In a speech marking the 40th anniversary of her ascendancy to the throne, Queen Elizabeth referred to 1992 as an “Annus Horribilis.”1 Suffice it to say that almost 30 years later, 2020 has been a horrible year for almost all of us. As the year comes to a close, it’s sometimes difficult to remember daily life pre-pandemic, especially in hard hit regions around the world.
Of course, single family offices (SFOs) aren’t immune to the health, social, financial and economic conditions caused by this pandemic. However, SFOs are somewhat unique from a capital sources and funding perspective, and they generally operate on a break-even basis.2 Unlike most small businesses and some charitable organizations, SFOs have fared pretty well financially, at least so far, despite the global stock market correction earlier in the year. SFO budget reviews and liquidity analyses were more frequent during 2020, anticipating new pandemic-related expenses. The good news is that, based on my experience, the funding needed to keep SFOs afloat continues to be available and has stayed relatively secure.
Lockdowns, social distancing requirements, fear of becoming infected with COVID-19 and social unrest have all had an impact on SFOs that will last beyond the current crisis. In many ways, however, SFOs will benefit from the planning, practices and processes that have been adopted during the pandemic.
Planning and Preparedness
Families and their SFOs suffer from a reluctance to change. SFOs, in particular, tend to be reactionary and in the moment to get things done. To succeed for many generations, however, SFOs need to be forward looking and risk identifiers as well as anticipate changes in both the SFO and ultimately in the family. Jim Coutre, vice president of Insights and Connections at Fidelity Family Office Services in Boston, sums up the need for longer term thinking and going beyond the tangible day-to-day tasks of the SFO in one word—relevancy. “In the family office environment, relevancy can look a little different from each perspective [family or family office], but it always comes down to self-reflective questions around evolution and adaptation.”3
The pandemic caught many stand-alone SFOs unprepared because they lacked business continuity plans in contrast to the more fortunate SFOs embedded in family businesses. Government mandated stay-at-home orders added extra stress, especially for those with no contingency plans. According to an online survey conducted by Boston Private this past summer, 29% of SFOs reported that they had no business continuity plan before 2020. Another 30% characterized the SFO as only “somewhat prepared for the pandemic.” Even more disturbing, about one-third of the survey respondents agreed that SFO executives “focused on short-term operational matters at the expense of long term strategic planning and risk management.”4 Clearly, there’s work to be done here.
Lockdowns changed the SFO landscape into basically a virtual environment. SFO staff and their IT consultants didn’t lack for work in the early days as they raced to operationalize in a digital world. Of great concern was the operational impact of the new order. Policies and procedures for a virtual organization can be quite different from one with face-to-face interactions. SFOs with outdated technology and infrastructure faced many challenges even to get routine tasks done. DocuSign became a lifesaver for many virtual SFOs in need of signatures on important documents.
In addition, the shift to working remotely created not only questions about efficiency but also data security as SFOs moved more to cloud-based solutions. Many SFOs, especially long established ones, found that working remotely brought to light data protection and operational deficiencies, the need for up-to-date systems and technology and new opportunities to outsource (or insource) certain key functions like IT support, accounting, payroll and bill payment. And, it created a heightened awareness of cybersecurity risks. Fifty seven percent of the participants in the Boston Private risk survey rated cyber risk as the number one threat when asked to identify the major risks facing their SFOs.5
Human Capital and Connection
“Families—and the family enterprise systems of which they are part—are emotional systems,” says Kathy Wiseman, a leading family advisor and practitioner of the Bowen Family Systems Theory.6 The SFO is certainly part of this emotional ecosystem.
Even with state-of-the-art technology, seamless processes and procedures and world class advisors, most families recognize that the most important asset of the SFO is its staff. Caring for employees’ emotional and physical well-being became a board agenda item in 2020. SFOs adopted work-from-home protocols especially around media and technology, assisted in upgrading connectivity in staffers’ home offices, expanded staff health care coverage and even imposed limits on the length of work days. Virtual team building exercises and step challenges abounded in addition to just providing “down” time for social engagement. Although now, almost 10 months into the pandemic, the Friday night Zoom cocktail hour seems to be on the wane, the focus on human capital and emotional health won’t go away.
More than ever, SFO leaders communicated to family members and staff. They also learned about the unique personal situations of staff members. Many SFOs developed stronger team and personal connections as a result of heightened interest in their colleagues. At the same time, family leaders learned more about the management and communication style of their SFO executives and the culture of the SFO. The alignment of culture and values between the family and the SFO became more self-evident as family and SFO leaders were confronted with pandemic-related challenges and worked together.
Strict privacy and confidentiality policies are the norm in SFOs. But, within their trusted networks and peer groups, SFO executives have learned from each other and felt connected. Organizations like Family Office Exchange, Institute for Private Investors (IPI) and the FORGE Community provide a safe environment to exchange ideas and establish trusted resources. These groups and others became even more valuable in 2020 by providing a venue where families and SFO executives could express their concerns and compare solutions. Brien Biondi, CEO of IPI and Campden Wealth, North America, reflected on 2020:
If you told me this past January that by year’s end IPI would have held well over 100 events, I would have laughed and shrugged it off. IPI’s transition to 100% virtual in late March was a defining factor that, in many ways, has galvanized the IPI community during this devastating pandemic. Dare I say, IPI members have never been more engaged than they are today.7
Moving Into 2021
Entering 2021 with the pandemic still ever present, SFOs have been (and will continue to be) transformed, with each SFO adapting and adjusting according to its own particulars and pace. At the risk of over statement, there will be more: virtual SFOs or at least smaller physical office spaces; remote workers and more flex/part-time staffers; focus on team building, employee engagement and human capital; new technology adopted; and certainly business continuity plans. Hopefully, planning won’t just be an event but become part of the SFO culture.
As a result of the lessons learned during a truly challenging year, SFOs now have the opportunity to become better, more efficient organizations, more relevant to the families served and more resilient in the face of continuing change. So, there’s a silver lining in our annus horribilis after all.
Endnotes
1. www.royal.uk/annus-horribilis-speech.
2. 2019 FOX State of the Family Office Industry Benchmarking Report.
3. “The Reality of Relevancy in the Family Office System: Exploring forces and key drivers that can affect relevancy,” FFI Practitioner (Sept. 16, 2020).
4. “Surveying the Risk and Threat Landscape to Family Offices, Insights and Recommendations,” Boston Private (October 2020), https://files.bostonprivate.com/file/Boston-Private-Surveying-The-Risks-And-Threats-To-Family-Offices.pdf.
5. Ibid.
6. “The Value of Learning about Families as Emotional Systems,” FFI Practitioner (Sept. 9, 2020).
7. Email from Brien Biondi to Kathryn McCarthy (Oct. 29, 2020).