Putting the Mission First: Every Family Office Needs a “North Star”
By Jim Coutré
Vice President, Insights & Connections, Fidelity Family Office Services
Fidelity Family Office Services’ 2018 Evolving the Family Office e-book, released as monthly installments, will explore what we believe are the most significant challenges and opportunities that could disrupt family offices today—and how executives can prepare themselves to stay relevant in future. The following is Chapter 2 of the e-book, “Putting the Mission First: Every Family Office Needs a ‘North Star’.”
Families and executives often come to us seeking help when they embark on creating or restructuring their family office. They inquire about the appropriate way to structure different functions, they ask us what services they should offer, how they should be delivered and who should be their next hire.
While we are eager to help, we can’t provide truly helpful answers until we know why they want a family office or why they are restructuring their current office—and, surprisingly, this is a question many have a hard time answering.
We’ve seen that the family office foundations that have stood the test of time tend to start from a clearly defined mission—created from the family’s vision of success. In short, every family office needs a “North Star.”
GETTING LOST AT SEA
Family offices are often elusive, private and complex, so it is understandable that family members don’t always have clarity on what might be involved in building an office—or even what questions to ask first. When an executive is charged with execution, it’s expected that they will forge ahead with whatever guidance—great or small —they have received from the family. In these situations, a family office will be
created and it may be successful, but the likelihood of headaches, stumbles or suboptimal outcomes increases.
What have we seen go wrong when the office is launched before its mission is properly defined and understood?
In the absence of a statement of purpose, decision-making criteria are unclear, leading to confusion, inefficient processes or decisions that ultimately are not aligned with the family’s philosophies or needs.
If created without a deep understanding of the family’s needs and wants, the office structure and services may fall short of its potential today—and this will be exacerbated as the rising generation comes of age. Similarly, the office is more likely to be over-built and require right sizing further down the line. Lastly, decisions made in the beginning might have to be undone, which may cost dollars to correct. Without clearly articulated goals, offices can bias their service offerings toward the professional expertise of the founding executive.
It is hard to hire the appropriate talent if you haven’t yet defined the strengths, skills and culture that will align with the family and seeks to deliver a vibrant office.
In most cases, families want their offices to support multiple generations or promote cohesion across different branches. Failing to involve a broad set of stakeholders is a potential lost opportunity. Without an inclusive approach, the final product is less likely to truly reflect the broader family and family members may lack a strong sense of ownership as a consequence.
If no metric is created to measure success, any claim that value was created can be made—or dismissed— arbitrarily, putting the efforts of the executive at risk of being under appreciated.
SETTING A "NORTH STAR"
It can be challenging or even uncomfortable for executives to have a conversation with the principal or family about defining the mission of the office. The family may have no idea of what the answers are, or may simply not realize how important it is to articulate a mission and the criteria for decision-making. To help secure the long-term success of the office, we believe it is critical that executives have this conversation. Armed with the lessons learned above, and factoring in the following considerations, success may be more likely.
Defining the purpose of the family’s wealth: a family vision With so many financial, legal and tax advisors surrounding wealthy families, it’s not surprising that many offices default to targeting the protection and growth of financial assets. But the starting point should actually be to define:
What does success look like for the family (not the office)?
And what is the role of wealth in that vision of success?
What is the purpose of the family’s wealth?
Is it solely to beget more wealth?
Is it to create cohesion across generations?
Is it to use philanthropy to help shape a world the family wants?
Is it to help individual family members find personal fulfillment?
Is it to drive entrepreneurship or innovation?
Is it some combination of these purposes?
There are no right or wrong answers; every family is different, but if you don’t know where you want to go, you are unlikely to reach your destination.
"UNDERSTANDING THE PURPOSE OF WEALTH MEANS BEING INTENTIONAL IN DEFINING WHAT WILL FULFILL FAMILY MEMBERS TODAY AND EVEN FOR GENERATIONS TO COME. THESE CONVERSATIONS SHOULD BE PERSONAL, EMOTIONAL AND REFLECTIVE OF THE FAMILY’S TRUE HOPES AND DREAMS.
-JIM COUTRÉ, VICE PRESIDENT, INSIGHTS AND CONNECTIONS, FIDELITY FAMILY OFFICE SERVICES.
DRAWING UP A MISSION STATEMENT
Once a vision for the family has been established, creating a clear mission statement for the office should help to align family members around shared goals, enabling the family and its advisors to create an office around what has been identified to matter most.
There is no single approach to crafting a mission statement, nor are there requirements for what should be included. But a well-crafted mission statement should capture what is most important to the family—a bit like a scorecard that ensures long-term goals are not sidetracked by urgent or tangential concerns.
With that in mind, here are some examples of simplified, illustrative mission statements that families might put in place:
SUSTAINABLE ASSET MANAGEMENT
To protect and enhance the family’s wealth.
SUPPORT PHILANTHROPIC ENDEAVOURS
Support philanthropy and other charitable giving by providing operational services, fostering governance, and cultivating family leaders.
EDUCATE FUTURE GENERATIONS
Ensure future generations understand the responsibility of their inheritance and how they can benefit from it.
To ensure that individuals can fulfil their potential and ambitions, whatever those may be. Providing tailored financial and advisory support to individual family members to support them in achieving their aspirations.
STEWARDSHIP OF THE COMMUNITY
As longstanding land-owners, the family vows to undertake responsible use and stewardship of its property as a resource to the local community. The family members pledge to each other mutual support in achieving property stewardship, contribution to society, and personal growth.
ORGANIZING THE OFFICE
If the mission represents the navigational beacon of the office, organizing the appropriate team and provisions are likely the keys to staying on course.
The office mission can be used as a basis to understand what the organization of the office needs to look like:
What services will it offer?
What roles need to be staffed?
What culture needs to be created?
How will it be governed?
What legal structures should be used?
It is important to understand that answers to any of these questions may change over time as the family’s needs and vision evolve. Even an office that has been running successfully for many decades may need to revise its mission, and therefore the way it is organized, as the priorities of new generations change.
One family office, founded due to a liquidity event, had to evolve as new generations arose. As the family grew, it became clear that the long-held vision for success was unattainable if new wealth was not created. To align with a newly established vision for the next era, the office’s primary role shifted from wealth preservation to wealth creation. This included changed investment policies, new programs to promote entrepreneurship, life coaches for family members, and assets liquidated to create a new fund to invest in family-led start-ups.
One large and growing family started to feel less cohesive because of their global dispersion, so they decided to refocus on their vision for unity and identity. As a result, the office was retooled to put more emphasis on creating and maintaining communication channels, defining and executing educational programs, and convening an annual retreat intended to build stronger emotional bonds between branches and individuals.
In our opinion, families and executives that manage to articulate a clear purpose and mission, which can feed into decision-making frameworks for the office, have a far greater chance of creating an office that will stand the test of time.
Through our experience in helping families and offices achieve these goals, we found it can take upwards of five years to get the vision and mission correct. Based on our experience, it is our opinion you will need to test initial assumptions and theories before you can agree that you have it right. After the vision and mission are understood, it can take another five years to get the office staffed and working effectively. Building this foundation is a marathon and not a sprint, so taking the time to set things up correctly will likely pay dividends down the road.
The onus is now on family members and hired executives alike to help steer that process— enabling every family to find its “North Star.”
QUESTIONS TO CONSIDER
Can you articulate the purpose of your wealth?
Is your vision for the family your own or is it a shared vision, inclusive of multiple members and generations?
Have you communicated this purpose and vision with those you have charged to run your family office?
For family office executives:
How do you know that the office and the family are aligned on what success looks like?
How might the family’s needs and wants change over time?
As the family does evolve, how will you react to address these changes?
Explore other chapters of the e-book at go.fidelity.com/evolvefamilyoffice.
About the Author
Jim Coutré is Vice President, Insights & Connections. He is responsible for the oversight of Fidelity Family Office Services’ Insights & Connections program, which provides family offices and wealthy families with thought leadership, referrals to industry experts and consultants and access to a peer networking program. Prior to joining Fidelity, Jim was a vice president at The Philanthropic Initiative where he helped ultra-high net worth families and multi-generational foundations increase the social impact of their giving and he trained professional advisors and family office staff to help their own clients set and achieve their philanthropic goals.