Learn more about the steps to consider when setting up a family office in our third episode of the Family Office Vlog Series with Asena CEO Peter Harper.


Peter Harper: Hey Guys. (This is) Peter Harper, Managing Director and CEO of Asena Family Office. For those of you who are not familiar with the business: We are a multi-family office, and we advise foreign families and private clients on U.S. direct investments and mergers & acquisitions.


Peter Harper: So, today we are going to talk about setting up a family office. For those that aren’t familiar with what a family office is, it is born out of a family or a founder having a material liquidity event or inheriting a large amount of money and really trying to organize their affairs so that there is the same sort of operational structure and infrastructure you’d expect to see in a high performing business within the family’s private assets. So, what does that actually mean? You’ve got in the marketplace: there’s a lot largely regarded that you’ve got two types of family offices, where you’ve got this concept of a single-family office, right? So, this is when a family probably has a larger amount of liquidity or more significant complexity in their life where they feel they need to have their own infrastructure rather than shared infrastructure for supporting the family’s investments. That look like a full c-suite across CEO investments, tax, accounting, legal, and general sort of infrastructure management compared with what’s called a multi-family office where a family says, “Hey, listen, we don’t think we need to have our own single-family office where we’ve got all of these people on staff. We think we can manage that on a fractional basis. So, they’ll work with a firm like the Asena Family office, who can go out and support them on a fractional basis across accounting, tax, legal, estate planning, wealth management, and deal support.


Peter Harper: The key things that determine whether someone should be oscillating between a single-family office first and a multi-family office really comes down to three factors: The size of a family’s wealth and the support; the number of people they think they need to support (that’s a number of family members supported); and then professional support. It’s the complexity; if someone’s got the largest balance here on the planet, but they actually don’t have any investments because all the liquidity is sitting in cash, they don’t have a whole lot of complexity, and maybe they don’t need the complexity of a family office. Whereas, even if someone has less liquidity, less wealth, but they’ve got a whole bunch of complexity in their life like a larger family that they’ve got to support or a very complex asset base across jurisdictional asset base, then that might be a driving factor for their choice to have a family office. Then the final point is the autonomy of the family office. Whether they’re expecting for folks in a fiduciary capacity to effectively run their lives, so run all their investments and manage all the back-office stuff with minimal influence and minimal impact to the family, or whether they want to be actively engaged in the family, where they’re like yes we’ve got a family office, but a family member wants to be the CEO of the family office.


Peter Harper: So, let’s break down those things a bit more. Besides your wealth, at what size should someone be contemplating for a family office? I think if you ask a lot of people this question, you’ll get many, many different answers, but we’re of the view that you normally wouldn’t be thinking about a single-family office if you have less wealth than you know, probably a quarter of a billion. You probably wouldn’t be thinking about a multi-family office unless you had a net worth of less than 50 million. That can vary for different people. It really comes down to the cost. When you’re trying to run a full c-suite in the infrastructure around that, the costs of that are going to range from three to ten million dollars per annum. So, unless you’ve got the wealth to sustain the income that, therefore, can sustain the overhead, it’s just not going to make any economic sense.


Peter Harper: The second point is the complexity of your life. Like I mentioned before, we deal with some people sometimes that have immense wealth but really do not have complex lives. They’ve intentionally structured their affairs that way because they want simplicity. Then we have other folks, other families that have immense complexity on a global basis or a domestic basis, and that can come down to how they like to invest, but maybe there’s a lot of liquid investments; it’s cross-jurisdictional. Maybe it’s just the sheer number of family members that are expected to be supported out of the family office, depending on where they are. They might be in different countries. So to me, probably the biggest issue that drives choice around a family office is complexity. Obviously there needs to be a materiality point with wealth where that makes sense, but complexity is what’s going to drive whether you need someone to run this stuff on your behalf.


Peter Harper: And then the final point is around the priorities of the family. There’s a lot of great literature out there that talks about values construction within a family and how you avoid family wealth going from shirt sleeves to shirt sleeves within three generations. Various cultures around the planet have a similar concept. It’s just consistently the data supports that families that don’t have a plan are going to wind up in a position where the money doesn’t last a huge amount of time. So, a lot of the time, the priority of the families is that is all about how important is the wealth that they have today. How important is it to them, is the wealth that they have today, is it there for future Generations, right? So, really that construction around the purpose of the family office and how that’s supposed to be managed for future generations will dictate whether it makes sense to have one. Because really, they’re all about multi-gen. It’s primarily a plan for, a tool for multi-gen planning.


Peter Harper: So, I’m often asked by people that are interested in setting up a family office, “Well, okay, what questions, if you’re in my shoes and you were about to embark on setting up a family office, what questions would you be asking someone like yourself right?” So again, some of this is repetitive, but I’d be going through the process; I’d be starting, sitting there, and saying, “Okay, what is the objective of the family office? What is the purpose? Why are you doing this, right?” As I mentioned before, family offices that are not set up with a long-term framework in place where they’re thinking about this for generations that do not exist today are rarely successful. I’d be asking about the scope of their family office. I’d be asking myself, “Okay, what is this? Is it going to be set up solely as an investment vehicle, right?” So, the term family office is really not a correct term. Maybe it qualifies as a family office in the minds of the SCC, but that doesn’t mean that it’s a real family office. Family offices are all about engaging with generations to ensure longevity of wealth. So, what is the purpose? Is it investments? Is it estate planning? Is it managing other items for the broader family? Is it asset management across real estate where we’re saying, “Hey, listen, these are legacy items that we want to keep for future generations?” That’s defining that scope, then articulating that plan, and having a family kind of buy into that plan is very critical.


Peter Harper: I’d be asking again, you know, if you’ve determined what the role of family offices is, asking, “Well, what skills are then needed to run the family office, right?” And, I think it sounds cool; the idea of having a family office; to a lot of people, it sounds cool. But then, when you realize the role and work that can go into managing a single-family office which can be significant. You need to know what skills do I have? Do you have the skills to be actively involved, or is this something that where you should be setting it up and passing fiduciary responsibility of the family to a group of professionals that have the skills to do that, right? So, the skills are needed. You need someone that has been able to run a private enterprise. You need someone that’s adept in investments. You need someone that’s adept in managing complex, familiar relationships and then all of the administrative support services that you would ordinarily expect to have around the back of a business.


Peter Harper: In many cases, a lot of the times, there’s a real center around investments so probably the biggest cost that’s going to be is the chief investment officer. I’d be asking: “How are future decisions going to be made?” You know, I’ve talked about previously the framework of a family office is; really, you’re dictating the rule book or the constitution for the broader family and how they should interact when dealing with whatever the assets of the family are, right? And so again, there’s a lot of literature out there. If you read up on the oldest family offices and how they’ve been so successful, they’ve been so successful because they’ve had very well-thought-out rules and what it means to be engaged in the family, to participate in the family office, right? For me, this is actually one of the more critical facets of a family office, right? It’s once you get a framework around investments and what this thing is going to do to make money; it’s how do you ensure the capital you have today is still there for future generations? For me, if I was going through this process of saying, “ok, this seems like a lot because it is, it’s like establishing a startup; getting these people in place; setting up KPIs and who’s going to manage them. Are you going to manage them, is the family going to manage them? Is it one person? Who’s doing reviews on these people to make sure they’re doing the right thing and how’s proper incentives kind of established around that? Or, do you want to work with someone like Asena Family Office on a fractional basis, right?” Where you say, “Hey listen, yes we need all this stuff, but we want to outsource it to people, folks that have the ability to manage this stuff on our behalf through some form of professional partnership right? And, you know, if you, for every client I’ve had that’s come in and said, “Hey listen, yes, help us set up a family office,” many of those folks have come through a process where they’ve determined, after learning the lessons the hard way, to say “Okay, okay, we’re either closing the family office, or we’re substantially limiting the roles and responsibilities of the family office because it’s more efficient just to do this stuff on an outsourced basis.”


Peter Harper: I’d be asking, “At what asset levels does this make sense? When does it cease to make sense, right? Again, you know, having a clear understanding of the costs, what you expect the expected revenue of the family office is going to be, and the likely overhead. It’s a business decision why this still kind of makes sense. It is really critical, depending on the family. I mean, if they’ve got a very sort of benevolent framework and they’re giving a lot of money away with philanthropy, or they’re giving a lot of money away to family members, there might just come a time where the asset base is such that it doesn’t make sense to keep the family office in place. So, being aware of all that stuff up front is super important.


Peter Harper: I would also be thinking about the services. What services are, am I thinking about, in the construct of, and this is why I think it is helpful to go through sort of a review of: If I was to have a single-family office, what would that look like, right? Because when you’ve done that and you’ve kind of architected out your own life, and you go, okay, these are the people that we would need to run a single-family office. I think it’s also then easier to establish well what you can outsource right? So, maybe you’re only having a certain part of that in-house, and the rest of it’s going to be provided by external professionals, but you need to have a clear sense of what gaps; what it makes sense to have on staff and then external, and then what you can afford as far as a budget to pay those people. Because running a single family office, as I’ve indicated before, it can be very costly particularly if you’re trying to get market-leading people to support you in areas such as investments.


Peter Harper: I think the other point is, that a good question would be about client service. I mean, I think it’s like anything else, when you’re used to dealing with something that’s a luxury product, or you’ve had luxury interactions, there’s a certain sort of client standard that you would expect. Sometimes when some of this stuff is managed internally or through a single-family office, it’s harder to maintain the quality level. Whereas, it might be actually easier to do it up on an outsource basis through a multi-family framework. So, I think it’s really important to sort of ask yourself the question about how important that sort of service standard is. Then also, I would also be asking the question around the sustainable operating model because this, to set up a single-family office to effectively incubate a new business. The purpose of which is to generate profit to sustain the needs of the family; whatever that is; whether that’s just operating costs, so whatever they need to run their lives or to deliver on philanthropic goals, right, or to have free capital to continue to grow the wealth for future generations, right? In order to be sustainable, it needs the infrastructure to be put in place in a way that you know makes money or is at least cost-neutral to be sustainable like it would be with any business.


Peter Harper: Then I would be asking the question about time, right? That it’s one thing to spend a bunch of time setting up a family office, even if you have a bunch of independent folks that are absolute experts running these things for you. They still need to be managed, right, and that takes time. There’s a level of sophistication that may need to exist to have that, so, you know, the biggest thing when again making a choice around it, “Do I set up a single-family office or a multi-family office?” This is a really important question right, because it may be the case that you don’t have the time or the desire to manage people, so an outsourced, fractional option is the best way to go.


Peter Harper: And then, leading on the back of that, it’s time, and then it flows into involvement, likte how involved do you want to be, investment decisions or allocation of capital, right? Because I find sometimes with this notion of single-family office, if it’s going to be a completely fiduciary type deal where it’s going to get set up, maybe you’re stepping in for a quarterly board meeting or something, but you’re really not actively engaged at all. What’s the purpose of doing it in such a way where you’ve got all this infrastructure right? If you’re effectively trying to set this up so you’re out of the picture completely, who is holding who accountable? If you get strong people that you know operate and exist in the fiduciary world, like independent trustees, you can have, put all that stuff in place, but it requires work; continued work. So, being real about how much time you’re going to connect to this process up front is really important.


Peter Harper: So, you know we’ve talked about what is a family office, right? We’ve talked about the three important things that drive the decision whether to have a single-family office and a multi-family office. Then we’ve talked through a whole bunch of questions that I would look at and ask if I was thinking about setting up a family office, right? So practically, how do I start the process, right? So, again going up the front, you’ve got to go out and work with someone to determine the objectives and the purpose of the family office. The second is you got to determine the importance of client service and whether you want to have the headache of managing people within a single-family office. You’ve got to ask yourself, “Am I ready to start and run a business because family, a single-family office, is just that, right? It’s a business, right? It might be framed around investments but it’s still a business. And then, you’ve got to answer that question. And then, finally, you’ve got to determine what your investment philosophy is going to be, and how you are going to approach investments.


Peter Harper: So, you know, I’ll close out with some tips; what I think are helpful for thinking through the establishment of the family office. The first one is, you know, understanding your capital, right? What are your capital needs of the family? What are your investment goals? How much risk are you willing to take on, and how long do you expect your capital to sustain the family? Two. I’d get really clear about the delegation of responsibilities, right? What are things that you’re happy to do and get involved in/get involved with, and where are you going to expect to be supported by a professional? Setting up a single-family office is just like setting up any other business. It’s a mammoth undertaking, and without a really, really strong team in many cases, it can just create more headaches for a family than the issues it solves. I’d be really clear around your vision for investment. If you don’t have a vision for investment, make sure you’re getting with your financial advisors and wealth team to kind of work that out at the start.


Peter Harper: Determining the longevity of the investment strategy and how that should play out is really important. So, about evaluating what your investment horizon is and then what are your short-term capital needs is important. And then, take a proactive approach to succession. For me, the most critical value of a family office is around legacy planning and the longevity of the investment office. I don’t honestly see the value of implementing a family office if this is something that’s not going to exist outside of the founder’s lifetime. For me it’s all about legacy and ensuring that the family vision and values survive and thrive for multiple generations. So, you know, take your proactive view on succession and engage with family on that really, really early.


Peter Harper: Cheers guys. Hope it was helpful.


Have questions about setting up a Family Office? Contact one of our Asena consultants to get started.

–Peter Harper