A single family office should reflect the family's needs, values, assets and plans across generations. Start by understanding what the family wants it to do, then build the people, processes and systems to support that work.
Set a pace and map the family
Many single family offices take three to eight months to establish. Some families take up to three years to lay the foundation before operating at full force. Recruiting talent and balancing the needs of different family members can take the most time.
For families spanning several generations, draw a family tree. Label each generation and keep it current. This helps advisors understand the size and structure of the family when they make recommendations.
Map the advisors and team, too. A mind map can show who coordinates the work and how the experts connect. The chapter describes a CEO, COO or board chair as a possible coordinator. A formal office with full-time staff may use a more traditional hierarchy.
Build the office in stages
The chapter's five-part process starts with listening and assessing needs. Spend time understanding what is known, what the family expects, past problems, and what priorities need attention.
Next, create a family office compass. Set out values, mission, objectives, constraints, governance, ethics, confidentiality and public image. Then assess resources and talent: create a construction plan, timeline and budget, consider an advisory board, and identify missing roles.
Implementation follows. Ongoing operations, processes and investment decision policies come after launch and continue as the office develops. The time estimates in the chapter range from two weeks for needs assessment to two to six months for implementation. The compass stage is estimated at one to three months.
Choose a location and operating model
Location can affect taxation, hands-on management and access to talent and outsourcing firms. Families often establish an office where wealth was created, but the chapter says to consider the locations of real estate, businesses, family and friends as well as tax rates. Tax planning also affects how important a lower-tax location may be.
Decide which work belongs inside the office and which work can be outsourced. Accounting and administration may be outsourced, especially in small and mid-sized offices. Reporting, valuation and distribution calculations can be complicated by illiquid assets, so systems for accounting and integrated reporting matter.
Technology can support accounting, fund administration, reporting, trading aggregation, risk tracking and communication. The chapter notes that custom reporting and account aggregation can become costly.
Plan for investments and risk
Clarify the office's investment scope and how much attention to give direct investments, operating businesses and traditional investment management. The chapter says many single family offices hold operating businesses, and that these holdings can represent a substantial share of family net worth. Each family's investment mix will depend on its experience and priorities.
Assess the risks of each investment area separately. Identify the professionals, processes and systems needed to manage those risks. Review insurance against the family's actual risks, paying attention to overlapping coverage, exclusions and policy details. The chapter recommends consulting an experienced insurance professional before changing coverage.
Scenario planning can reveal gaps in the advisory board or core team. Consider likely and extreme events, write step-by-step responses, and assign responsibility for carrying them out.
Set expectations for privacy, giving and governance
Decide early how public the family office will be. Set privacy policies for family matters and clear expectations for staff communications and public activity. Discuss security needs, too, including which risks matter to the family and what steps it wants to take.
Philanthropy can bring generations together, but it can also create conflict. Establish family values and objectives, document donation procedures, and create a governance process for giving decisions, including exceptions.
The chapter's startup checklist also points to financial controls, legal structures, ethics policies, an operating binder, contingency plans, an executive team and a diverse advisory board and investment committee. These tools help define how the office operates and who has authority.
Action checklist
- Draw and maintain a family tree showing the generations involved.
- Map the advisors and team, including who coordinates their work.
- Document family values, mission, objectives and constraints.
- Set a launch timeline, budget and plan for missing talent.
- Decide where the office and team will be based, considering family, assets, talent and tax planning.
- Identify which functions to staff internally and which to outsource.
- Assess investment risks, insurance coverage, privacy needs and security concerns.
- Write operating procedures, financial controls and scenario plans, and assign decision-making authority.
From the book
"The most time-consuming components of launching a single family office are the acquisition of talent and the balancing of diverse family member needs and requests.
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Richard C. Wilson, How to Start a Family Office
"Managing risk and protecting capital are the chief reasons why most family offices are established. "
Educational only. Nothing on this site is investment, tax, legal, accounting or other professional advice, or a recommendation on any security, manager, structure or allocation. Speak with qualified professionals before acting.