Setting decision authority in a billionaire family outsourced CIO mandate
Built on Chapter 17 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
An outsourced CIO mandate should identify who can decide and who can act. A billionaire family can want outside expertise while reserving approval over specific commitments. The arrangement becomes unreliable when those preferences remain in conversation and never reach the operating documents.
Chapter 17 recognizes both advisory and discretionary relationships. The choice should reflect the family's needs and ability to supervise the work. Have qualified professionals translate that choice into documents and permissions appropriate to the assets and entities involved.
Describe ordinary decisions first
List the actions the provider expects to take during normal service. Distinguish a recommendation from an approved instruction and a completed transaction. For each action, name the person who prepares it and the person authorized to approve it.
Work through an ordinary rebalance using a practice case. Ask what the family receives, how long approval remains valid, and where the completed instruction is recorded. The office should be able to follow the process without reconstructing the engagement discussion.
If several entities participate, confirm authority separately for each. A family member's involvement in one pool does not explain their authority over another. Keep a current record that employees can consult when instructions arrive.
Specify the limits of delegated work
A discretionary mandate still needs boundaries. Ask which investments, commitments, and changes require separate approval. Have the relevant professionals assess how those limits should be expressed and monitored.
Consider what happens when a proposed action falls near a boundary or depends on missing information. The provider needs a route for obtaining clarification. Employees should know when to pause and escalate instead of inferring what the founder would probably want.
On the subject of investment terms, I discuss control and negative controls among the elements that can be negotiated. Cash return is only part of the arrangement. The rights available when circumstances change deserve attention before capital is committed.
For an outsourced mandate, I would apply that principle by examining both permission to act and permission to stop an action. Ask who can suspend a proposed commitment, change a limit, or require further analysis. Counsel should address the actual rights and wording.
Keep authority distinct from asset custody
Ask where assets sit and which institutions recognize instructions from which people. The investment advisor's authority and the custodian's operating permissions need to fit together. A mismatch can leave employees unsure which instruction is valid.
Review how changes to permissions are approved and communicated. A new employee, departing executive, or changed family role can affect access. Assign responsibility for updating the relevant institutions and confirming completion.
Test a practice instruction without moving assets. Verify that staff can identify the authorized sender and locate the supporting approval. A procedure is useful when people can carry it out with the information actually available to them.
Establish an exception process
The family may want to approve a one-time action outside ordinary limits. Record the scope and authority for that exception. Make clear whether it changes the standing mandate or applies only to the identified decision.
A founder's urgent request should enter that process. Informal influence can otherwise leave the provider following instructions that other authorized people do not recognize. The office needs a shared account of what was approved.
Decide how an unresolved disagreement reaches the proper decision maker. The provider should know which work can continue and which work must wait. Have counsel assess questions about conflicting authority before they become transaction problems.
Review authority when the arrangement changes
A new investment category or family entity can require changes to the mandate. Review the permissions before the provider starts the additional work. Do not assume authority expands automatically because the relationship has lasted a long time.
Ask the provider to report when it believes the assignment no longer fits the family's instructions. The internal relationship owner should bring that issue to the authorized group and maintain the resulting decision record.
Keep the current version accessible to the people who implement decisions. Retain earlier versions so a later review can establish which instructions applied at the time. The family should be able to explain the authority behind a material action.
Questions and answers
Does discretion mean unlimited authority? The mandate should define its scope and limits. Qualified professionals should prepare and assess the actual arrangement.
Can the family reserve certain approvals? That is a mandate-design question to resolve before implementation, including the effect on the provider's work.
Related
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.