How to Start a Family Office, step 2 of 12

Write the Principles That Will Guide Your Family Office

In short. This step involves agreeing on what your wealth is for, which values should guide family and staff, and how decisions will be made. Put those principles in practical documents, including a mission, governance and ethics policies, an investment mandate, performance measures, and operating processes. Share the documents with family members and revisit them as circumstances change.

By Richard C. Wilson, from chapter 2 of How to Start a Family Office

Write down what your family wants its wealth and family office to accomplish before you build the office. In my experience, families often discuss their priorities but leave them informal. That can lead to misunderstandings when family members, staff, or the next generation have to make decisions.

I call this set of documents and policies the Family Compass. It gives your family a shared reference point when circumstances change. It also helps you explain your expectations to advisors, service providers, and employees. The compass does not need to be long or polished. Put the principles in writing and share them regularly.

Start With the Family's Mission

Begin by discussing what the family wants its wealth to do. Are you focused on protecting wealth for future generations, supporting family members, funding charitable causes, or pursuing a mix of objectives? Your answers shape the office you build. Without clear objectives, it is difficult to hold a team accountable or decide whether a proposed activity fits.

Write a mission statement that reflects the family's purpose and priorities. The process forces you to be specific about the purpose of the office. It also gives the family and its staff a basis for judging whether a hire, investment, or operating choice fits your ideals. A family office mission can differ from that of an endowment, pension fund, or traditional wealth management firm.

Define family values alongside the office's values. In my experience, a founder's values can remain visible in a team even when employees are not related to the family. Stories and regular repetition can help pass those ideas between generations. Discuss what each value means in practice, then use examples to make it memorable. You can also display the values at home and bring them into family conversations.

Set Down How Decisions Are Made

A governance policy describes who has authority to make decisions and how the family will handle important situations. Consider hiring decisions, changes to portfolio allocation, compensation, distributions to family members, and how the next generation learns about receiving capital. Clarify who participates and how a decision is reached.

Good governance gives the family a reference during a death, investment losses, or a dispute. It can also define the limits of each person's authority. For related questions about family office governance and what a family constitution should include, see the linked guides.

Document an ethics policy that explains expected conduct for family members and employees. Depending on your operations, it may address personal use of business assets, vendor dealings, reporting concerns, conflicts of interest, privacy, and gifts. It can also cover employment and media contact. The details should match your family's circumstances. Talk with your attorney or CPA when legal or tax specifics matter.

Give the Investment Team Clear Direction

An investment mandate sets out how the family office should deploy and protect capital. It can describe the family's priorities around preservation, growth, income, taxes, liquidity, costs, diversification, and risk. Make the mandate specific enough to help the team evaluate opportunities and explain tradeoffs.

The family's mission and values should determine the destination. A CIO, board member, or peer family office can offer input on the route, but they should not set your family's objectives for you. Involve the family members who need to agree, along with the office's investment and executive leadership. Decide how often the mandate will be reviewed and who can approve changes. The guide on writing an investment policy statement can help you explore this document further.

Measure Performance and Document the Work

Choose performance measures that connect to the mission. A KPI is an objective measure of a task, investment, or recurring responsibility. Assign measures to roles and use broader indicators to understand how the office is functioning. Measures should help the team assess its work and keep attention on the family's priorities.

Write down recurring systems and processes in an operations binder. Document what each person does, the steps involved, and how often the work takes place. A new professional should be able to understand how the office operates and take over essential responsibilities. Individual process notes can sit alongside a broader record of how the whole office works.

Keep the compass usable. It does not need to be a professionally bound manifesto. Give the family time to discuss the topics, write down the agreements, and communicate them across generations. Revisit the documents when family needs or circumstances change. For the questions to bring into those discussions, read what a family should answer before forming an office.

A written compass gives your family and team a common basis for action. Use it to guide the office's design and staffing, then establish the processes for the next step. Make the principles part of regular family and office conversations.

Your Family Compass is the set of documents and policies that will help the family navigate through uncertainty.