Creating your family compass: the complete guide
Built on Chapter 5 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
A billionaire family should agree what its money is for before asking an investment team to manage it. That sounds obvious until relatives have different expectations about support, business ownership, and the obligations that come with wealth. The family compass makes those expectations discussable and connects them to the office's work.
Chapter 5 of The Single Family Office starts with objectives and values. The compass is the collection of guiding statements and policies that helps the family make consistent choices. I would judge it by whether a real request can move from family purpose to an authorized decision.
Start with the choices already facing the family
List the questions that keep returning. A relative wants support for a venture. A branch wants more liquidity. The founder wants the operating business preserved while other owners want diversification. These are useful starting points because the office already needs answers.
Ask each participating adult what they expect the shared capital to provide. Invite private input before a group meeting. People may be willing to explain a concern in writing that they would not raise in front of the founder.
Prepare a short factual summary of the assets and decision rights. The family needs to distinguish what it owns collectively from assets held under separate arrangements. Have the appropriate advisors explain restrictions that affect the choices being discussed.
State the purpose of shared capital
Write a plain description of what the family wants its wealth to support. The statement should identify the intended work of the office and the people it serves. Avoid language so broad that any proposed expenditure could claim to fulfill it.
Decide how the family prioritizes support and preservation when they compete. Consider the role of the operating business and any charitable commitments. The investment team needs enough direction to understand what must remain available and what can be committed for longer periods.
Keep aspirations separate from promises. A hope that the family will remain connected is different from a guaranteed level of distributions. Use the governing documents and authorized policies for commitments that carry specific rights or obligations.
Write values as standards for conduct
Ask what the family wants repeated in its decisions. Use verified events the participants understand and are willing to share. Then give each value a plain explanation and a consequence for office behavior.
For families clarifying their principles, I describe keeping family values at the top of a sheet I use at breakfast with my children. The habit makes the principles part of repeated conversations. A family office should be able to use its values with the same directness when discussing a request or hire.
Keep the core list short. A value earns its place when it helps decide a difficult case. If no one can describe the behavior it requires, discuss the behavior before choosing more polished wording.
Plan a workshop around actual decisions
Choose a facilitator and someone responsible for the record. Explain who is attending, what information will be shared, and what the group can decide. If legal authority sits elsewhere, state that before the discussion begins.
Use a real unresolved question to test the proposed principles. Let participants explain their reasoning and identify missing information. Record the areas of agreement and the decisions that need further work.
Do not ask a room to resolve a private legal issue without the appropriate advice. A family workshop can identify an expectation and request professional review. That is a useful result when the alternative is an agreement no one knows how to implement.
Make the vision readable to heirs
Describe a future the office can help create. Explain what the family wants to preserve, which responsibilities it hopes people will accept, and where heirs have room to choose their roles. Avoid assuming that every descendant will want to operate the business.
Give adult heirs the language and ask them to explain it back. A founder may intend prudent support while an heir hears a promise of unrestricted access. Resolve the difference while everyone can discuss it.
Keep a short version alongside the full compass. Detailed policies can carry the mechanics, but the central direction should remain understandable to a family member who does not work in finance.
Connect the compass to investment instructions
The compass describes objectives; the investment policy tells the team how to manage assets in pursuit of them. Check the two together. A stated need for regular cash should not sit beside a portfolio plan that assumes that cash can be committed indefinitely.
Have the relevant professionals develop the limits and reporting requirements from the actual balance sheet. Include commitments and obligations so the team can distinguish total wealth from capital already promised elsewhere. Available liquidity may sit in a different entity from the one responsible for a payment.
Define how a change in family needs reaches the people authorized to revise investment policy. A conversation about spending should not silently become an instruction to liquidate an asset.
Give the office permission to decline
The compass should help the family say no consistently. Set an initial screen for proposals that do not fit the mandate, available liquidity, or expertise. Keep the reason factual and proportionate to the work actually completed.
On the subject of turning down opportunities, I discuss becoming better at saying no as deal flow and obligations increase. A family office has the same need. It should preserve time for suitable opportunities without allowing repeated introductions to bypass an earlier decision.
Define the exception process. An authorized person can decide that an unusual proposal deserves consideration, with the reason recorded. That decision should leave the normal diligence and final approval requirements intact.
Include philanthropy without leaving the budget vague
Agree what shared charitable resources should support and how they relate to personal giving by households. State who can make commitments and where records of those commitments are maintained.
Put promised funding on the liquidity schedule. The family needs to know when cash must be available, especially when assets are illiquid. Qualified advisors should assess the proposed giving arrangement and contributions before implementation.
Give relatives working on philanthropy defined tasks. Preparing a recommendation and monitoring a program can provide useful experience. A title with no responsibility does little to prepare someone for the decisions attached to shared capital.
Involve spouses with clear boundaries
Spouses may help interpret values at home and shape how children understand family responsibilities. Explain where their input is invited and how it will be used. Participation should be meaningful without implying authority that the relevant documents do not provide.
Provide a clear description of services and request procedures. People should know how to ask a practical question without seeking a private exception through another relative.
Set confidentiality and access expectations in plain language. Some discussions can include the whole family, while others require restricted information. State the reason and provide an appropriate route for questions that cannot be handled in the general meeting.
Preserve the founder's reasoning accurately
A legacy statement can explain why the founder made important choices and what they hope future owners will consider. Use recorded or otherwise verified material. Quote only wording that can be checked against the source.
Separate wishes from binding requirements. Counsel should identify where an intended obligation needs formal documentation. Future decision makers should not have to infer legal authority from a personal message.
Keep accounts of other people factual and necessary. The purpose is to preserve useful understanding, and unsupported judgments about living individuals can distract from that work or damage relationships.
Turn the compass into accountable work
Assign responsibility for the policies needed to implement the agreed direction. Governance rules, ethics standards, and operational procedures may need separate treatment. Each should identify the person responsible for maintaining it.
Chapter 5 also calls for performance measures and documented processes. Choose measures that show whether the office is doing the agreed work. A completed report, a reconciled obligation schedule, or a resolved approval question can be more informative than an activity count.
Require usable instructions for recurring tasks. A new employee should be able to understand how work is completed and what authority it requires. Keep the detailed procedures connected to the current policy versions.
Update after material changes
A death, exit, or change in family participation can make earlier assumptions unreliable. Confirm who can act, reconcile the assets and obligations, and identify which parts of the compass depend on the former situation.
Retain principles that still serve the family. Revise procedures through the authorized process and record the reasons. Temporary instructions should have a clear scope so employees know what remains in force.
Communicate the resulting changes to the people administering accounts and services. A revised document stored in a folder has little effect if the office keeps using the old instructions.
Read the supporting documents together
Chapter 5 connects the compass to an investment mandate and performance measures. Chapter 4 supplies the governance questions about who may act. Read those instructions together with the ethics policy and the procedures used by employees. Look for a request that receives different answers depending on which document someone opens.
Have the office lead identify the discrepancy and take it to the person authorized to resolve it. If the issue is legal authority, involve counsel before changing the summary. If the issue is unclear family intent, return it to the family discussion. Keep the resulting decision with the revision record and explain the change to the people whose work is affected. Richard C. Wilson's compass approach begins with family objectives; the supporting instructions need to carry those objectives into the actual approval route.
The compass can start at breakfast
My recorded example of teaching values is deliberately ordinary. I bring a sheet to breakfast with our family values at the top, and we discuss principles from books I read with my children. I also describe having my daughter recite the values. Those are practices from my own family. They show how a compass can become familiar before a child attends an investment meeting. For an office, I would build a comparable habit into the calendar. Return to a specific value when reviewing a real decision, and invite younger family members to explain how they understand it. Their answers will reveal unclear wording.
What to take from this
- Begin with current decisions and verified facts about the assets.
- Write principles the family can explain and apply.
- Connect purpose to investment policy and governance authority.
- Assign the work required to implement each agreement.
- Keep revisions and their reasons with the current records.
Bring one unresolved request to the next compass meeting. Identify the objective it serves, the constraint it creates, and the person authorized to decide. Record the answer and carry it into the relevant policy.
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.
Questions and answers
How much documentation does a family need? Enough to explain purpose and guide actual decisions. Keep the central statements readable and place detailed mechanics in the relevant policies.
Who should lead the process? A responsible family representative can coordinate it, with a facilitator where useful and qualified advisors for implementation questions.
Can the compass settle a dispute by itself? It can clarify agreed expectations. Actual authority and dispute processes still depend on the relevant documents and arrangements.
How is success measured? Look for decisions handled consistently, expectations clarified, and operating instructions that reflect the agreed family objectives.