Auditing Your Family Office Macrocosm™

In an earlier blog post, “Best Practices in your Family Office Macrocosm™”, we introduced the Macrocosm™, defined as the ecosystem of methods and processes an affluent family uses to manage their affairs.  In that post, we outlined some of the Best Practices in each of the five hubs: Family, Capital, Planning, Society and Administration.  And, while knowing what some of the best practices are is beneficial, it does not necessarily mean that the operation of your family is optimal.  

Of course, family offices come in all shapes and sizes.  Some are single-family offices with a large staff that holistically reviews all aspects in each of the Macrocosm™ hubs.  Some single-family offices out-source some of the responsibilities e.g., hiring an outside Chief Investment Officer.  And still others are not what you would consider a formal family office at all; they may simply be a family member running the affairs of the affluent family.

A Family Office Macrocosm™ audit could be beneficial for any of the examples above but it is probably the latter two examples who would benefit the most.  To ensure your family office is running effectively and efficiently, it helps to take a step back and view your current practices with an objective eye.  After all, “You can’t read the label when you’re inside the bottle.”  

Whether you hire a consultant or undertake the work yourself with an unbiased view, the following process will assist.

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Step One

A self-assessment of family priorities includes answering questions such as:

1. What concerns do you have around the operation of your family’s affairs?  
2. Is there anything that keeps you up at night?  
3. What outcomes are you trying to avoid?
4. What improvements do you feel you need to make?
5. In the context of the five family office hubs, is there an area where you believe more attention needs to be paid?
6. As a family, have you identified long-term goals and objectives (in each of the five hubs)?

Step Two

Information gathering.  Gather all documents and information pertinent to each hub of the Macrocosm™.  Examples include: current investment reporting, investment policy statement, articulation of family’s mission, vision and values, net worth statements, philanthropic strategy, trust indentures, wills etc.

Step Three

Determine completeness of work and family/staff proficiency across all five hubs.  In-depth one-on-one interviews is the ideal methodology for this step.

Step Four

Gap analysis: Utilizing the information gathered in step three, coupled with the documents collected in step two, identify gaps in the efficiency or completeness of the Family Office Macrocosm™.  Priorities for the family office can then be reviewed and changed as necessary.

Step Five

Compile a summary overview of the audit.  Highlight the strengths, gaps and opportunities for each of the five hubs.  The family can then strengthen and improve the operations of the family office, concentrating on the areas the family has prioritized.

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Coupling this process with the best practices outlined in the previous post, “Best Practices in your Family Office Macrocosm™” should provide a solid foundation for your family office, allowing it to operate more effectively and, more importantly, with greater harmony