It’s not easy to identify trends in the single family office (SFO) world. Why? SFOs are unique to each family. Also, change in the SFO (and the family system in general) can be slow and incremental. SFOs tend to evolve until there’s a crisis like the recent pandemic or an unplanned leadership transition. For a clearer picture of where SFOs are really heading in 2023, it’s more useful to look at recurring themes with the understanding that each SFO will have its own variation on that theme.1
In January 2021, I wrote an article for this publication summarizing the effects of the pandemic on SFOs. I also made some predictions for 2021.2 Now it’s time again to reflect on the state of the SFO in 2022 and to look forward to 2023. I interviewed three well-known thought leaders in the SFO community to get a broader picture: (1) Jim Coutré, vice president, Insights and Connections at Fidelity Family Office Services; (2) Jane Flanagan, director of Family Office Advisory, Northern Trust Global Family & Private Investment Offices; and (3) Kirby Rosplock, PhD, founder and CEO of Tamarind Partners.3 Each speaks to hundreds of families and family office executives in the course of their work each year. Their insights, along with my own experience, form the basis of this article.
In addition, I wanted to assess if my 2021 predictions became a reality. As it turns out, many did, but with variations. My colleagues confirmed that there’s certainly more focus on team building, employee engagement and human capital. The use of technology has increased, and SFOs are using technology in smarter, more efficient ways. There are many more disaster recovery plans. While the prediction of more virtual offices was an overstatement, SFOs have downsized office space. Some SFOs have moved out of major cities to provide a more convenient work location for staff and a better hybrid work environment. There may not be more remote workers, but the ability to work remotely is certainly here to stay.
Three overall topics emerged from the interviews: (1) talent management, (2) culture, and (3) learning. Each certainly isn’t new to the SFO. However, as we look to 2023, SFOs will continue to explore new directions and face new challenges in these matters.
Talent Management
Talent management (that is, recruiting, retaining and development) is at the top of the list for most SFOs. “This talent phenomenon is really different,” says Jane Flanagan. “Talent is your most important resource.” Representing between 60% and 80% of the SFO budget on average, compensation is by far the largest expense.4 Recently, Jane ran a focus group of 30 family office executives. When asked if they had experienced staff turnover in 2022, 63% responded affirmatively. Turnover in family offices has consistently been very low, so this was a surprise. Jane noted that it’s taken some offices up to 18 months to hire a controller in the current environment. There’s a 20% premium for new staff as well.
Historically, compensation has been a very private matter. Jane noted that this is now a thing of the past. New staffers talk about their compensation openly, which is putting pressure on SFO budgets because the whole office knows what colleagues earn. “This is pushing conversations about how to normalize this [compensation] across the whole office,” says Jane.
Benefit packages in many SFOs have historically been generous. Now to keep people, SFOs are paying for “everything” through spending budgets that have a lot of personal choice and flexibility. “Somebody wants to buy a Peloton because they’re working from home three days a week … The office pays for the Peloton,” is just one example from Jane. Offering bespoke personal benefits makes sense when you consider that only 26% of the SFOs in Jane’s recent poll were back to a 5-day work week in the office.
The competition for top talent has affected SFOs in many ways. Because many SFOs are starting, expanding and growing, the pool of qualified SFO employees can’t keep pace with the increased demand. Longstanding partnerships, collaboration among offices, openness in peer group discussions and the ability to cultivate long-term friendships have been a hallmark of the SFO community. Yet Kirby Rosplock noted that “there’s a little tension among some of them because there’s some poaching going on,” which is affecting the collegiality of SFOs. Recruiting is common from private banks, law and accounting firms. “I’ve seen top talent recruited away from other leading family offices.” It seems like the historic loyalty to the SFO is declining. Upward mobility has increased. One extreme example is an SFO executive (CEO) recruited away to another SFO after being in the seat for only four months.
The aging out of the Baby Boomer CEOs in many legacy SFOs has been a topic of conversation for the last several years. Now the trend is accelerating and will continue into 2023. One recently retired SFO head told me that every one of his CEO peers have retired. Jane interviewed 32 retired SFO CEOs to capture their “succession stories,” which resulted in an excellent road map for CEO succession planning.5 It’s interesting to note that there was an almost equal split between hiring from the outside and promoting from within (40% external/37% internal). It’s common to have overlap, particularly with external hires (most often a few months). “We’re in a shortfall of the right level of talent, sometimes having to add more staff when one leaves” says Kirby. She went on to say, “I’m a big believer in ‘parallel planning’ if you want to ensure leadership transition success.” But only the billionaire SFOs can afford someone new to shadow the exiting CEO for not just months, but for a few years.
Jim Coutré looks at talent management as one component of modernizing the SFO. “A modern family office is a more human office really understanding and embracing the family’s humanity and moving beyond the tactical needs that offices have always delivered on.” SFO leaders have historically been high IQ technicians. In the future, Jim’s research is pointing to hiring SFO leaders/staff with equally high EQ (emotional intelligence). No small task in today’s competition for any talent. At the recent Family Firm Institute Global Conference, he asked a group of SFO executives and other professionals if they had the requisite “soft” skills needed for the family office of the future. No one raised a hand, leading Jim to conclude that “we need to develop another generation of professionals, as slow going as that will be.”6
Culture
Conversations about SFO culture are growing as families reflect on the purpose and value of the SFO. “Cultural fit” is the most important attribute to be a successful SFO leader. Agreus, a global search firm focused on wealth management and family office professionals, published in 2020 The Complete Guide to Cultural Fit in Family Offices. Four cultural stereotypes—clan, adhocracy, hierarchy and market cultures—are portrayed to help families identify cultural fit in the hiring process. Using these categories is a clever way to have a conversation about not only what the family office culture is today but also what the family’s aspirations are for the SFO in the future.7
Today, SFO peer discussion groups speak about “professionalizing the SFO” or “modernizing the SFO.” What they’re really getting at is “What is the culture of the SFO?” Management consultant Peter F. Drucker’s well-known quote—“Culture eats strategy for breakfast”—emphasizes the importance of culture in any organization.8 Focusing on culture over strategy (or governance in the SFO context) is even more applicable to SFOs, which rarely have a profit motive.
Jim is particularly outspoken about the culture of the SFO. “Working with hundreds of single and multi-family offices has revealed that relevancy—the real and perceived sense of connection between a family and its SFO—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.”9
In my recent conversation with Jim, he spoke about the peer group discussions that he’s facilitating on modernizing the SFO. “Office executives and family members that are running the SFOs are having a lot of fun and finding value in thinking about what modernizing their office means. It means a little something different to everyone. Some of the themes that come up a lot are how are you relating to the family? How are you connecting with them? How are you staying aligned and relevant to them? And we need to make sure that we’re competing against all the non-family office solutions.” Jim also noted an element of competitiveness in the conversations. SFOs need to attract and hold the best talent to serve the family and be competitive as a place to work. They need to be adaptable, efficient, more agile and able to continue to leverage off the successes coming out of the pandemic.
“I think we’ve seen more normalization of conversations around what’s good for the family, what does the family want? What are the family’s goals, not just around the money and the legal.” Jim referred to Scott Peppet’s MLF (money/legal/family) ratio or the ratio of the time/energy/money that the SFO spends on managing the money, attending to legal and tax matters and the wellbeing of the family.10 The MLF ratio is a simple, yet effective, way for SFO leaders to assess how well they’re serving family needs and to map out a path to foster a more family centric culture.
The relationship of the family to the SFO determines SFO culture. Likewise, the relationship between the SFO and its staff is also critical. “If the culture isn’t good in the office, then how is it informing and impacting service and sustainability of the office?” questions Kirby. “There needs to be a strong sense of team and commitment.” Creating and maintaining a culture of trust has become increasingly important to many SFO leaders: not only because the working environment and efficiency improve, but also because it creates an environment for healthy conflict that often leads to better problem solving. Jill Barber, President of CYMI, an Ohio-based SFO, has focused on shifting the SFO culture since she took on the senior leadership role several years ago. Her efforts to create a more trusting culture allowed for “richer discussions, improved innovation and more work and fun to happen.”11
An environment where the family knows and trusts the SFO staff and the staff trusts each other creates a positive, energetic vibe in the office, a “can do” attitude and the agility to tackle inevitable challenges like leadership succession and generational transitions. This culture eliminates the fear-based decisions and the perfectionism that is, unfortunately, part of the culture of some SFOs even today.
Learning
It’s rare to meet a family that doesn’t at least ask about education and training, particularly for the next generation. These conversations, at least initially, focus mostly on learning about investments and finances. Charlotte Beyer, founder of the Institute for Private Investors, is a pioneer in bringing a clearer focus to what family members/SFO staff need to know to manage wealth in its broadest sense. The week-long program that she co-founded with the Wharton School of the University of Pennsylvania is as popular as ever after 20-plus years and has hundreds of alumni.12 Many SFOs today are also taking responsibility for family-wide learning programs. In my experience, I’ve seen that customized internal efforts have broadened recently to rely more on outside resources. SFOs that can support a chief learning officer (CLO) are so rare that many times, client-facing SFO staff is tapped into the job of coordinating external resources. “The trend isn’t just about hiring the CLO. It’s really the heightened consciousness of learning in the SFO and the SFO as a learning organization,” according to Kirby. Curriculum has also expanded from finance to life skills and from focusing exclusively on the rising generation(s) to all family members. The 10x10 learning model is an excellent example of comprehensive learning for all generations.13 “You have to invest in being a great family,” says Jane.
Jane, Jim and Kirby all have deep experience and understanding of the educational process and needs of both the family and the SFO staff. Their approaches sometimes vary yet are complementary, and all focus on a holistic approach. It’s an exciting time for family learning, and there’s momentum to continue quality programs. “Everybody’s trying to get the right mix of internal and virtual,” says Jane. She spoke of Northern Trust’s recent semi-annual family office CEO gathering “where 40 or so family office executives come together in person for two days to learn.” On the other hand, Northern Trust’s Financial Essentials Curriculum reaches the bank’s clients all over the world, virtually.
Kirby is a leader in family-focused, modular, Internet-based learning as founder of Tamarind Learning.14 “We’ve totally shifted how we consume education.” I do think that learning has to be interesting, consumable and accessible. Everyone grows up online.” The learning modules developed at Tamarind Learning are a mix of interactive exercises, animated case studies, podcasts and traditional reading material. The curriculum addresses how people learn, not just what to learn. Kirby is enthusiastic about families learning not just about subject matter but also about the SFO. She sees her role as “helping them [the family] understand what’s really happening, the good, bad, ugly, but more explaining how the operations are functioning and what that means for them as owners to think about what they need to be planning for or considering.” “I think that they [the family] have to understand the value [of the SFO], but they also have to understand how to be responsible clients of the office.”
Another popular way to bring less formal education to families and SFOs is through peer group meetings and group roundtables on topics of interest. Many times, these activities spark interest in learning more. Jim’s work at Fidelity is a great example of how a skilled facilitator can normalize common touchy issues, tease out solutions from the participants and, at the same time, “backdoor” some learning. He recently facilitated a roundtable discussion in New York City on the provocative topic of “Reimagining Transitions Amidst Disruption,” hosted by Fidelity Family Office Services and the MetCircle Networking Group, which I attended. The event was fully subscribed and the first in-person joint program in almost three years. It’s safe to say that no one left the room without the desire to learn more particularly from each other.
Final Thoughts
What are some concrete steps that families and SFOs can take in 2023? Here are some do’s and don’ts based on what we explored in our conversations:
Do:
- Develop a comprehensive Annual Benefits Statement for all employees to inform and reinforce the value of working at the SFO.
- Create more space/activities to think strategically. Get off the “hamster wheel” of daily activities periodically.
- Assess the continuing value versus the cost of complex structures. Clean out “the family office closet.”
- Know what motivates your staff.
- Use both a tactical and strategic lens when problem solving.
Don’t:
- Protect the status quo and let perfectionism get in the way of creativity.
- Embrace “complexity” because complexity equals cost most of the time.
- Be afraid to take bold steps that could make a significant improvement.
- Focus on tasks that aren’t urgent or important and don’t move the needle. (The Eisenhower Decision Matrix is helpful.)15
- Be afraid to focus on the human capital development of both the family and the staff.
— Special thanks to Jane, Jim and Kirby for their valuable insights. My sincere gratitude for their help in contributing to this article.
Endnotes
1. Inspired by George Balanchine’s masterpiece ballet, “Theme and Variations” (1947), The George Balanchine Trust.
2. Kathryn M. McCarthy, “2020: Single Family Offices Tested and Now Moving Forward,” Trusts & Estates (January 2021). I noted that:
3. Entering 2021 with the pandemic still ever present, family offices have been (and will continue to be) transformed. Each family office adapting and adjusting according to its own particulars and pace. At the risk of over statement, there will be more virtual family offices or at least smaller physical office spaces; more remote workers and more flex/part time staffers; more focus on team building, employee engagement and human capital; more new technology adopted; and certainly, more business continuity plans. Hopefully, planning will not just be an event, but become part of the family office culture. As the result of lessons learned during a truly challenging year (2020), family offices now have the opportunity to become better more efficient organizations, to become more relevant to the families served and to become more resilient in the face of continuing change.
4. More about those interviewed, in their own words:
Jim Coutré is vice president at Insights and Connections and is responsible for the oversight of the Fidelity Family Office Services’ Insights & Connections program, which provides families and family office executives with perspective and problem-solving across a wide range of office and family matters. “My role is to work with our clients on anything not related to investments or finance. It’s really to help them and provide value to them on issues related to family office matters —evolving a vibrant single family office. And on family matters —like how do you raise healthy kids? How do you communicate as a family, work together as a family? How do you think about impact? How do you think about legacy? What do you do when mental health or behavioral health gets in the way? Those things that help families thrive or keeps them from thriving.”
Jane Flanagan is the director of Family Office Advisory in Northern Trust’s Global Family Office practice. According to Jane, “Our practice serves 500 family offices of all shapes and sizes. I’m a resource to answer questions and share peer perspective on topics ranging from governance and engaging the rising gen to build-or-buy service decisions and office costs. A big part of my job is sharing the wisdom and experience of our client community through our research and by bringing clients together in smaller groups to learn from one another.”
Kirby Rosplock is the founder and CEO of Tamarind Partners and founded Tamarind Learning. She’s the author of several well-known books on families and family offices, including The Complete Family Office Handbook (first edition (2014) and second edition (2021)). “One way I see my role is almost like a translator operating between the family office professionals and helping give visibility and validation, clarification to how their bespoke operations work. Then, I help translate it to family members and owners about what their office actually does for them. Because the experience as an owner or a beneficiary of the services of an office does not give you insight into the operations … And then for the operators, I’m typically translating what’s happening in the family back to them …Obviously, there’s a lot of education … To owners, working with family office executives and professionals, working with their family members to help them understand what the family office is designed to do and not do and how they should relate to it.”
4. UBS Global Family Office Report 2022 reported that “Staff Costs accounted for 69% of the pure cost of running a family office in 2022,” www.ubs.com/global/en/family-office-institutional-wealth/reports/gfo-client-report.html.
5. Jane Flanagan, “Succession Stories,” Northern Trust (2022), www.northerntrust.com/content/dam/northerntrust/pws/nt/documents/wealth-management/family-office-ceo-succession-stories.pdf.
6. Family Firm Institute, Global Conference, Cambridge Mass. (Oct. 26-28, 2022).
7. The Complete Guide to Cultural Fit in Family Offices, Agreus Group (2020), www.agreusgroup.com/wp-content/uploads/2021/05/The-Complete-Cultural-Fit-Guide.pdf.
8. Peter F. Drucker was an Austrian American management consultant, educator and author, whose writings contributed to the philosophical and practical foundations of the modern business corporation.
9. Jim Coutré, “Doing what is asked versus doing what is needed—keeping a family office relevant for the long term,” International Family Offices Journal (September 2022).
10. Scott Peppet, “The Family-Focused Office,” FFI Practitioner,Weekly Edition (Nov. 10, 2021).
11. Jill Barber and Greg McCann, “Redefining Our Leadership Roles in Changing Times,” Trusts & Estates (July/August 2021).
12. See Wharton/IPI Private Wealth Management Program, https://executiveeducation.wharton.upenn.edu/for-individuals/all-programs/private-wealth-management.
13. Stacy Allred, Joan DiFuria and Stephen Goldbart, “Building a Strong and Connected Family of Wealth,” Trust & Estates (December 2021).
14. See Tamarind Learning, https://tamarindlearning.com.
15. The Eisenhower Matrix, also referred to as “Urgent-Important Matrix,” helps you decide on and prioritize tasks by urgency and importance, sorting out less urgent and important tasks that you should either delegate or not do at all. See https://corporatefinanceinstitute.com/resources/management/eisenhower-matrix.