This article explores the the reasons for the problems families encounter by failing to view the family office as a methodology.

In the second half of an essay by Edward V Marshall, global head of the Dentons Family Office Group and a member of this news service’s editorial advisory board, he sets out the reasons for the problems families encounter by failing to view the family office as a methodology. The first part of the article can be viewed here. (More on the author below.) As stated, readers who want to respond can contact us at tom.burroughes@wealthbriefing.com 

Cause 1: Scope and expertise creep of vendors and advisors
We frequently discuss scope creep in the context of internal staff who support wealthy families. This expansion of duties frequently manifests itself in the internal team taking on an ever-increasing number of tasks to put out new “fires” from the requirements levied by the family. Secondly, service providers will discuss scope creep in terms of profitability to support wealthy families given the expansion of duty requirements from a wealthy family.

However, the issue of scope creep, which is directly attributable to a family’s vendors and advisors, is not sufficiently addressed. This type of scope creep can be devastating for a family looking for help to solve complex problems or operate more efficiently.

There is a natural tendency for family office advisors and vendors to introduce scope creep into a family office, often biting off more than they can chew in an effort to serve a wealthy client. We have all seen it.

Why does this vendor/advisor scope creep happen?

The problem lies in the opportunity to serve a wealthy family. These opportunities are infrequent and obviously coveted. Therefore, vendors and advisors will jump at the chance to support these kinds of families. The problem is that, when presented with a family with a net worth of $500 million, service providers are highly tempted to offer assistance in any manner they can, even if doing so would put them entirely outside of their comfort zone. 

"Of course, we can help with that as well," is a phrase that can have very negative consequences for families.  

No single individual or organization can do everything absolutely necessary to support a wealthy family. But it takes incredible discipline, experience, and confidence to admit that to a prospective or current client.  

Furthermore, knowing the general lexicon of the issues that wealthy families face does not replace direct experience in resolving those issues. Yes, we can all buy cookbooks, read them, and try the dishes out on our unsuspecting families. But it takes years of experience to master how to make something simple as Potage Parmentier or as complex as Beef Bourguignon.  The same is true for professionals expressing opinions on topics outside of their direct experience.  

Further, wealthy families often lack comprehensive knowledge regarding the vast array of services and guidance that are accessible to them. The reason for this is also not unexpected. Wealthy families can have complex service requirements. How does a family determine which service provider is the "best" in each category of need? Through rankings and awards? Through referrals from trusted advisors or other families? Through marketing materials or testimonials? Through luck and learning from mistakes?
 
Even if a family takes the time to conduct its own independent research to fulfil a service requirement, they will have to 1) slog through potentially hundreds of providers per category to find relevant advisors; 2) be lucky to find the relevant service providers in that category according to their particular needs; or 3) have the ability to separate hype from the ability to successfully deliver.
 
The problem is vendor/advisor scope creep and again, one of incentives. It can be very tempting for service providers to claim expertise beyond their core competencies because of the tremendous revenue opportunities connected to serving wealthy families.  

Naturally, businesses seek to find ways to expand wallet share with customers. In the family office sector, we are seeing more advisors advertise and/or develop additional internal "family office"-related capabilities to better serve their wealthy clients. Sometimes these new product or advice expansions are natural extensions (e.g., a bookkeeping firm offering consolidated asset reporting); others are more distant (e.g., a classic car advisor expanding into selling cybersecurity services).  

For families, the phrase "one-stop shop" may portend unfavorable outcomes and missed opportunities. Families run the risk of forgoing valuable guidance and alternatives that could have been offered to resolve a problem or accomplish an objective.  

Trying to do “everything” to the detriment of your core expertise or “dabbling” can lead to poor outcomes for a family and reputational damage for the service provider. Families should also keep in mind that real client segment expertise differs from client segment focus. It is time for the family office industry to acknowledge that this is a growing concern and to confront it head on. 

Cause 2: Lack of project management skills
Project management is a core function of serving wealthy families. However, many of the service providers who support wealthy families lack or misunderstand project management skills. 

Families will work with the vendors to develop grandiose plans and get mired in mediocre execution. Pointing fingers is easy (e.g., “the client changed their mind” or “the client had unreasonable expectations"), but fixing the issue requires understanding the fundamentals.

The under appreciated element of any business, partnership, or endeavor in general is the “chief get-stuff-done officer” role (CGSDO). The CGSDO is the person or people who can be relied on to turn an idea into action, a problem into a solution, or ambiguity into clarity.   

The same is true for advisors who support wealthy families. A family's lofty ambitions can quickly be derailed by poor execution. Families lacking a strong project management system may experience frustration stemming from slow progress, missed deadlines, finger-pointing among service providers and internal staff over who should be held responsible for unfulfilled family tasks, and increased expenses in terms of both money and time. Ineffective project management will make families feel more like they and their team are playing "whack-a-mole" than assisting them in reaching their objectives.

In the context of family offices, CGSDOs' ability to oversee and oversee project completion is ubiquitous. It is helpful, but not always necessary, to use expensive project management software to achieve these objectives. To get started, you can use sophisticated technology like a pencil and paper. Upskilling in this field, however, can be a simple and efficient approach to enhance the intended results for a family. In conclusion, enhancing project management abilities can be achieved through a variety of means, including using numerous technological platforms to stay on top of tasks, deadlines, and deliverables or by studying online tutorials.

Cause 3: Lack of strategy, KPIs and KRIs, and lessons learned
Inadequate implementation of project management is frequently accompanied by the absence of a comprehensive strategic planning process. Strategic planning allows a family to turn a mission statement into actionable projects, establish key performance indicators (KPIs) and key risk indicators (KRIs), and put lessons learned into action to fulfill its primary purpose: improving the family's quality of life. 

Those who support wealthy families sometimes complain that they feel like firefighters, moving from one task to another. Many of these issues can be alleviated by well-executed strategic planning in the context of wealthy families. Staff and advisors to wealthy families must be able to see the forest for the trees, as well as individual trees within the forest. This practice helps to avoid the hammer and nail dilemma, which occurs when an advisor's expertise, service, or experience amount to "X," limiting their advice to the specific context of "X."  

Furthermore, given how wealthy families organize their staff and advisors, it is difficult to imagine the principal having the time and patience to sit down for a detailed corporate-style strategic planning process. A strategic planning exercise for a complex wealthy family, on the other hand, can be spread out over time and still achieve its goals if done properly by experienced professionals. One can fly the plane while still building it. 

Cause 4: Lack of risk management and not building risk management into operations
Risks to wealthy families are nothing new.  

For millennia, wealthy families have used risk management services as a means of safeguarding their interests. Advancements in technology, including but not limited to social media and artificial intelligence, have not only presented families with additional conveniences and prospects, but have also introduced novel risks. Families have relied on risk experts to give them the tools and information they need to protect themselves from risks and also make well-informed decisions when they have to make tough choices. 

Due to the unique and complex risks associated with high net worth, wealthy families frequently require a comprehensive risk management program. But why are wealthy families still so likely to fail to implement a risk management system or to wait until a major risk or threat has manifested before taking risks seriously? Let’s explore two reasons behind this behavior. 

Underestimating and overlooking risks and threats. One reason for families underestimating risks is a lack of threat data from the industry. In general, there is a scarcity of relevant risk and threat benchmarks for wealthy families. Although some studies have been undertaken and have yielded valuable data, risk remains a complex problem that necessitates more profound analysis and the expertise of professionals with practical experience in this field. Risk management encompasses more than simply the act of revising insurance policies or mitigating insurable risks.

Another factor that contributes to affluent families disregarding risks is survivorship bias. The survivorship cognitive bias affects wealthy families, as it does every other group of individuals. Long periods of success and stability can breed complacency when it comes to risk management. Wealthy families may believe that because they haven't encountered risks and threats in the past, they are unlikely to do so in the future. This is evident in the fact that while it is common for families to conduct background checks on new hires, ongoing background checks are rarely performed. Given the extensive access that staff and vendors have to families, as well as the lack of an insider threat strategic mindset, this behavior creates an unnecessary risk that can be mitigated systematically.  

Wealthy families may also believe that they are flying under the radar and that their anonymity will protect them. "No one knows who we are, so we are not worried about being targeted," can be famous last words.  

Families don’t know what “excellent” looks like in the risk management vendor ecosystem. In addition, while cybersecurity audits and vendor and staff background check services may appear to be mundane tasks, only a limited number of these checks adhere to the most stringent criteria in the security sector. This is due to the fact that the majority of families are uncertain about 1) which risk management services are accessible to them, 2) what constitutes "excellent" risk management services and outcomes, and 3) marketing risk management services on the basis of fear.

These disconnects are caused by a variety of factors, one of which is a lack of understanding between risk and security vendors and the families they serve. Many proven experts in risk management have tremendous knowledge and capabilities to protect families. Many of them have firsthand government experience safeguarding critical assets and infrastructure.

Nevertheless, a considerable number of these risk and threat specialists lack practical experience in the private sector or in addressing the specific challenges encountered by families. This can result in a large vocabulary gap due to risk industry jargon and risk professionals' inability to translate the risk gaps that wealthy families face in a manner that resonates.

Furthermore, this disconnect can make it difficult for families to determine what high-level competence from risk professionals entails. Wealthy families must either seek the advice of trusted advisors or make risk management decisions based on incomplete information.  

Finally, risk management tends to market services based on fear, doom, and gloom. Although fear-based approaches may prove effective in specific circumstances or in the aftermath of a significant risk issue, numerous affluent families maintain a skeptical stance towards them. We can all agree that there are risks, but selling services on the basis of the sky falling can lead to families ignoring vendors and advisors who approach selling their services in this manner.

These factors contribute to families failing to identify risk management gaps in areas such as health advisory, actionable due diligence, and developing a capable insider risk threat program.  

Understanding the aforementioned issues and implementing risk management preventive measures have the potential to yield significant benefits for families, including time and money savings, as well as protection against potential losses. There are several steps that families can take to support better risk management planning, such as conducting a comprehensive family risk audit that covers all 10 risk domains regularly.

Conclusion
Families are complex systems in which issues around multiplicity, interconnectivity, and dependency need to be considered. Each member of a family brings their own personality, experiences, and perspectives and what affects one member often affects others. We must consider the possibility of extreme outcomes because families are complex systems. And when significant wealth is introduced into this system, the complexity rises in a non-linear fashion.  Wealth acts as a catalyst in both positive and negative directions.  

One potential strategy for addressing this variable of complexity in affluent families is to adopt the "family office" concept as a methodology delivered through a “one size fits one” mentality, rather than a mere compilation of tasks.

Family office is an ambiguous term that often leads to more questions than answers for families. However, everyone can benefit when we change our perspective on "family office" to one of process, methodology, and mindset. In this paradigm, all stakeholders' goals will be more closely aligned toward the single critical family office mission: improving the quality of life for families.

About the author
With extensive experience as an insider in the family office space, Marshall is widely recognized for his research, advisory services, and authorship in this field. He is regarded as a thought leader in the family office space, having served complex families all over the world. Marshall is also a risk and threat management specialist and works with families to reduce their cyber, physical, financial, operational, and reputational risk profiles.