Part 2: What defines a successful family office?

At Harbour, we meet many wealthy individuals and families who are curious about how to establish and further develop the right family office for themselves. A couple of weeks ago, we published the first article in this short series about the well-developed family office. In the first article, we covered three areas that a well-developed family office excels in: Cohesion with the owners, having the right talents on board, and protecting the owners and their interests. In this article, we take a closer look at two other themes that help make a family office successful as well as resilient to future challenges.

If you have not read the first article, you can go back and read it here.

1. Family office is a trusted advisor on the succession

Knight Frank’s 2024 Wealth Report estimates that $90 trillion in assets will be transferred between generations in the USA alone over the next 20 years. This makes generational transfer an increasingly widespread Olympic discipline.

When significant assets are at stake within a single family, the succession plan becomes a process that must be planned well in advance. In some ownerships, there is a tendency to transfer to the next generation when the children are still very young. In other ownerships, the transfer is delayed until the next generation is adults and experienced before involving them in ownership. Regardless of the preferred pace, the family office must act as a project manager, able to advise on the pros and cons, and assist, with relevant independent advisors, in planning the process that best suits the individual family. This topic is extensive, and includes tax considerations, investment structuring, emotional factors, ownership structures, development plans for the next generation, and – ideally – a plan for the transferring generation as well.

What does it require from the family office?

The ability to plan effectively and maintain a comprehensive overview. A family office must also recognize its own blind spots, enabling it to use independent advisors such as lawyers, accountants, and other experts when necessary. Additionally, it requires a thorough understanding of the next generation, their desires and their competencies.

What does it require from the family?

A succession marks the passage of time, requiring a willingness to engage in difficult, but essential, conversations. Discussions across generations about leadership, finances, and control demand patience. Additionally, it requires a certain awareness of how ownership is viewed in the future. For example, should the wealth be kept together in a common fund among siblings or cousins, or should it be divided so that each stand on their own? Are there competency and educational requirements for the next generation, and what is the family’s view on consuming the funds?

“The real challenge in crafting strategy lies in detecting the subtle discontinuities that may undermine a business in the future. And for that there is no technique, no program, just a sharp mind in touch with the situation”

– Henry Mintzberg, 2003

2. The family office controls and strengthens the narrative about the family

In recent years, we have seen a significant increase in media interest in wealthy individuals and families. The narrative is often driven by ‘click-bait’ headlines aimed at reinforcing readers’ opinions about ‘the rich’. There is no reason to believe that this interest will decline in the future. Therefore, a family office must actively address how to navigate media interest in the family alongside the owners. In other words, the family office must be ‘a sharp mind in touch with the situation’, as strategist Henry Mintzberg describes it.

This service from the family office is called branding or reputation management and involves controlling the narrative about the family and ownership. The point is that the family office must be ready to act as spokespersons, bulwarks, and advisors for the family if the media comes knocking with a story. The family office must also nuance the discussion and offer opportunities for positive media coverage, which can be a bonus for ownership in terms of attracting investment opportunities, collaborations, talents, and networks with other families.

What does it require from the family office?

An understanding of the media landscape, experience and willingness to act as a spokesperson, the ability to identify opportunities to share positive stories, and a willingness to play the devil’s advocate regarding how the family’s actions might be portrayed in the media.

What does it require from the family?

Accepting that their actions are of interest to the outside world – both positively and negatively. The ability to look beyond the more negative stories and think strategically about how to use external communication to convey important messages and strengthen the narrative about the family, the ownership, and the family office.

As we described in Part 1: What defines a successful family office? a family office must have a high degree of cohesion with the owners. This means it is an organization, a unit, a team that is constantly evolving. Working in or with a family office is therefore always exciting, challenging and rewarding.

If you are curious about the development of family offices, feel free to contact us for a non-binding meeting or read more here.