How to Start a Family Office, step 6 of 12

Set Clear Governance Rules for Your Family Office

In short. This step involves writing down how your family office makes decisions and holds people accountable. Set practical rules for hiring, advisors, conflicts, money movements, family support, giving, investments, audits, and records. Decide how family meetings will work. Match the process to your office's size and the family's ability to use it, then review it as circumstances change.

By Richard C. Wilson, from chapter 6 of How to Start a Family Office

Governance gives your family office clear rules for making decisions and working together. Before the office begins operating, write down who can approve spending, how people are hired, how advisors are chosen, and how family members can access support. In my experience, a short set of rules that people follow is more useful than a thick policy manual that sits unread.

Governance matters because a family office makes decisions that affect capital, family relationships, and its ability to continue across generations. When expectations are unclear, people may perceive favoritism, misunderstand their authority, or make commitments without appropriate review. A plan gives family members and employees a shared reference point.

This step builds on the priorities in your family compass. Use those priorities to decide which rules the office needs now and which policies can wait until the family grows.

Agree on How Decisions Get Made

Start by deciding who has authority over the main areas of the office. Some families use a top-down structure led by the person who created the wealth. Others seek input through a family council or regular family meetings. A family with greater complexity may want an advisory board or independent directors. The structure can differ, but authority for each decision should be clear.

Write down which decisions require family approval, which can be made by the office team, and how disagreements will be handled. Cover hiring and termination, compensation, investments, donations, cash distributions, and changes to major policies. Explain how to disclose a conflict of interest and who will review it.

Family membership and eligibility for support can become difficult topics as generations grow. Establish who qualifies for education support, family loans, or other benefits. Talk through questions about spouses, former spouses, and children. These decisions can be emotionally charged, so clear rules applied consistently help people understand what to expect.

For legal or tax specifics, talk with your attorney or CPA. The governance document should explain the family's decision process, while qualified professionals advise on legal requirements.

Set Standards for People and Outside Advisors

Create an employee handbook and a separate hiring process. The hiring policy can explain whether relatives, friends, spouses, or stepchildren may apply, how candidates are assessed, and how compensation and benefits are set. Use a consistent process for family and non-family candidates, and record any policy differences.

Decide which references, background checks, and other screening steps suit each role. Define who takes part in interviews and who approves an offer. Document how performance will be reviewed and how employees can raise concerns. Objective measures can clarify expectations for the person leading the office and for junior staff.

Apply similar care to outside advisors and service providers. A personal referral can be a useful starting point, but it does not show whether the provider has suitable qualifications, independence, or fees for the work. Set selection criteria for key services, including accounting and reporting. Do the same for investment consulting, technology, and legal work. For context on the office's wider support network, see how to select partners and service providers.

Write a separate ethics policy that states the conduct expected of employees, family members, and advisors. It should make conflicts and unacceptable behavior easier to identify and address. Use qualified counsel and advisors when preparing policies that involve legal or regulatory requirements.

Protect Money With Clear Controls

Separate the person who requests a payment from the person who approves or releases it. Define approval limits for expenses and bonuses. Set limits for contractor payments, checks, and wire transfers. Larger transfers can require two approvals. Make sure no single employee has unchecked authority to move substantial sums.

Document how family members can receive financial support or use a family bank. If the family offers loans or funds for education, housing, or business ventures, specify who qualifies, how the money may be used, and who approves each request. Decide whether repayment or other conditions apply. This makes expectations clear before anyone asks for help.

Agree on how the office reviews its financial activity. Identify who checks the accounts, how often, and how unusual activity is escalated. An independent CPA can provide an external review. Keep records of approvals and limit access to sensitive documents to people who need them for their roles. Connect these policies with the office's internal controls and reporting practices.

Giving also needs an approval process. Decide how the family chooses recipients, approves amounts, and records donations. Make sure everyone involved understands the rules for any foundation or charitable vehicle. Talk with your attorney or CPA about legal and tax questions.

Make the Plan Workable and Review It

Governance takes time and money. Family meetings can require travel. Audits and outside directors have costs, while reporting systems need attention. Choose a process your family can maintain. A small team may begin with a one-page document naming who can approve spending and how conflicts are resolved. It can also set hiring standards and identify people authorized to make decisions. Add detail when the office's needs justify it.

Plan how the family will communicate. Regular meetings give family members a place to discuss priorities, investments, family business, and challenges. They can help younger generations understand the responsibilities involved in sustaining family wealth. Agree on who sets the agenda, who records decisions, and how unresolved issues move forward.

Put an owner and review date on each policy. Revisit the plan when family participation, office responsibilities, or the decision structure changes. Governance should fit the actual family and team. A clear process that people use can support accountability and fairness over time.

Before the office begins operating, make sure everyone involved knows where the rules are kept and who can approve exceptions. Then apply them consistently. If a policy no longer fits, record the change and explain it to the people affected.

Governance simply means that there are rules by which the family office operates, hires and fires, invests and donates money, and disburses cash.