What Are the Most Common Mistakes When Starting a Family Office?
Short answer. Common startup mistakes include building the office before agreeing on family goals, leaving governance and financial controls unclear, and choosing structures or staff without matching them to the office's work. A family can reduce these risks by asking hard questions first, documenting priorities, and involving qualified professionals in the setup.
The most common mistake is building the office before the family has agreed on what it is supposed to do. Without clear goals, governance, and decision authority, the structure and team can drift away from the family's priorities. Start by asking the family to define its objectives and the decisions the office will make.
Do the Family Work First
Families can move quickly toward hiring staff, choosing a location, or setting up entities. Those steps are easier to evaluate after the family has discussed its mission, values, investment priorities, desired level of control, and expectations for future generations. If family members hold different assumptions, an office may inherit those disagreements without a process for resolving them.
Write the shared priorities down and communicate them to family members and staff. A family compass gives the office a basis for decisions. It can also help the family decide whether a formal single family office fits its needs, or whether some functions should be provided by outside professionals.
Give Authority and Controls Clear Boundaries
Another common problem is unclear accountability. Staff need to know who can approve investments, how conflicts are handled, and who oversees operational and financial controls. Family members also need to understand the limits on personal use of family assets and the process for making personnel decisions.
Legal structures should be reviewed in relation to the assets and activities they hold. Ask counsel to consider whether a problem in one entity could affect others. Talk with your attorney and CPA about legal and tax specifics, since the appropriate structure depends on the family's circumstances and jurisdiction. Independent insurance professionals can also review coverage needs.
Build a Plan That Fits the Work
A family office does not need to perform every task internally. Some offices keep a lean team and outsource work where an external provider is a better fit. The mistake is deciding staffing and vendors without first mapping the work, required expertise, budget, and oversight responsibilities.
Plan for ongoing operations as well as the launch. Establish reporting, decision processes, governance policies, and contingency arrangements. These help the family keep oversight as the office grows or family goals change. Asking the right questions early can prevent an expensive structure from being built around assumptions no one has agreed to.
Use the questions families should answer before forming an office as a starting point. Then review why to create a family compass, the controls an office needs, and the partners and vendors it may need. The family office setup guide provides a stepwise framework.
Give the family enough time to agree on purpose and governance before committing to an operating model. Then review the plan with qualified legal, tax, and other professional advisors who understand the family's needs.
Asking the right questions can sometimes be more powerful than any piece of advice a consultant or advisor could provide to a family looking to start a single family office.
Sources: How to Start a Family Office, The Single Family Office. Informational only, not financial, legal or tax advice.