The family office landscape has shifted considerably since I began my career at Family Business ten years ago. Readers used to ask me to explain what a family office is; today, more people understand the meaning of the term. When mega-celebrity Oprah Winfrey announced earlier this year that she had started a family office to manage her wealth, the concept went mainstream.
A decade ago, family business advisers were concerned that next-generation family members would become too dependent on family office staff to manage their personal affairs and would never acquire essential life skills. With today’s tight economy, many single family offices have stopped providing “concierge” services to focus on wealth management functions.
The recent economic downturn changed family office clients’ attitude toward investment risk, according to research conducted by the Family Office Exchange (FOX), which provides education and peer networking for families of wealth and multi-family offices.
In a 2006 FOX survey of family office executives, respondents identified “family legacy/family relationships” as areas of greatest concern. In a 2009 FOX survey, “investment strategy risks” had risen to the top of the family office executives’ list of worries. While the current emphasis on investment strategy is understandable, it might be sending the next generation an unintended message about money’s position on the family priority list.
Families who focused all their concern on the status of their investments during the 2008-09 downturn overlooked the opportunity to educate family members about wealth management—and to strengthen family governance. Strong family bonds are especially important in times of economic crisis, when emotions are running high.
FOX research uncovered 30 dimensions of risk that wealthy families must address. Not surprisingly, many of these involved the family’s financial and business assets. But a comprehensive view of risk also encompasses family attributes such as continuity, leadership and philanthropic legacy.
Single- and multi-family office staff can be vital allies. “Especially during times of family and business transition,” family business consultant François de Visscher wrote in Family Business Magazine in 2004, “a family office can help educate relatives about various options, help the family articulate and live by its values and strengthen patient capital…. In addition, the family office can help connect disparate family members and keep them informed about business, family wealth and other issues.”
Despite the changes in the family office environment since the downturn, those functions remain essential.