Best practices for setting up a single-family office

If your family’s ownership and management of business and personal assets is increasingly complex, setting up a single-family office may be the natural next step. While it will provide more control over staffing and bring family assets under one umbrella, a single-family office can also help improve trust and communication among large or far-flung families, encouraging the growth the preservation of family wealth.

What is a single-family office?

A single-family office is essentially a business that manages a family’s personal and business affairs. Traditionally, a family office is run by a president/CEO and employs experts who work together in a shared physical space and are aligned on the family’s needs and goals.

Contrast this with a multi-family office or a virtual family office, which may contract with leaders or experts who also work with other families. The employees of a single-family office are dedicated to your family and will use 100% of their time, experience and expertise to manage your assets and grow and preserve your family wealth.

A single-family office provides an organized approach to handling the investment and wealth management needs of one family, with the goal of growing and transferring wealth across generations.

Benefits of a single-family office

By setting up a single-family office in the way that best suits your family’s needs and goals, you and your family will benefit from more personalized attention, efficiency and control over your holdings.

More importantly, establishing a single-family office may improve trust and communication among family members, create a focus on leadership development, and establish a shared mission and vision for your family’s wealth and legacy. These “soft” considerations often have a significant impact on the long-term success of a family’s finances—but they may not come naturally to wealth managers who are only trained in the legal, tax and investment disciplines.

Setting up a single-family office: Is it right for your family?

Depending on the size of your family and the complexity of its holdings, among other factors, you might not be ready for a single-family office. But if you’re considering it, here are a few questions to ask to gauge whether now is the right time to explore setting up a single-family office.

1. Do you want more control over how your wealth is managed?

A single-family office offers a family significant control over the management of its wealth. However, with control comes responsibility.

The family office is a business, and while employees will manage it, the family will make, at a minimum, all director-level decisions. Concerns and responsibilities – such as business strategy, budgets, office rents and hiring/firing – will fall on family members, rather than a wealth management firm.

2. Would your family’s assets benefit from more coordination?

Pooling assets offers a comprehensive view of the family wealth. It gives your family a vision and mission that you can apply to decisions across family branches and generations. It may also provide greater access to special investment opportunities.

This level of coordination means that family members must be willing to share some information with one another. When it comes to pooled assets, family members will have some knowledge of one another’s individual wealth and, potentially, of special needs and situations, such as requests for extraordinary distributions.

Not all family members may be comfortable with even a modest window into their affairs or open to having their personal interests subordinate to “what’s best for the family.”

3. Do you need to establish an exit strategy?

At some point, it’s likely that some family members will seek to go it alone and formally separate from the management of the family wealth. Creating an exit strategy that works for the entire family may help to ease tension and disruption in the future.

4. Do you prefer to vet and choose your family-office staff?

Creating a single-family office allows the family to select the individuals they work with, not just a firm. Single-family office employees should not only have the requisite skill set to perform their functions; they must also be comfortable working in a closer, more personal way with family members in an environment where there is often limited upward mobility.

Best practices for starting a single-family office

While each single-family office will be as unique as the family that benefits from it, there are a few best practices that will help your single-family office launch and operate in the most efficient and effective way possible.

1. Establish the governance and structure of your single-family office.

Establishing rules of governance, management and decision-making for the family office provides clarity and may help reduce conflict. The single-family office structure should also define rules for the board of directors, family council and, if needed, the operational team.

Create a board of directors and determine how directors are selected, whether at large or from specific branches, how many will serve for how long and how many non-family members should be included.

If your family is large enough, consider a family council as a separate unit to communicate directly between the family and the board. Again, determine how the council is selected and serves. Develop clear roles, expectations and responsibilities for the board, trustees and management.

2. Take the time to create your family office’s vision and mission.

Spend time as a family to determine the purpose of the family wealth and the role of the family office in facilitating that purpose. The following questions can help identify areas of affinity:

• Why are we working together?
• What are our common interests and values?
• Will we use our wealth to increase individual prosperity, create a better society, ensure wealth continuity for generations or serve some other purpose?
• Will we use our family office to provide services around administration, reporting, investments, banking, planning, philanthropy or all the above?

Gaining consensus on those questions will help your single-family office make both strategic and day-to-day decisions.

3. Keep an eye on the future with development and education.

Each generation must eventually take its place in the leadership and oversight of the family office. A well-designed development and education program can provide a pathway, bridge the gaps and improve the likelihood that the next generation will be effective stewards of the family wealth.

Programs that successful family offices offer to their family members include mentorships, financial literacy education, board apprenticeships and leadership coaching.

4. Prioritize communication and engagement with the whole family.

An interested, informed and involved family can help management better understand the family’s goals, follow the family’s vision and mission, and recognize and pursue new opportunities. This becomes especially important in the second generation, which tends to be a bridge for the family legacy in the transition from wealth creation to wealth management from generation to generation.

Regular communication is imperative both among the family and between the family and management. Consider developing roles and positions for family members and rotating individuals through them to allow broad experience to help family members feel connected to the family office.

Setting up a single-family office that will achieve your family’s goals now and in the long term requires forethought and resources. Having a clear vision for why you want to establish a family office, and following best practices as you’re starting one, can help raise the odds that your single-family office will be able to serve the family and its legacy for many generations.

Learn about family office services from Ascent Private Capital Management.