As the number of family offices serving multiple generations — in some cases, as many as four — grows, so do the challenges of managing the expanded roles, greater responsibilities and changing ideas about the mission of those offices.
“What you’re likely to see the further you get out from the wealth-creating generation is greater complexity and greater difference in terms of what the successive generations are looking for — how they think about the wealth, how they utilize the wealth and the values they bring to the table,” said David Fisher, executive managing director of family-office services at Chicago-based Cresset.
- Family offices serving multiple generations face unique challenges.
- It’s key to establish rules and structure, typically through governance documents.
- Families need to make sure that everyone has an equal voice.
- To avoid disengagement in younger generations, get the children involved early.
- While the family’s wealth founder usually drives most of the decision-making during his or her lifetime, it’s imperative that successive generations establish rules and structure to sustain a family’s legacy into the future, typically through governance documents. Doing so isn’t easy and often requires a diplomatic approach across generations.
Later generations only succeed in maintaining the family’s wealth when “they make sure that everyone has an equal voice,” said Sharon Olson of Olson Wealth Group in Bloomington, Minnesota. “The documents are what provide the cohesion for the family.”
Kent Swig, president of New York-based Swig Equities and himself one of eight surviving members of his family’s third generation, helped formalize his family’s structure in the 1990s. The plan put in place continues to drive decision-making as the fifth generation comes of age.
“The first thing we did was create governance documents,” Swig said, along with a board of directors. The governance documents specify who counts as a family member when it comes to distributions from the family’s assets, how investments and other decisions will be made, who will serve as a board of directors and the amount of compensation for family members who work within the family office.
Every five years — and more frequently in special circumstances — Swig’s family members reevaluate the governance documents. “This governance document lives and breathes every day,” he said. “Nothing is set in stone.”
For Swig’s family, the changing makeup of the family is a major focus of the revisions to its governance documents. Those changes include resolving questions about whether and how to include family members not contemplated in the original documents, as well as those who were once married into the family but no longer are because of divorce or the death of a spouse, stepchildren, adopted children and more. Other changes might affect how the board of directors is run, how proceeds are shared among family members, investments and philanthropy.
Besides the need for formal structures, it’s important for families to consider the possibility that later generations might not want to be involved in the family office’s activities.
The potential for disengagement is why Olson advises clients to get children involved early, when they’re around 10 years old, so that “those next generations will also get used to the conversations around wealth and talk about these important values around wealth.”
Olson has found that family offices need to engage members through a range of opportunities beyond the traditional investment decisions — from informal get-togethers and reunions to philanthropic initiatives — so that the family operations can “draw people in even if they have no interest in investing. We work hard to really encourage everyone to be at those meetings, and different individuals are encouraged to bring ideas.”
That strategy has worked for a family well-known for its continuity—the Rockefellers, according to a former executive there. Harry Grand, currently head of the New York office of Angeles Investments, spent eight years as a chief staff and client adviser at Rockefeller & Co., where six generations were alive at once.
“That family, specifically, has done a phenomenal job at maintaining really healthy communication, having annual meetings with the family members around philanthropy,” Grand said. “They all get together in a very positive, nurturing way to talk about things that they can be doing for the environment or for whatever charitable goal they have.”