The Founder Is the Family Office

Many families ask whether they need a family office and what that would look like. The reality is that you already have a family office: it is you, the founder. The real question is whether you can (and want to) continue being it.

Author: John Bunge, Senior Wealth Strategist, CFA

As the founder, you perform an executive financial role that no one has formally defined. You see the operating business, investments, liabilities, taxes, trusts, estate plan and family needs as parts of one system. You decide which risks are worth taking, how much liquidity to maintain, where new capital should go and which recommendations from outside advisers actually fit. Other people may prepare returns, draft documents, manage accounts or administer entities. You make the tradeoffs and remain responsible for the combined result.

That structure is often extremely effective. A capable founder can make connected decisions quickly, based on knowledge and judgment accumulated over decades. That ability is usually part of how the wealth was created. Replacing it prematurely with committees, policies and professional staff may add process without adding capability.

The facts nevertheless change. The family grows. The founder ages. Wealth that was once concentrated in a business under the founder’s direct control becomes a collection of marketable securities, private funds, direct investments, real estate and other assets owned through multiple trusts, entities and family members. More decisions involve investment managers, trustees and other fiduciaries rather than the founder acting through direct ownership and control. Estate taxes and deferred income taxes become real rather than theoretical liabilities. The executive financial role expands just as the founder may want it to contract.

This is when the family-office question becomes real. It is not principally a question of whether to hire an accountant, retain a wealth manager or create an investment committee. It is whether the family can continue to depend on one person to understand the whole, make the important decisions, reconcile competing advice and ensure that decisions are carried through.

A CPA, attorney, trustee or investment manager cannot fill that role merely by becoming the family’s most trusted adviser. Each is trained and retained to address part of the family’s affairs. The CPA may understand the tax reporting but not the investment program or the opportunities for consequential tax savings that arise from it. The attorney may design the legal structure but does not continuously monitor the assets held within it. The investment manager may have discretion over an account but does not decide how much of the family’s capital the account should receive, which trust should own it or how it fits with the operating business, private investments and estate plan.

The role the founder has been performing is an executive financial function with responsibility for the family’s affairs as a whole. That function maintains the complete picture, identifies the decisions that must be made, integrates advice across disciplines, helps the family clarify and document who has authority, drives implementation and measures the results. It sits above individual investment mandates and between the family’s specialists.

Institutionalizing this role does not require the founder to step aside. The founder may retain the decisions that genuinely require the founder’s judgment while delegating the analysis, idea generation, coordination, implementation and monitoring around them. Over time, more authority can be transferred as the family’s needs and the founder’s preferences change.

An outsourced family office can help build the people and processes around the role the founder already performs. At first, it may simply make the founder more effective. Over time, it allows the family’s financial system to continue without depending on the founder as its decision maker, coordinator and institutional memory.

Note: This material is for informational purposes only and does not constitute investment, legal, tax, or accounting advice. You should consult your own professional advisers regarding your specific circumstances. All investments involve risk, including the possible loss of principal.