The term “family office” is bandied about a lot and is likely to become even more widely used as more of the wealthy, as well as more professionals, embrace the concept. The complication is that family offices are a concept as opposed to a particular thing. That's why there is no accepted definition that in turn leads to a plethora of structures, approaches and all being called a family office.
When the phrase is used, it can mean:
• A single-family office
• A multi-family office
• A virtual family office
• An embedded family office
• A hub-and-spoke family office
• A single-multi-family office (not to be confused with a multi-single-family office)
• An outpost family office
• A limited family office
• A family office practice
What’s clear is that people using the term family office can be talking about different structures and different ways of serving the family. In extensively researching single-family offices, for example, we defined a single-family office as a separate legal stand-alone entity that provides investment management where the senior executives are directly involved. Also, the senior executives identify the entity as a family office serving the needs of one family. While this definition made it much easier to conduct the research and compare the respondents, we recognize it excludes a wide array of other “types” of family offices.
To be able to put all types of family offices under the same tent, it is often useful to think of a family office in terms of its core characteristics. The following are three core characteristics of ALL high-performing family offices.
The human element: This is one of the most powerful and consequential drivers of value in the entire private wealth industry. To achieve optimal results, solutions must be spot-on. The only way that’s consistently possible is if the senior executives, as well as the internal and external experts, involved truly and deeply understand the family from their most important goals to their biggest worries.
A cohesive team: To get the best outcomes possible, a team of experts adeptly supported by staff is regularly essential. Some team members might be employees of single-family offices while others are engaged as necessary. What’s critical is that all the team members work together effectively and efficiently to deliver the greatest value possible—which is why the team is defined as cohesive.
Systematic processes: So often professionals haphazardly deal with their clients. Unfortunately, the same can be said of a percentage of senior executives running single-family offices. Their working arrangements, for example, are far from smooth. These professionals and senior executives are not very methodical in how they deal with the families to the detriment of these families. The use of systematic processes enables the professionals and senior executives to more consistently deliver exceptional value.
According to Robert Daugherty, chairman of Endowment Assurance Corporation and co-author of How to Build a High-Performing Single-Family Office: Guidelines for Family Members and Senior Executives, “There are tools and techniques that tie to each characteristic that contribute to making a family office high-performing. By thinking about family offices in terms of these three core characteristics, it becomes easier to understand all the variations as well as why some family offices are delivering incredible value and other ones do not.”
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