Considering starting a Family Office?

Every family should have a family office: X
Designing investment strategy is the first step: X
ChatGPT can design this for me: X… maybe?

There is a whole lot more to the role of family offices than just increasing your financial resources… that is, if you intend the family office to grow all of your family wealth:

FW = R (HC + RC)

Your Family Wealth is the sum of your human and relational capital pools, amplified by your resources (financial resources being the second most important resource to time).

This month, I tackle a popular family office topic, when and why to start a family office. Thank you for your time, Dear Reader, I hope in this short read you take away something valuable!

Families that start a family office strategy focusing on the investment strategy must have missed Simon Sinek’s famous Ted Talk Start With Why. Although instead of inspiring action with the business’ why (Simon’s point), in this case, your family’s why will inspire action towards building meaningful family legacies.

Family Champions: resist the urge to start your family office design from the investment strategy. That is the “how”. What is your “why”. What is your unique answer to the question “so what is all this money actually good for?”

Once you have a working answer to that question, please apply the answer to the overall question of how the family office design will effectively impact your goals for the resource.

Here are some subsidiary questions on your family office design that I like to ask:

• Is the Office a means to amplify the love and support you describe as part of your “why”? If so, how will it amplify?
• What important skills and behaviours are the Office role modelling for the family? Skills like financial literacy, critical thinking, due diligence, etc.
• What other ways can the Office be a role model?
• What matters to your family, in the way that your employees in the office behave? If a family member works within the office for a summer or for years, hypothetically, what are the key behaviours you expect that family member to observe as being “just like our family”?
• In what ways will the current and future stewards of your family wealth appreciate and value the actions of the Office?

Often, these are the types of questions that shape Mission, Vision and Values statements for an Office. It is integral to build these documents and especially critical to consistently check-in with management and determine how well understood and relatable those documents are to the family office team.

Now, some questions when starting to develop the Office’s Investment Policy Statement:

• What are your lifestyle goals and those of your known heirs?
• How would the Office support those lifestyle goals?
• What investment policies work to meet the family’s lifestyle?

With lifestyle goals, I do think the “how” of investment strategy is very important. Designing investment strategies to ensure a certain base level of lifestyle may PERHAPS tolerably ignore alignment of your investment strategies’ with your family culture.

Far better though to have all actions align with your why, but depending on the situation, I can see many scenarios where a family is more comfortable with their lifestyle needs being met with a different investment strategy than the strategies applied to the family’s legacy goals.

Legacy financial goals are where the family’s why is the rubber that hits the road.

It is the legacy goals of the family where the family culture’s influence on investment strategy really makes all the difference. The question is not “what investment policies work best to meet the family’s legacy goals?” but rather “how does the family culture dictate the investment strategy for the family’s legacy goals?”

The second question better frames the importance of the family’s why within building an effective family office culture.

There are a multitude of ways to do investment strategy effectively. Except that not all of those investment ideas fit within all family cultures. This is a key determinant in which Family Offices improve the family’s wealth and which detract from family culture by being singularly focused on financial objectives.

Care should be taken to think beyond the most common policy, which is determining which types of businesses the family does not want to support.

Consider other factors like:

1. Geographic goals (can interest in various regions improve the family’s worldly perspectives),
2. Industry goals (can showing investment interest in an industry stimulate one or more family members’ interest towards investment success), and
3. Do certain investments amplify the family’s culture by creating greater focus on the family’s values, goals and principles.

I believe that the families that can consistently identify their why and communicate alignment between their financial legacy goals and their values are the families that successfully apply their family offices to supporting flourishing family cultures.

So, to summarize, these steps are absolutely critical to starting a family office:

1. Establish your family’s why for the financial capital (revisit this answer regularly).
2. Determine your lifestyle needs for the financial capital.
3. Determine your legacy goals for the financial capital.
4. Identify investment policies that suit your lifestyle needs and legacy goals in alignment with your family’s why.
5. Then, deploy financial capital into the resources required to accomplish all of the above.

Family office design certainly does not end here Dear Reader! Although the above list is a lot of work on it’s own, further work remains. Not everything can be accomplished at the outset; Rome wasn’t built in a day, so to speak.

One last investment issue that I particularly relate to is: how does the family use financial resources to invest in their family members’ flourishing?

This is the role of the Family Bank, and various spending policies on health care, education, development, etc. An effective policy on deploying financial capital into your family members is actually much different than the lifestyle goals described above. The lifestyle goals are more predictable; this Family Bank focus is more uncertain in timing and amount. The more intentional ways to increase human and relational capital.

A clear set of policies on these unique, irregular, opportunities to spend financial capital on the family members is the type of dispassionate policy development that truly shows how much a family cares (how paradoxical does that sound? Bring in the lawyers to improve our loving and nurturing environment!)

With the Family Bank and similar policies in hand, the Office can determine, approximately, what these uncertain investment events might be which has a significant impact on the liquidity and the suitable risk/reward for that portion of the portfolio.

And with the above investment strategy planning complete, a family office is done the hard work…

No, not actually…

An effective family office design must address all of the other risks beyond investment risk! There are many more risks to consider and more tradeoffs to weigh in the family office design.

Here is a non-exhaustive list of other critical risks requiring attention in Family Office design:

• Reporting risks; consolidation, cash flow analysis, accounting, tax compliance
• Custodianship and cash risks; physical assets, marketable securities, currency, private banking, bill pay
• Financial risks; financial projections, debt management, liquidity, tax strategy, Office/active business financial integration
• Security risks; physical security, online security, Information Technology function
• Legal risks; creditor protection, general commercial, insurance, estate, physical assets, active business integration with Office,
• Communication risks; public relations, ownership relations, role of Office in family cohesiveness, family meeting and retreat,
• Governance risks; Boards, policies, ownership governance, overall accountability to family’s goals / plan
• Alignment with “why” specifics: social impact, philanthropy, Family Bank, leadership development, education/learning, mentorship

In the work that a family office can (and cannot) accomplish, not all of these risks can be the priority. Again, the family’s why and culture goals are extremely critical both firstly to the Office’ decisions and weighing tradeoffs and secondly to building effective accountability and performance monitoring and reporting once design decisions have been made.

The best family offices integrate their ecosystems well, calling on all of the various resources required at the right time and keeping them up-to-date on family affairs in between those critical moments. I believe advisor ecosystem preparedness is a critical and under-emphasized communication task (and something well-worth measuring and reporting on!)

A skilled Family Office can consistently bring the family’s why into whatever is the current task at hand with outside advisors.

Many aspects of the family office should never be in-sourced because the quality of professionals required for the task retain their skill by application to many fact patterns.

Conclusion

Simon Sinek caught the world’s attention with Start with Why. And the presentation played a critical role in my summary of how to start a Family Office. Once a family realizes it’s investment decisions do not exist separately and instead require alignment with the “why”, with the family purpose, with clear and intentional goals shaped by values, only then will the family create and sustain a meaningful Office.

And only then will the Family Office contribute more than financial resource strategy in growing the family’s wealth.

No family has a perfect “why” but we should all strive to have something to anchor our decisions to. Striving for that first answer to “what is all this money actually good for?” is that critical first step in building an intentional family culture and in developing a family office.

To the journey,

Adam

What is a Spripe? And other key terms you should know.

This month I hope we share this time together wisely by defining a few terms important to the language of family enterprise.

To the journey,

Adam

In this month’s edition of FO Perspective, I’m glowing in the good fortune of mentorship.

The Wealth Equation attempts to simplify to merely 11 characters the critical idea that your family wealth increases when your resources are applied to growing stronger family members and family culture.

The Wealth Equation: FW = R (HC + RC)

HC – Human Capital

Of the ways I’ve worked on becoming a better person, be it coaching, learning (usually from podcasting and online videos), finding new challenges, etc. my greatest growth is due to great mentors in my life.

With the one year anniversary of Dennis’ passing on October 30th, and recently travelling to Aspen, Colorado to take my menteeship with James E. Hughes to the next level, I’m thinking a lot about mentorship these days.

RC – Relational Capital

Harnessing a close relationship into an effective mentorship relationship is fulfilling for both mentor and mentee. We enrich our lives greatly by finding the time to mentor and be mentored.

Mentorship is a critical skill in being an effective Elder. As the highest wisdom-holder within a family enterprise, but without the control, it is an Elder’s influence that defines her agency. The influence is the action and certainly there has been no greater influence in my life than my mentors.

R – Resources

One aspect of mentorship that I’m fascinated by, because I think understanding incentives is paramount in building strong family office ecosystems, is that mentors are (in my opinion) unpaid.

I don’t think you can pay for effective mentorship. That looks more like teaching or coaching to me – also valuable relationships for sure. But the resource to monitor expensing in mentorship is time, not money!

Time is our greatest resource.

How can we spend our time effectively as mentors and mentees?

Here are my favourite tips from perusing the internet for good advice on mentorship:

Practical:

• Frame the time. The mentee should have an agenda.
• Come prepared. The agenda should be delivered prior to meeting.
• Get to know each other. The agenda should always include time for getting to understand each other’s worlds.
• Use effective and increasingly curious questions to gain understanding of each other.

Emotional:

• Be genuine and direct.
• Be teachable / look to deliver advice in a teachable manner.
• Look to the future and action plan; mentorship is not therapy.

Accountability:

• Goal set effectively and complete accountability check ins.
• Follow through on the last session’s actions.

Dennis did far more for me than mentor. I saw how he acted constantly. I saw him invest in people every day. I saw him remain calm in adversity. I witnessed his high level of trust, which was was truly unparalleled and resulted in events to his detriment often.

But he always maintained that his trust in people was still worthwhile even though it occasionally burned him.

Dennis was far more than a mentor; he was also a role model.

Geez, I’m “spoiled ripe” in so many ways, and in ways that spoiled rotten people could never imagine.

To the journey,

Adam

post-script, a paragraph of a poem by Douglas Malloch:

Good timber does not grow with ease:
The stronger wind, the stronger trees;
The further sky, the greater length;
The more the storm, the more the strength.
By sun and cold, by rain and snow,
In trees and men good timbers grow.

Read the whole poem here.

In this month’s edition of FO Perspective, I’m hopeful you can help me answer for myself the question: what are the issues and opportunities facing families and how can I help with them?

We won’t use the Wealth Equation this month. Although I’m sure I could find a way to describe myself as a resource to amplify a family’s human and relational capital pools 🙂

The Wealth Equation: FW = R (HC + RC)

In 2017 I realized I wanted to help families harness the power of their wealth to build stronger family cultures. In June 2019, that journey led me to working with Max and building Vesta Wealth Partners together. Now, because it is time for Vesta to transition leadership, given Max and I believe deeply in leading fulfilling lives, the time has come for Max to succeed myself with Max in the role of CEO.

The platform is in a strong position and Max is ready to be the CEO after his significant support for the business as owner, director and investment management teammate.

Max and Jared’s vision was that families like the Fortmullers deserved institutional-quality portfolio construction. Much like our investment strategies, we sought out to build a diversified business in delivering on this vision.

It has been quite the journey! Lots of stories, lots of growth, incredible learning. It has been a great success.

Not-so-humble brag: I’ve loved acting as a fiduciary for the Fortmullers, in my case my fiduciary role came in management of their business and single family office (“SFO”). The opportunity to integrate directly into the Fortmullers’ journey is something I’m very grateful for.

It has been a remarkable way to launch my journey in family governance to a whole new level, and with the growth mindset I have and desire to make an impact, now is the time to find new ways to empower entrepreneurial families to thrive.

So this update reaches you at an interesting crossroads for me. I’m actively searching for the right problems to solve and the biggest opportunities in family governance to make an impact. Here is my question:

• What are the biggest problems (and therefore best opportunities) to help families harness the naturally destructive nature of money on human fulfillment and family culture?

I’m all ears, I have some ideas, and you are receiving this update as a dear friend that I’m certain has unique ideas of your own for me in supporting this mission. Thanks in advance for your comments.

In this month’s edition of FO Perspective, we ask “what is the form of good stewardship”?

Stewardship. What a popular word in family governance circles. Important? Absolutely. But the Wealth Equation reveals an important take on the “stewardship” definition. Hopefully you agree, dear reader, that my definition tweak is for the better!

The Wealth Equation: FW = R (HC + RC)

Your family wealth is equal to your resources multiplied by the sum of your human capital (quality of people) and relational capital (quality of relationships).

R

Stewardship is most commonly thought of as the efforts towards protecting the family’s financial capital. Stewarding the wealth through generations requires a keen eye on effective uses of financial capital.

But as stewards I believe we become a little too focused on losing the money. It’s a very common fear. Wealth preservation cannot be the only goal with the capital.

Perhaps this perspective comes from the wealth creators, who saw the luck and effort first-hand required to amass the wealth. Perhaps this perspective comes from the wealth heirs, who see the money as culturally success-defining for their lives. And so long as more wealth exists when they die than when they inherited, they were deemed “successful”.

Both of these fears arise from a misunderstanding of money as a resource.

Given that meaningful family legacies arise from growing your people and strengthening their culture, the money might blissfully float unrisked through the generations and, sure, financial stewardship succeeds.

But often that use of financial capital will fail the family wealth and impair meaningful family legacy.

Stewardship includes stewarding forward what the family stands for. And I hope each and every family with a champion reading this (like yourselves!) knows exactly what your family stands for and how to steward those goals aligned with those values and principles.

HC

Arriving at a healthy relationship with the wealth and understanding the power of effective stewardship is a journey for every individual in the family. Certainly, the more family members that take the time to consider their fears around wealth, fear-set those, and arrive at an upgraded definition of stewardship will be increasing the family’s Human Capital.

RC

Communal pressures around wealth preservation are tricky. Those principles are valuable and certainly the opposite view, a frivolous view of the wealth, is much more destructive for the family. So the family culture has to apply some value to wealth preservation.

But in considering the stewardship of wealth, I believe family cultures should develop an abundance mindset. Combining a discipline of financial preservation with a scarcity mindset leads to overly fearful deployment of capital.

It should be entirely ok for family cultures to deploy capital into their people and their relationships and into investments that may lose capital if there are valuable other goals achieved. For example, with both success or failure of an entrepreneurial venture, risking the capital and unearthing valuable lessons from the failures should be supported by the family.

There should be a celebration of those lessons and a healthy relationship developed around failures in any family culture. No pariahs.

Conclusion

Regardless of the choices we make, outside forces could make the money disappear at any moment.

And what is left after the money is gone (or you pass away) is the relationships and the culture that can breed the kind of people that you are proud of. People capable of rebuilding wealth if need be. People you are proud to call family.

Because after all, time is our greatest resource and spending it wisely is far more valuable to your family than prudent investing.

In last month’s FO Perspective, we looked at culture as the most effective influence on success or failure of family legacies. I alluded to the other key driver of success and for those with the ol’ growth mindset, the answer is obviously personal development! Thank you for reading on Canada Day!

As individuals get stronger they act more in alignment with their goals, and discover clearer and more relevant goals as well.

I believe well-meaning, growing, caring family members cannot help but become better contributors to family goals, although sometimes managing individual and family goals can create quite the interesting set of trade-offs and conflicts!

I’m in Invermere right now with cousins from the States that I haven’t seen in ages (and all of our kids are creating quite the mayhem), it is Alex and my 12-year wedding anniversary, and my goal of writing about family governance monthly is at stake! So I’m fortunate to lean heavily on a LinkedIn Post, I note that the best place to start is personal development when worried about the future impact of the family wealth on the family.

That article has a great School of Life video embedded. Maslow’s hierarchy of needs is often represented as a pyramid because it gives a relatable image to the idea that the bottom levels of the pyramid are more very critical and often the greater focus of people. Basic human needs and safety and security should never be taken for granted.

Except wealth clearly distorts this focus.

There are very few heirs that can find fulfillment in creating a life where they have their basic human needs served. That would feel more like giving up, wouldn’t it? Maybe I’m being harsh.

No I’m really not being harsh, a focus on the bottom of the pyramid is definitely not taking advantage of the incredible opportunity that our good privilege provides to make a big impact and find big fulfillment.

Because privilege ensures that our pyramid does not work the traditional way, quite a lot of time and resources should rightfully go into the top needs; seeking self-actualization and striving for transcendence.

How can the wealth equation frame our understanding of the importance of personal development in the context of meaningful family legacies?

FW = R (HC + RC) 

Your family wealth is equal to your resources multiplied by the total of your human and relational capital pools.

R: Spend resources on personal development, it is as simple as that. Both time and money can be extremely effectively deployed into improving oneself. Please reach out if you aren’t sure where to start with topics like coaching, peer mentorship, conferences, mental models, seeking mastery, culture mining.

HC + RC: Growing your human capital clearly a key to this wealth equation, but I find it amazing how regularly I forget that we are all just humans in our relationships and even the best sides of all of us are going to run into mistakes in the context of decades-long relationships. We have to be kind to our family members, because we have to build up our relational capital for those downturns when we have to spend a little of that goodwill and trust we have built up in the only way that caring families really understand.

FW: leading more fulfilling lives (while maintaining a commitment to the family’s values) is the most autonomous way to contribute to the family legacy.

Complex words and well-paid professionals often impede progress. So an early issue of Family Office Perspective has to address the incredible consulting field of Family Governance that covers most of my favourite topics, but is also often a little too complex. This consulting field delivers value to families similarly to how management consultants advise businesses.

Let me know when I’m being complex because I’m here to empower!

Governance is certainly a complex topic. A lot of time and attention goes into this field with good reason. Governance is ultimately about how thoughts and conversations create decisions that beget actions. Governance is too often prescribed through lawyer’s eyes though. They focus on establishing policies and procedures that clarify the rules that govern a family’s affairs. Those rules establish parameters delineating good decisions from bad. This is effective governance because it improves the probability of good decisions and from those good decisions, effective actions follow.

Come on, we cannot let the lawyers deliver the most valuable forms of governance!

No way!

Certainly, a strong family constitution and well thought out policies and procedures have a very strong impact on family activity and yes, they are helpful governance tools. However, I’ve known since the very beginning of my journey into the family governance field that there is a lot more to effective families than rules. The real family governance is derived from family culture. I learned this from James E. Hughes whom I mention regularly.

But I also learned this from my own observations. The most successful families I know seem to innately understand what they stand for and are great at celebrating behaviours that fit within their core values. Neither “innate understanding” nor “celebration” would fit within a lawyer’s rules:

Lawyer: “now to New Business topic #5, the Article 6.3 infraction. You can clearly see in the Article that we expect family members to celebrate each other’s successes. So Adam, your failure to attend Shoshana’s Bar Mitzvah results in a penalty as selected by the Celebratory Review Panel at the next meeting that they are able to reach Quorum according to Article 14.4 where the Panel will select your penalty from those listed in Column B of Schedule 1.”

Adam: “I texted my cousin my congratulations, and we FaceTimed the next week, I think we are good.”

Lawyer: “sorry, the rules are very clear.”

Peter Drucker famously said that “culture eats strategy for breakfast.” Strategy is clearly important to business success, and yes I concede that rules are important to family success.

But culture is far more powerful and important.

So since family governance is about how families take effective action, then clearly the high-achiever families are likely the families filled with love, mutual interest in each other’s success, strong listening and communicating abilities (especially important: strong storytelling) or generally speaking, have strong cultures. Those lucky families will be able to influence individual and collective behaviour really effectively. They will have strong governance even if they don’t have written rules.

While there is no way to achieve family harmony, and there is very little chance that every single family member will align on core values, there is at least a strong chance that families can develop a caring family culture. We can all be inspired to support the growth of our family members and we can all create an environment where healthy actions outweigh destructive ones. These are the families that will thrive for generations whether or not they happen to maintain and grow their financial assets.

So I believe one of the two keys to family governance is family culture, the next key is the topic of next month’s Newsletter.

For those looking for a little more on this perspective, a quick reminder on how the wealth equation relates to this topic. The equation is:

FW = R (HC + RC) 

Your family wealth is equal to your resources multiplied by the total of your human and relational capital pools.

FW: Invest time and financial resources on family governance. Applying financial resources to facilitators will greatly assist in effective family meetings (and informal get-togethers).

R: Spend resources on traditional governance topics like family constitutions and other policies and procedures. But the best use of resources is spending time and intention on building strong individual family members with strong relationships.

HC + RC: Both the individual and the collective grow more valuable with a strong culture supporting them.

This newsletter is titled Family Office Perspective as I hope to deliver valuable ideas from the family office and family governance worlds for all families fortunate enough to have champions like you, dear reader, to receive them.

I started a series on CanadianFamilyOffices.com about my favourite governance tool (besides storytelling) called the Family Bank, check it out!

The wealth equation is my main perspective, the main chord progression so to speak, and these newsletters are all different riffs. So, the wealth equation:

FAMILY WEALTH = FA (HC + RC)

Because the equation is multiplication, there is a clear relationship between deploying resources into your people and relationships and the ability to amplify wealth.

I’m often asked for examples of investing resources into people and relationships. While I often cite investing in more impactful family vacations, adding things like family meetings, videography, and rituals to the traditional luxury and comfort we all love about vacations, it occurred to me recently that another word, not “vacation”, is more appropriate for families when determining ways to make their limited time together more valuable.

The word of the day is: pilgrimage.

However you define your tribe; a pilgrimage is one of the strongest examples in history of effective human development.

I last experienced a pilgrimage following the steps through the Andes and entering through the Sun Gate to Machu Pichu; an ancient pilgrimage.

My regulatory and compliance lawyer Don Campbell recently made the pilgrimage to Omaha, Nebraska. A journey common to those drawn to the Oracle of Omaha. If the term can apply to an investment firm’s AGM, it can certainly apply how your family intends to use it!

I recommend shedding past uses of the term and focus on how you would define a family pilgrimage. Adopt an important term.

FINANCIAL ASSETS

So how does a family invest in a pilgrimage. What are the components?

I have reduced my definition of a family pilgrimage to three components. They are: the journey, unplugging and time. A pilgrimage should include movement within an atypical space, a unique space, hopefully an awe-inspiring space. This creates a natural environment to enjoy new perspectives and thoughts.

In line with designing a unique journey that is unique and requires time and effort, the journey should occur unplugged from your smartphone and regular life. Again, to create a unique and quiet space.

Finally, a family pilgrimage should include family time. The time together, particularly without outside influences in unique space, will no doubt create situations where the people you know best will be different, where everyone will get to think and speak. Family time is always valuable (it is why I love family meetings) and spending time together on a pilgrimage will be uniquely valuable. Perhaps it will become an annual or biannual family ritual!

HUMAN CAPITAL

Pilgrimages 

Pilgrimages are often individual pursuits, in fact some definitions require that they are individual in nature. Although I’m recommending a family pilgrimage, perhaps there are sections journeyed alone. There is something so rewarding and healthy about spending quiet time with yourself. Whether your thoughts are abstract, the mind is quiet, or you explore questions really important to you at that time, any which result is valuable to improving your relationship with yourself.

Although I do not journal, I’ve read that one of the benefits of journaling is similar; organizing your thinking as a form of healing and meditation.

RELATIONAL CAPITAL

These key principles and the overarching ability to live intentionally and adapt. These are the ways to survive for generations.

There’s something so valuable about rituals, ways that groups remind themselves about what they stand for and care about. Clearly rituals like pilgrimages are valuable: I’ll spend a future newsletter on this 🙂

However you define your tribe; a pilgrimage is one of the strongest examples in history of effective culture building.