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Leading A Family Office

Successful families need an experienced generalist to protect their interests, but where to find the ideal candidate? Families can face competing challenges in managing their assets, and the role of Family Office Leader is therefore crucial.

The burden is great for management to figure out how to harmonize everything with a clear, shared goal, to feel empowered and under control, to understand the impact of wealth on the family, and to prepare the next generation to be effective owners. Families feel that monitoring and managing their assets is a real challenge, but finding the right person or team can work in the best interests of their children and grandchildren, as well as themselves.

Families struggle less and achieve more when they have proper support. Although each family is unique, there seems to be a common factor in their success. The missing link is someone who serves as the leader of the family's financial life. Without this leader, well thought out plans can dissolve leaving families overwhelmed and distraught.

What is a Family Office Leader?

The knowledge, experience, leadership and advisory skills required for a role in a family office are so diverse that the term "expert generalist" has been coined to accurately describe their macro and micro and peripheral points of view.

The ability to serve the family effectively as a trusted advisor for a long period of time is inextricably linked to the success of the office. The person most suited for this position must have a wide range of skills and experience, including a strong understanding of business, operations, financial management and business strategy, as well as leadership capabilities.

A family office expert is also responsible for ensuring that the services are aligned with the long-term objectives of the family and that the family's interests are consistently met. The depth of knowledge depends on the individual needs and objectives of each family, and vertical specialization is influenced by a variety of circumstances, including the specific services that are outsourced and their scope of services. For example, the scope required will be as large or as narrow as the family's individual needs, goals, and business strategies. It will all depend on the profound knowledge, but also on the familial understanding of the business model and the processes of the organization.

No amount of education, experience or acumen can compensate for this, and the critical factor is understanding the individual needs and goals of the family and the organization's wealth management model. Ingenuity is crucial, because a leader needs to know how to prioritize when the unexpected occurs frequently, the questions needed to ask, the resources required to get the right information to make the best decisions. The head of a family office must also have a strong peripheral vision and continuously predict how one decision might affect another. Regardless of qualifications, it is a cultural adaptation to serve families in a family office, whether in the United States, Europe, Asia, Africa, Latin America, South America or Asia.

The challenge for families is to find people who meet all these criteria. Families who hired and retained the right candidates for the role have the most successful family offices and are positioned to meet their long-term goals and objectives.

In addition to the leadership role, they also coordinate with specialists who provide family services. This also applies when a family needs someone who plays a key role in developing the business model of their family office. The latter happens when families rely on their CIO in business development, marketing, financial planning, and other business areas.

Some families have an internal CIO who will also take on the leader role or an external private banker who specializes in investments such as in real estate, stocks, bonds, and other assets. Given the high investment risk in a family office, private bankers can act as effective leaders within the institution they work but cannot serve across all providers. An in-house CIO also shouldn’t be involved in other non-investment roles to ensure everything is aligned with the family's goals and risks. There should be no conflict of interest in asset management, investment, or financial planning.

In the instances when there is no qualified leadership in place, significant challenges can occur, including:

  • Multiple investment portfolios that overlap in risk and return objectives

  • Higher cost investment solutions being utilized when lower cost solutions are available and preferable

  • Lack of investment portfolio, tax and legal structure integration resulting in higher or unnecessary costs

  • Inappropriate investments that also cost more in fees or taxes when other more effective options exist

  • Lack of an aggregated picture of their entire wealth and how it’s deployed

  • Lack of control and insight the family has over the portfolio

  • Discomfort of other family members from not feeling engaged and empowered in the decision making of the family

Solutions to these concerns involve

  • Identify a family member

  • Hire an exclusive experienced leader

  • Hire a firm that specializes in wealth advisory services

  • Use a combination of the three

Family Member as Leader

The leader of the Family Office must be able to address the profound and mundane needs of families. The integration of family culture is indeed the most important criterion, so why look further than the family to fulfil this role? Just like a trusted adviser to the President and CEO of a large company, the leader of a family office requires a deep understanding of both the family and its needs, and a strong commitment to family values.

If a family member has the skills, experience and qualifications of a leader described above, they may be an ideal candidate. Leaders must be able to manage difficult situations, make decisions without emotion, and face challenges in their personal and professional lives. A study revealed the degree of a family’s involvement can result in underperformance. One of the biggest mistakes families can make is choosing a family member who is primarily based on his or her trustworthiness, without evaluating his or her qualifications and experience in order to meet defined requirements for the position and expectations of performance. It may be unpleasant to hold family members accountable. What happens when the family member who also serves as leader does not meet the families expectations? What happens when there is a conflict of interest?

In this case, it is up to the family to clarify the metrics to measure a person's performance and role in the organization. A family member is uniquely qualified to act in the interest of the family if they have the necessary experience and show interest and commitment to this role.

External Experts

An advantage of external experts is that they are not emotionally involved, there is no familial conflict of interest. Their innate objectivity makes them a very valuable partner in the family, and they direct their attention, talents and abilities to achieving the goals of the family.

Finding the right person for the position is crucial to success. Also, there are few who understand the culture of the family, so there is no shortcut.

The candidate evaluation phase is a crucial part of the equation, and identifying and recruiting viable candidates is extremely important. Relying on the family’s personal network can be potentially disastrous, as it severely limits the universe of potential candidates.

Pursuing someone who is trustworthy but does not have the skills, experience, or competence to do the job can be a costly mistake. The family’s success in the board integration process, together with a strong understanding of the family's values and culture, can make all the difference in hiring a leader who stays with the family for the long term. Simply put, everything depends on careful preparation and commitment to the process.

It can take some effort to find someone who can perform this function without embedding conflicts of interest. However, if the family decides to outsource this role, it is crucial that leader look at things objectively from the family’s point of view and not from their own personal perspective.

Wealth Advisory Firms

Hiring an independent and unbiased wealth advisory firm may be an optimal option if the family doesn’t have internal capabilities. One of the main functions of the leader is to decrease financial media noise. Again, it is critical that the firm maintain an objective view.

Traditional wealth advisory firms that have many clients are unsuited to advise family offices. Wealth management firms with a low client to advisor ratio and who solely service family offices and institutions are better aligned with the exclusive sophisticated capabilities of the vast wealth controlled by family offices. They are also capable of better understanding family dynamics due to a more intimate relationship allowed by more time available to the family’s concerns.

Another aspect to look for is how they charge for services: if it’s a flat retainer fee, they are likely better aligned to advise than if they are receiving a percentage of assets under management ­ which will focus them almost exclusively on the investments.

Also, misalignments between playing the broader advisory role and having a non-­family agenda ­such as conflicts of interest, may be disclosed in their public ADV they must file with the SEC. These conflicts might include being affiliated with financial services firms whose products they may be incentivized to sell or refer, or receiving administrative or other fees from asset managers they are recommending for their clients’ portfolios.

Ideal attributes that are often associated with these often hard-to-find individuals.

  • PERSONAL CONNECTION: cultural fit with the family members themselves

  • ALIGNED: able to provide unbiased advice without self-interest.

  • KNOWLEDGEABLE: across the full “horizontal” spectrum of wealth-management disciplines, blended with the in-depth specialization in specific core “vertical” areas (accounting/finance/tax, etc.)

  • RESOURCEFUL: ability to solve unexpected challenges, and where to find the appropriate resources/information to make critical decisions

  • INTUITIVE: ability to understand and mitigate family dynamics and resolve conflicts

  • STRATEGIC: ability to be proactive and develop leadership within the family

  • COMMUNICATIVE: ability to lead an organization towards a cohesive mission and purpose

The financial and non-financial consequences can be quite damaging if the family doesn't have a qualified and dedicated leader. Experience has shown that families who feel more in control of their assets and feel more secure in their decisions have someone in their organization as a competent leader. For offices that hire a family member to fill that role or hire someone from outside their family to fill it, the key is that person or firm must be fully in line with family interests.


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