A useful family office delivers on the important operational needs of the family regarding investing, legal and tax issues. However, this doesn’t guarantee that family members will turn to their family office with thorny personal questions or that the office will evolve with the family in a deeply connected way across generations. Attending to the family’s many practical needs is only one component in serving the family’s strategic needs or the factors supporting multigenerational success. Addressing these higher order systemic issues requires a family office to maintain relevancy over time, one of the most difficult yet rewarding qualities a family office can have.
The Importance of Relevancy
Having worked with hundreds of single and multi-family offices over the last 15+ years, my team has learned that relevancy—the real and perceived sense of connection between a family and its family office —is foundational to the success of the entire system. It requires a combination of connection, significance and value delivered over time. These qualities are largely intangible, yet they’re powerful in their presence or absence. A family’s sense of connection to its office derives from its comfort, relatability and trust in the office and its staff. Significance grows from a sense that the office is truly helpful in what matters and takes issues in the family seriously. Value reflects a family’s deep appreciation of the office’s services and that expectations aren’t just met but exceeded. Relevancy goes beyond any given moment and must be constantly reinforced.
Despite its importance, too few executives and family members approach the family office’s relevance with intentionality. These make a substantial difference, especially in several key activities:
- Keepingthe family safe. Complying with security protocols to move assets, planning for family emergencies or maintaining cybersecurity may be more likely when family members listen to an office they consider relevant.
- Helping the family thrive outside of financial capital. When family members feel a connection to their executives, those executives could be better positioned to nudge families into the uncomfortable work of pursuing the nonfinancial success of individual members and/or the collective family.
- Fostering continuity. Families constantly evolve, sometimes in disruptive ways. An office that remains relevant may be better positioned to navigate rocky transitions, helping to mitigate risk for the family.
Stated vs. Actual Needs
In some ways, relevancy is akin to the financial industry’s distinction between a basic suitability standard and a fiduciary best interests standard. Family offices may do what a family requests in the many tactical areas that a family finds onerous yet necessary—mostly tax, investment, insurance and estate-planning activities. But a truly relevant family office goes beyond these to what all parties determine to be in the best long-term interests of the family.
Families are good at expressing the needs they see at their fingertips. These stated needs are often the foundation on which family offices are started: “we need to file our taxes”; “we need our own investment team.” Comprised of individuals with different life stages, personalities, philosophies, levels of expertise and vocations, families can have wildly disparate opinions about what they require and who should help them. They may not know what other family offices do or how offices serve other families. They may not have identified shared family goals or goals for the development of individual family members. They also tend to rely on professionals with specific technical expertise to tell them what they need. Realistically, responding to these stated needs with suitable solutions creates satisfaction with the family office.
More difficult is for families to articulate their actual needs, the ones that will make their office most relevant. These families see the complex connections between operational choices and long-term outcomes, which may lead to solutions that are much more in the best interest of the family. A family that wants to preserve financial wealth through the generations, for example, will likely invest heavily in estate planning and tax management. However, efficient tax planning won’t prevent an inheritor from being derailed when becoming the beneficiary of a significant trust. The stated need is for capital preservation and estate planning. The actual need is for healthy prepared family members who will enhance their lives with the financial capital granted by the estate plan.
Avoiding Pitfalls
Families and their family offices can work to sidestep common obstacles when building relevancy by doing the following:
1. Balance operational stated needs with long-term actual needs. Devoting attention to the full range of needs creates opportunities to focus on the what, how and why of a family office, all of which can make the office become connected, significant and valuable over time to the family. For example, many family offices are built around stated needs for efficiency, low overhead and extreme confidentiality. These can easily consume much attention and resources but are purely operational. Additional actual needs for the office are to continually improve and evolve, staying alert to modern operational processes more reflective of the times. To support this, family office executives require time to network with peers, be exposed to what others are doing and learn about trends or macro shifts that will affect the family. On the family side, industry leader and multigenerational family member Scott Peppet has shared posing the following question to his family: “In the coming year, would you rather have slightly better tax preparation in your life or more joy?”1 The answer is always “more joy”—the true need of the family. Yet how many offices invest anywhere near the resources in fostering joy as they do in the stated need of tax preparation?
2. Stay alert to how an individual’s quest for relevancy can get in the way of an office’s relevancy. The desire for personal relevancy by any one player in the system can create a number of negative consequences. This can occur both with non-family executives and with family leaders who work with the family office. An overly tight grip on personal relevancy by either side will produce several problems:
- False relevancy. Executives needing to stay relevant themselves often double down on the expertise or tasks they know best. “I do X really well, so I’m going to make sure to always engage the family around X and orient the office around X.” This narrow focus breeds security and praise, but it keeps executives from seeing how the office could better serve the family. It can also keep them stuck in a task-based or managerial role rather than a more visionary or CEO role in which they’re continually evolving the office with the family. On the family side, a family leader clinging to their role can compromise the office if they fall out of touch with important strategic goals—especially if they refuse the help of others as conditions evolve. In one office struggling to retain talent under the stresses of constant conflict, a family leader ultimately was confronted by an executive about their imperial manner: “I understand it may not feel like you’re the king when you’re not surrounded by your court, but the world—and our workforce—has changed.” Though harsh, this led to a more collaborative style, which then greatly reduced staff turnover.
- Failing to include others. In an effort to make themselves personally valuable in the family’s eyes, executives may work in a bubble or run an office more like a dictatorship than a democracy. They fail to engage the broader office team in serving the family or determining how the office might innovate. They may also fail to engage the family or ignore what the family wants in favor of their own perspectives. In one example combining these elements, an executive in a newly unembedded family office struggled to engage the family’s interest when showcasing the tax benefits she had developed. Though hired for her tax expertise, she grew frustrated and distant when the family just didn’t seem excited about her accomplishments. She failed to hear how the family’s operating business has always been broadly values-driven, a focus that carried over to the new family office. Had this executive listened to and understood others in the operating business and office, she would have learned her tax-centric approach was unlikely to generate much excitement despite the benefits. Family members can also be guilty of pushing their own agendas or positions, ignoring collaboration with the office in favor of their personal utility. This can become entrenched when there are disincentives keeping office staff or other family members from being truly honest with the offender. In any of these situations, diminishing one individual’s command and control style creates room for effective teams to emerge, a prerequisite for the office to remain relevant over time.
- Creating a black box of services. Driven by a heartfelt desire to serve, many executives believe relevancy is defined by delivering whatever the family wants, whenever the family wants it, without ever showing the complexity required to do it. Unfortunately, this can backfire severely. It can train a family to assume the office can do anything, independent of the individuals involved, thereby making everyone replaceable. Moreover, the family can learn not to value the executive’s role, accept reasonable pushback or appreciate boundaries between work and employees’ personal lives. Creating a black box system that seemingly can do everything keeps family members from understanding what the office does and the costs involved. Long term, this risks a kind of magical thinking that can hide escalating problems in the sustainability of the office itself or its services. It also undermines the family’s participating in the evolution of the office. Ironically, being transparent about how things operate and involving the family in setting realistic human boundaries can ultimately bring the office and family closer.
- Impeding by enabling. Jumping on a moment’s notice to serve a family member can feel great to the office under the guise of being highly responsive and seemingly relevant. Yet this do-anything attitude can easily enable individual members not to build the skills or resilience the family wants them to have, such as the 30-something stranded at an airport because they have no idea how to navigate a commercial flight change. At the leadership level, keeping oneself indispensable can turn from relevance to impediment, as when a long-serving executive says they’re committed to succession yet stays involved in running the office rather than making room for the incoming leader. Similarly, family members in governance may cling to relevancy long after the family needs them to transition involvement to others. The line between helpful participation and getting in the way can be a blurry one. To help combat this, families and their family offices must decide together which actions are responsive and which are enabling, then periodically revisit the issue as conditions change over time.
3. Talk about it. A major obstacle keeping offices from remaining relevant may be a lack of dialogue around what relevancy looks like and how can it be achieved, despite multiple opportunities to do so as the family and world evolve. Succession and generational transition are the usual catalysts for talking about the direction or redirection of a family office, but they’re typically approached through the narrow lens of “how to” rather than “what do we need and want as a family?” Framing these issues through the perspective of maintaining relevancy can broaden the conversation, including the range of voices who will want to participate.
As families and executives partner in this work, the process can be simple: Reflect independently on each question and then share, listen, challenge and support one another in creating solutions. Repeat as necessary to renew relevancy over time.
Questions for Executives
To better serve the family, family office executives need to ask themselves:
- Is the office on track to deliver connection, significance and value throughout the years as the family evolves?
- How might the family articulate what it wants from a relevant family office? Has this been asked of the family members?
- What factors might bias or constrain how the family articulates relevancy?
- Beyond the family’s stated needs, does the family’s long-term goals or current reality suggest additional areas where the office might provide value?
- Do I as an executive have blind spots, keeping me or the office from maximizing our relevance to the family?
- When should I be a master of tasks, and when do I need to be a visionary?
- What indicators might I monitor to alert me I’m moving towards being over-responsive, operationally opaque or blurring the lines between serving and enabling family members?
- Is the office staffed intentionally to ensure meaningful connections with all family members?
- Realistically, at what point is my own relevancy to the office or family likely to wane?
Questions for Family Members
To better support their executives, family members need to ask themselves:
- How would I articulate what a relevant office looks like? How might others articulate it?
- What factors might bias or constrain how my family thinks about connection, significance and value over time?
- Are the service demands and expectations for the office aligned with how my family defines relevancy?
- Are there multigenerational goals or ambitions for my family that aren’t being supported by the office? Are there goals that are potentially being undermined by the office?
- How might the focus or experience of our executives shape the office or its relevancy?
- In what situations do we need a master of tasks running our office, and when are we best served by a visionary?
- Do our executives have the time and resources to keep an eye on the horizon?
- How might the family support our family office executives so they’re best positioned to meet the long-term needs of our family?
- How do we each know if we are fulfilling the role our family wants us to play? How will we know when it’s time to change our role?
Path to Success
Addressing relevancy may lead to an enhanced, vibrant and more sustainable family office solution, including the satisfaction and self-actualization of the individuals in the system. Executives and family members may use these ideas and shared questions to examine their respective roles in the family office system, help catalyze conversations and set the family office on a path for continued success.
— Special thanks to Katherine Hastings, vice president, Fidelity Family Office Services; Kathryn M. McCarthy, independent wealth advisor to families/family offices; Preston Tsao, Metcircle; and Jim Grubman, family wealth consultant, for their contributions to this article.
— The content provided herein is general in nature and is for informational purposes only. The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Fidelity Investments.
Endnote
Scott Peppet, “Do Family Offices Care About Family Capital?” Family Firm Institute (Aug. 18, 2021), webinar.