Every Family Needs Some Kind of “Family Office”

In last week’s email in our Family Legacy Planning series, we focused on how to set up a family governance system. The core document that outlines the family governance structure is called a Family Constitution. We recommend that every family create a plan for how it will operate, and then document it, just as every family business needs a documented governance structure (a Charter and Bylaws). In listing the key provisions of a typical Family Constitution, included is the need to address the structure and function of a “family office.”

A “family office” is still a fairly new concept. Over the last decade or so, successful families have prioritized creating a centralized “office” to handle all the family’s needs. For families of higher net worth, a “Single Family Office” is often the solution, where the office is dedicated to the affairs of just one family. Where the budget doesn’t allow for a single family office, there are other solutions. The most common is a “Multi-Family Office” where a team of people serve the needs of several families who share the cost. Another solution, of especially rising popularity during COVID-19 “Zoom” era, is the “Virtual Family Office.” A family advisor serves as “quarterback” and assembles a team of all the necessary players, each of whom work from their own location and meet virtually as needed, avoiding the overhead of a physical office.

Functions served by the family office include overseeing all the family’s financial needs, but the kind of family office that helps create and preserve a family legacy will do much more than financial tasks. In addition to monitoring business, investing, tax, accounting, estate planning, insurance, bill paying, property management, philanthropy, and other financial matters (what Tom Rogerson of GenLeg Co. refers to as the “right rail” of a railroad track), the modern family office also addresses strengthening family relationships, culture goals, family dynamics, psychological needs, and fostering the family’s purpose (the “left rail”). The family office plans family enrichment and education activities to serve as “cross-ties” to build communication and trust, bridging the right and left rails. The family office manager will involve all the family members in these activities, drawing from each one’s skill set so everyone feels a part of the team. There’s a role for everyone, even for those without financial acumen.

A family office is also an important part of “family glue” after selling a family business. Often, the family’s identity is lost when their business is sold, but a family office can keep the family unified around jointly managing the “family enterprise.” Moreover, it can be of major psychological benefit when the business founder is searching for a new role after the “business-baby” is sold. As I’ve heard from a number of founders’ wives: “I married him for breakfast and dinner, but not for lunch.” The founder can find continued purpose by playing a key role in the family office.

Each family needs to design the family office structure that’s right for it. There’s no cookie cutter for this, and no two will match. As Tom Rogerson says: “If you have seen one family office, you have seen ONE family office.” Regardless what yours looks like, your family will benefit from it, and preserving your legacy may depend upon it.

Marvin E. Blum