term success for the family and its enterprise. Most Family Offices do not incorporate non-financial activities into their purview, but they should. The Family Office is often the right place to centrally manage and execute these activities on behalf of the family and Family Council.

A holistic governance structure is absent: In order to have an effective Family Office, the family must be aligned around creating value together. This clear direction, decisiveness and unity among the owners is best achieved through an effective governance system. The family needs to ensure that the Family Office has solid governance, with the right outside expertise in addition to leadership by capable owners. Not only does the Family Office itself need sound governance as it also needs to integrate well into the total governance system of the entire Family Enterprise.

Inability to adapt to the future generation: This is arguably the greatest challenge of all. An important responsibility of a Family Office is to help the family preserve family cohesion and maintain momentum across generations. As succession plans are put in place across the family’s companies, assets, and activities, the Family Office is often overlooked, yet it needs a succession plan too. Managing the Family Office’s transition to the next generation is vital. It is at a generational crossroads that many Family Offices stumble and do not survive the leap to becoming a multi-generational entity. A generational transition in the Family Office requires fundamental changes in the ways the Family Office engages with family members. Part of a Family Office’s success is its ability to adapt to the rising generation, including developing services, communication and management styles that are a cultural fit for the new generation.

Our next article will discuss the topic of Succession Planning.

How FBA Can Help You With Your Family Office

At Family Business Advisory (FBA), our purpose is to help family businesses succeed on a sustainable basis. As such, we provide you with access to specialist family, business and technical services with a goal being to generate opportunities for families in business.

In order to complement our own particular specialised skills, over the past several decades, we have developed a network of trusted, professional advisers in such areas as:

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Moreover, we work at all times to give you peace of mind and proactive support to help navigate any changes in the market brought about by legislative changes, geopolitical events and general market conditions – all to maximise your personal wealth and security.

These services are provided by FBA, in association with the Wealth IQ Group.

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