So You Want To Create A Family Office?



Step One is, just like for any business decision the family took in the business area, have a well- structured, detailed plan to create your FO. Write it down, what are your objectives, what do you need, what are the Knowledge and Skills Framework (KSF) and what will it cost? There is no reason to be less structured when it comes to creating a SFO than the family was when it created its business(es). Ultra High-Net-Worth families (UHNW) made their fortune in business, so they should have the skills and ability to make their own decisions when it comes to setting up a family office.

At the heart of this project is a key question for all families: What is the purpose of preserving wealth and transferring it to the next generation?

  • To provide for future generations (with a risk of demotivation;
  • To encourage enterprise;
  • To encourage philanthropy;
  • A combination of the above, including signing The Giving Pledge.

Step Two is to hire one or several veteran(s) of the industry with a proven track record in creating and managing family offices.

Step Three is to let this / these manager(s) gather enough information to map the current situation, prepare a total wealth report, inclusive of a risks register and an action plan. Depending on the complexity of the family and the political or relational landscape in an emerging market situation, this could take three to six months.


Emerging Markets families are likely to want a Single Family Office that actually is able to buy/sell securities and manage portfolios… versus the Old-World model of “manager selection” i.e. a family office that only selects funds to invest with. If you setup a family office with the right talent pool and operational platform, you do not need to delegate portfolio management to costly “asset managers”.

Therefore the CEO or CIO needs to have asset management skills and a good understanding of underlying risks and costs, including execution risks and costs. In a larger team, there should be two portfolio managers (a CEO/CIO + junior PM). The PM should preferably have experience of a fund’s middle- office operational side in a hedge fund or a classic fund. This will allow the family office to understand trading, order routing and costs.

The Chief Financial Officer / Accounting Manager should have worked for a FO or a fund house as he should have good knowledge of fund reporting. Preferably with a good understanding of international trusts and private investment vehicles.

A new FO created for an emerging market family should look for people interested in new challenges, not a comfy private banking job. Not everybody wants to spend their whole career in a bank. Family offices, especially from emerging markets, offer fascinating challenges for dynamic executives. Since the beginning of the Financial Crisis, more talent has been available on the market … but top people are still hard to get.

Recruiting the right people can be done with specialised FO consultants and FO head-hunters. Hiring experienced family office managers helps speed integration into the team. Define robust incentive plans for employees, avoid conflicts of interest: no carry, no shares, use deferred bonuses and claw-backs.


UHNW family disenfranchising is often the result of a massively under-studied phenomenon. That is stakeholders’ conflict of interests and the impact on family dynamics. The scenario is now familiar and is described below.

Most 1G / Patriarchs built their wealth with the help of smaller firms of lawyers, financial advisors and other service providers. For these “advisors”, the 1G and his businesses often represent a large share of their own revenues.

When 2G / NextGen become old enough to play a role in the family business or family governance, they may threaten the advisors’ position and revenue stream. The arrival of 2G could be a time when governance and control gaps are identified. Opinions on strategy and the future of the business may diverge.

In several reported cases, the presence of legacy, smaller advisors with a disproportionate personal risk / stake has coincided with deteriorating family dynamics or even generational conflicts. UHNW families should set up as early as possible guidelines on the maximum revenues they should represent for advisors: for example a maximum of 20% to 30% of their turnover. This is comparable to limits imposed by retailers on their suppliers. Families should use a mix of small and large firms of advisors. The larger firms will have their own internal conflict and compliance rules to prevent their employees from acting unfairly.


office team – there are many different options and jurisdictions – governance at the family office should really be at par with other corporate entities. Have a proper board, a senior-independent director

and an audit committee. Controls & compliance make sense for the family as “investor”, do not trust people who tell you that they are unnecessary administrative chores. Have strong internal controls and processes to ensure the interests of the family are safeguarded. Make sure your board is on top of the control/compliance agenda. And remember that you are likely to be considered a “sophisticated” or “accredited” investor in several of your banks’ jurisdictions. Hence you get little regulatory protection against inappropriate sales pitches.

In some cases it could be useful to adopt a structure similar to German boards with a Supervisory Board and a Management Board, to allow the creation of a higher forum (Supervisory) with representatives of the family. The Supervisory Board – or Family Council – can cover a spectrum of issues broader than the scope of competence of the Management Board of the family office.

SRI and ESG? If one has been reading the newspapers lately one probably has heard of Corporate Social Responsibility and Environmental, Social & Governance principles. In this day and age, some level of SRI, CSR and ESG needs to be embedded into the family office investment principles and governance processes. To be at the forefront of investing, family offices need to embrace universal principles and build robust governance and control processes around leading global trends. However, there is no need to reinvent the wheel; all these principles are supported by clear guidelines from the United Nations (UN-PRI), the International Finance Corp. (IFC, part of the World Bank), international accounting bodies (IFRS), international investment institutions (GIPS) and national regulators.


Family offices using their own IT systems and accounting can better understand their true costs and true risks. They can report to members of the family and family trusts according to international best-practices: IFRS and GIPS. A family office that manages its own regulated fund will have the unique advantage of delivering to family members and trustees a set of audited statements. As a comparison, bank statements are NOT independently audited and many are not even GIPS compliant.

A family office equipped with industry-standard portfolio management software and a proper accounting package will rapidly realise that financial complexity is pushed by banks rather than bought by investors. This complexity results in high costs and lower performance for investors. When banks push complex structures, it is usually to keep margins high and costs less transparent1.

By following these five simple steps you will save yourself a significant amount of time in the future. Mastering the basic skills before you learn more complex things is a good premise to follow in all things, otherwise running before you can walk can lead to nasty accidents.