Family Office

Four Signs It's Time To Rethink Your SFO

Andy Busser, April 5, 2019

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Signs of strain
 1. Your SFO is serving more households

Often, an SFO’s breaking point first becomes apparent as its services are stretched to accommodate more households. Many families undergoing transitions are also seeing older generations enjoy greater longevity, leading to a significant increase in the number of households under the family umbrella. The family’s SFO must either find ways to serve more households with the current level of staffing and resources, or it must increase employees and spending, calling into question its cost-effectiveness. It is widely suggested that in order to run an SFO, a family’s assets should be around $200 million or more.

The reality is that a family office set up to serve four or five households will always struggle to sustainably service a dozen or more. This struggle will have financial impact as well. Assets structured to support a limited number of family units may not have the same benefits when spread across a growing number of households.

2. Your SFO leadership is changing

SFO leaders are often considered a part of the families they serve. In many cases, they literally are part of the family. About half of SFOs are led by family members, according to Family Wealth Alliance research. When the individual at the helm of their SFO is not a family member, the family typically still has a long and trusted relationship with the leader. Family members use words like “superstar” and “irreplaceable” to describe them.

It’s no surprise, then, that when a CEO or other SFO leader steps down, the impact is felt across a wide range of family and financial dynamics. They developed specific practical and personal skills to meet the family’s needs, and they knew the families preferences inside and out. Often, SFO leaders remain in their position out of loyalty to the family, in most cases to the patriarch or matriarch, and their departure coincides with a generational transfer.

When the departing SFO leader is a family member, the challenges can be just as great. It often shakes up family politics, and a new decision maker must fill the void. In some cases, multiple family members think they’re the best fit to take on that role, whether they have the necessary skills or not. In other cases, no one wants it.

In reality, what families typically perceive as a staffing need is actually a larger inflection point facing their SFO. A departing SFO leader is an opportunity to evaluate the role an SFO plays in supporting a family through future generations.

3. Your technology costs are becoming prohibitive

The push and pull of control and scale plays out in the technology demands of wealthy families as well. Technology needs can change quickly, and maintaining systems that can incorporate new products and features is an expensive necessity. The cost can quickly become untenable for SFOs. It’s little wonder Deloitte found that technology is the service most often outsourced by family offices. Experience has taught us that few SFOs have the appropriate skills, infrastructure, or resources to provide these services.

When it comes to cyber-security, hands-on experience and research point to the same conclusion – the threat is real, and the stakes are tremendously high. According to a study by Schillings and Campden Research, more than a quarter of international families, family offices, and family businesses have suffered an attack.

Staying ahead of cyber threats to financial data and family privacy is a huge expense. Yet most wealthy families share the sentiment that privacy is a luxury worth paying for. That doesn’t mean an existing SFO structure is the most cost-effective or comprehensive way to achieve it.

4. Your family members are less connected

As more individuals marry into a family and more children are born, the disconnect between family leaders, wealth creators, and family values and legacy can grow along with it. Just as an SFO may not be structured to incorporate an increasing number of households, many are not designed to accommodate differing voices, opinions, and priorities. Even families who recognize these shortcomings aren’t eager to address them out in the open. They fear that these difficult conversations might cause further damage to relationships.

Often, this effect is cyclical. Family members feel a lack of control and influence in how the SFO is run, which creates additional strife and discord among households. Again, SFOs feel this strain most during generational transfers.

Ideally, an SFO would serve as a guiding force in generational transitions. SFOs can play a key role in maintaining family values, establishing a family governance structure, and managing interpersonal conflicts. But the SFO must be set up to tackle these functions in an inclusive, sustainable way. If family members perceive that an SFO is not built to serve everyone or family services are not being distributed fairly, the structure can actually do more harm than good. Taking a practical look at the systems in place to serve your growing family is key to maintaining family cohesion into future generations.

A proactive approach to family legacy
Every family has different needs, and every family will employ a different structure to meet those needs. Whatever structure a family utilizes, it’s important to be proactive about maintaining a sustainable solution that accounts for the complexity that comes with additional households, shifting family dynamics, rising technology costs, and staffing changes. Only an approach focused on solving both the family and financial needs will be effective in perpetuating a family’s legacy over generations

About the author

Andy Busser, managing director of strategy, Pitcairn.

Prior to joining Pitcairn in 2015, Andy Busser was a partner at Symphony Capital, a healthcare-focused investment manager of private equity and hedge funds. Previous to that, he co-founded Wilkerson Partners, a management consulting and advisory firm.

Busser holds an AB in history from Colgate University. He has served on multiple boards including the Colgate University Alumni Corporation and Lincoln Center Education, and he is currently a trustee for the National Committee on American Foreign Policy.

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