Investing and allocating capital
When Should a Family Bring in an Independent Investment Adviser?
Short answer. Bring in an independent adviser when the family lacks relevant expertise or needs an objective review. An adviser may also help with a complex decision or a conflict. Define the adviser's scope and compensation before work begins, and confirm their independence. Keep approval authority with the family or its committee unless governance documents explicitly delegate it.
Bring in an independent investment adviser when the family needs expertise its own team lacks or wants an objective review. An outside adviser can test an investment case, identify gaps in diligence, and give family members a neutral place to discuss competing views.
Recognize When Outside Help Is Useful
Consider an adviser for a strategy the family has not evaluated before or when the internal team lacks capacity. Outside help can also be useful when family or business interests create a conflict. A professional can challenge assumptions at a smaller family office and help its committee discuss the choice.
Check the adviser's incentives before engaging them. Ask how they are paid, whether their firm or affiliates could earn fees from the investment, and whether they have ties to the sponsor or manager. Disclose those relationships to the people making the decision. For legal or tax questions, consult your attorney or CPA.
Set a Defined Scope
Before engaging an adviser, describe the question you need answered. The assignment might cover portfolio fit, manager evaluation, risk review, due diligence, or an assessment of alternatives. Specify what information the adviser will receive, the expected deliverable, and the completion date. A clear scope keeps the engagement from replacing the family's own decision process.
Agree whether the adviser will recommend an action, provide analysis, or exercise delegated authority. In many families, the adviser informs the discussion while the family or investment committee retains approval. Record the division of responsibility in the relevant governance documents and engagement terms.
Use the Advice and Retain Accountability
Give the adviser enough context to understand the family's mandate, liquidity needs, limits, and existing investments. Ask for the assumptions behind a recommendation and the evidence that could change it. The committee should weigh the advice alongside its own analysis and record its decision, including any disagreements.
Review the relationship when the assignment ends. Check whether the work answered the defined question and whether the adviser disclosed conflicts. Then decide if the engagement should continue. An independent adviser can strengthen the family's process. The family still needs clear approval authority and records, and it must follow through.
For related guidance, see partners, vendors, and service providers, investment committees and advisory boards, comparing adviser cost with value, and spotting conflicts in investment recommendations.
This breadth of portfolio management responsibilities may give the outsourced CIO greater experience, more lessons learned, tactical/strategic insights, and a diverse toolset to manage risk within a portfolio.
Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.