Family Offices Need Governance, but Not All of Them Have It

Remember, it’s a family affair.

Most family offices agree that education is essential to a successful leadership transition, and many have already identified their next principal — the family’s main financial decision-maker. But putting plans into practice is another matter. Fewer than half have a formal education program, and family dynamics remain the biggest governance challenge, according to a new Bank of America study.

Many family offices grow out of family businesses, with the founder eventually taking charge of the family’s wealth. But when that leader dies or becomes incapacitated, the office can enter a state of confusing damage control.

“Last week, I was in a meeting with a multi-billion dollar family where the principal had died unexpectedly a few months ago,” said Jon Hommer, head of family office planning at Bank of America. The principal had been involved in every decision, signing checks and reviewing expense reports. “Now the family is scrambling to figure out what are the important tasks that need to be done, and how are they going to make decisions,” Hommer told Advisor Upside.

It Runs in the Family

Family offices should pursue gradual transitions that preserve the principal’s control while establishing formal governance procedures before they’re needed, Hommer said.

The report found some ways to prevent a family feud:

• Some 88% of family offices agree there are fewer disagreements when there are governance structures in place.
• Also, nearly 75% of family offices have plans to adopt specific governance structures in the next three years.

“It helps to bring someone in from outside the organization to ask, ‘What are your priorities, how do you want to operate, what are the key services that need to be provided?’” Hommer said.

Hello, Sports Fans. Family offices also tend to allocate more heavily to alternatives and private markets than traditional registered investment advisors, and sports is emerging as another area of interest.

One in five family offices are now invested in sports teams and franchises, the report found. Meanwhile another fifth are invested in sports-related opportunities, including stadiums, tournaments and merchandise, led by millennial and Gen Z principals.

“It’s intellectual property that gets you live eyeballs,” Hommer said. “Given the nature of advertising and streaming today, that’s really valuable.”