Family compass priorities for different sources of wealth
Built on Chapter 5 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Two families with similar balance sheets can need very different offices. One still depends on an operating company. Another has sold its main business. Another owns shared assets across several branches. Their family compasses should identify those differences before anyone recommends the same staffing model or investment program.
Chapter 5 asks families to define objectives before constructing the office. Use the source and structure of wealth as a starting point for those questions. The categories below are decision patterns for the family to examine against its own records.
When the operating business remains central
Start with the relationship between business cash needs and family support. The company may require capital at the same time owners want distributions. The compass should state how those competing needs are considered and which governing bodies decide.
Explain whether maintaining family control is an objective and what that objective means for diversification. Keep ownership preferences separate from employment rights. A relative can own an interest without qualifying for an executive position.
Consider how family-office staff interact with company employees. Shared services can be useful, but responsibilities and costs need to be visible. The office should know who is handling family work and under whose authority.
When a business has been sold
The family now needs to decide what the liquid capital is for. Some owners may want to build another company; others may expect the proceeds to provide continuing income. Set those expectations before allocating money to long-term commitments.
Review the capabilities that remain useful after the sale. Operating expertise in one industry may support selected direct investments, while a diversified liquid portfolio requires different work. The compass can state where the family wants involvement and where it prefers professional management.
When wealth is concentrated in real assets
A family holding property or other illiquid assets needs a clear view of cash requirements. Values can rise while the office faces expenses or commitments that require actual money. The compass should describe priorities when liquidity becomes constrained.
Discuss whether retaining particular assets serves a financial objective, a family use, or both. Those purposes can coexist, but costs and decision rights should reflect them. A property used by relatives needs a service and expense arrangement as well as an investment valuation.
Leave asset-specific limits to the investment and governance policies. The compass explains what the family wants to achieve and the trade-offs it is willing to consider.
When several branches share the capital
Agree on the benefits the family expects from staying together. Shared purchasing power or institutional knowledge may be useful, but the arrangement also requires coordination. State the service scope and the treatment of branch-specific requests.
Discuss representation and information rights alongside the shared purpose. A branch may support the broad mission while disagreeing about the office's cost or distribution process. Those questions need a route to a decision.
Keep provisions about separation consistent with the relevant agreements. Some assets and trusts cannot be divided as people might assume. Explain the constraints before describing an exit as available.
Use the category to ask better questions
A family can fit several patterns at once. It may retain a business and hold a shared property portfolio after a partial sale. Work through the actual assets and obligations to identify the questions that apply.
Review what the office must do to serve the agreed objectives. The staffing and outside-provider plan should follow that work. Avoid adding a service solely because another wealthy family has it.
Separate ownership from the work it creates
Map recurring obligations to the asset that causes them. An operating company may require owner approvals, while a property portfolio may need attention to repairs and refinancing. Those demands should appear in the service plan. A family with liquid sale proceeds may instead need to establish who evaluates managers and reconciles custody reports. Assign each responsibility before deciding whether the office needs another employee. The family compass can then describe how involved the owners want to remain without confusing a preference for involvement with a promise that relatives will perform the work.
What to take from this
- Identify how the assets actually produce cash.
- State the family's desired involvement and control.
- Address shared costs when branches use different services.
- Build the office around the work the compass requires.
Place the proposed compass next to the current asset map. Mark every objective that depends on an untested assumption about liquidity or authority, and assign the work needed to resolve it.
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.
Questions and answers
Can one family fit several patterns? Yes. Use the actual assets and obligations to determine which questions apply.
Should a family copy another office with similar wealth? Comparable wealth does not establish comparable needs. Start with objectives, assets, and the desired level of involvement.
Where do detailed portfolio limits belong? In the approved investment policy, connected to the broader objectives stated in the compass.