Best Practices in your Family Office Macrocosm™

Macrocosm: noun, the whole of a complex structure, especially the world or the universe, contrasted with a small or representative part of it. [1]

Prime Quadrant defines the Family Office Macrocosm™ as the ecosystem of methods and processes an affluent family uses to manage their affairs. We break this down into five areas, each with many elements that can either be driven by a family office or taken care of less formally by the family itself.

We like the macrocosm definition as it speaks to the complexity of effectively managing and integrating the many elements that affluent families must navigate.

Within each hub, there are best practices – a few of which we outline below (this is by no means exhaustive).

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Family

• Articulate a clear and powerful vision and mission, and set family goals and objectives.
• Clarify roles and responsibilities. For instance, an adult son with a legal background may have essential roles in the Planning hub. Meanwhile, his 17-year-old sister may have an observing role in the Society hub because the activity of the family foundation interests her.
• Communicate, communicate, communicate.

Administration

• Establish an effective decision-making process.
• Ensure coordination between advisors.
• Establish comprehensive accounting and cash management systems with robust internal controls.

Society

• Articulate a vision and mission for your giving.
• Assign roles and responsibilities for your giving.
• Establish governing processes and procedures.

Planning

• Ensure your investment strategy aligns with your family’s tax and estate planning.
• Ensure assets are located in the optimal accounts.
• Ensure the recency of all your planning.

Capital

• Create and maintain an Investment Policy Statement.
• Ensure the asset allocation aligns with the family’s needs, goals, and objectives.
• Access best-in-class global opportunities and managers.

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A couple of observations:

• Many of these best practices sound very corporate, which should not surprise as running an effective family office is not unlike running a business.
• Some of the best practices are specific to the hub or category they’re in (e.g., creating an Investment Policy Statement), while others could reside in more than one hub. (e.g., having clarity around the family’s vision, mission, goals, and objectives are essential for family governance, philanthropic planning, and asset allocation).

Family offices that embrace best practices like these tend to operate more effectively and, most importantly, with greater harmony.

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In a future blog, we will explore how to complete an audit of your Family Office Macrocosm™.