At the September 2010 OpTech event held by Family Office Metrics, three CEOs of Family Offices discussed how they handled transitions that were driven by the execution of the estate plans of a recently deceased key family member.  During the Q&A period I asked whether the CEOs had known and planned for this highly important event by understanding the estate planning and evaluating the implications of the estate planning before his or her death.  All said they had no understanding of the inner workings of the estate plan, and viewed it solely on the basis of what went in, what came out and the transfers made by the execution of the plan.  This is the very definition of a “Black Box” system (see

Prior to 2008, many Family Offices and their clients were content to rely on the “black box” systems in hedge funds and private equity, much to their (and their client’s) regret.  Now, Family Offices demand transparency and intelligibility from their managers, and their clients are demanding the same for the operations of the Family Office.

No longer are black box systems tolerated for either investments or operations, but they are tolerated in the estate and succession planning, relying blindly on the expertise of the estate planners to give the Family Office enough leeway to manage this uncertain and highly significant transition.

Drivers in the Family Office market are making this ignorance a less and less tenable position to be in.  These drivers are:

1) More and more VHNW families have their wealth tied to, or generated from, the unified control of a single significant, and often illiquid, asset;

2)  Competition will continue to increase in the Family Office market, the result being a decline in available and experienced expertise; and

3) VHNW families are rightly demanding more increased transparency and comprehensibility to counter the risk of another failure of a black box system, not only in investments and operations, but also in estate and succession planning.

Solutions to these problems for the family office and their clients who own a significant single asset first is a comprehensive review and analysis of the estate and succession plans. Second is a “rehearsal of the future” in a way that is inclusive of divergent views, reducing the complexity of the planning and communicating in a format that bridges the gap between the experts, the Family Office and the clients to eliminate the threat of the black box system. [We should not use the term “audit” as this can have serious liability issues.  This came up in some detail when I was at B&D when law firms were looking to perform legal audits of various components of clients’ businesses.  There was some significant litigation out there, as I remember, and so firms generally backed off of calling these reviews “audits.”

Family Offices in general – specifically those family offices where the family wealth and influence is tied to or generated from the control of a single, significant and usually illiquid asset.

VHNW client families whose wealth is tied to or generated from the control of a single, significant, illiquid asset.

What problems or concerns do Family Offices face?

There are three drivers in the family office marketplace (Source – Inside the Family Office by Russ Alan Prince and Hanna Shaw Grove):

  1. Driver One: The High End of the Wealth Scale is tied to a single significant asset:
    1. The ranks of the exceptionally wealthy ($100 MM and up), but who will become much wealthier, and more than 90% of these families’ wealth is based on the ownership of a single significant (and often illiquid) asset.
    2. Implication One: [Implications Two and Three appear later in the outline. This is confusing , but you may be able to deal with that in the actual paper.] For access to Family Offices the whole of Family Wealth is greater than the sum of its parts.  Much depends on keeping the family wealth, in the form of a single significant asset, together after generational transition rather than breaking it apart. An estate or succession plan can split up family wealth and force the sale of significant, illiquid, asset and significantly diminishing the wealth held by any one faction of the family.
  2. Driver Two: Competition has increased among financial services providers, (with an expected 30% increase in the number of commercial family offices). 
    1. The result of intense competition is that high level of professionalism and capabilities has dropped at commercial family offices, and once “burned” families are more sophisticated about which offices they will or will not work with in the future.
    2. Implication Two: Neither the Family Office nor the clients can blindly rely on the excellence of professionals to comprehend all of the issues and consequences involved in estate and succession planning. Effective transparency and accountability across a higher spectrum of professional services and capabilities to meet their existing clients increasingly sophisticated problems and expectations for handling significant illiquid assets.
  3. Driver Three: High net worth families have become increasingly demanding, especially as talent will be limited and not enough to go around, It is imperative:
    1. To deliver greater value by being more clear about the planning, not only for top notch investment and administrative services, but also “lifestyle” services for the family including estate and succession planning,
    2. To have transparency and accountability in products and services (whether in house or outsourced) by reducing complexity and being better able to communicate between and among generations, and
    3. To respond to the increasing pressure from financial services based multifamily and commercial family offices on the basis of cost efficiencies and market power in the strictly financial services and products by providing new services.
    4. Implication Three: To be competitive for new clients, Family Offices have to expand their niche beyond financial and investment services to include lifestyle services – specifically evaluation and coordination of estate planning and succession planning across generations.


  1. Rehearsing the Future: Made up of two elements
  2. Estate and Succession Planning Review and Analysis: The questions to ask of the traditional “single point focused” planning and how it impacts the family office and the clients to know what is inside the estate and succession plans of the clients.
    1. A guide to the questions to ask for estates and succession plans.
  3. Scenario Planning Process: Scenario planning is both an intuitive and logical process that “rehearses the future”. The benefits of this approach are that there is great transparency that is there are no “black boxes” or computer modeling.
    1. Result: an integrated plan for Family Offices and their clients that keeps ownership of  the family’s significant asset, and wealth, together over multiple generations



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