The importance of family office operational reviews

The family office mission statement, also known as the family charter or values statement, serves as the guidepost for family office operations and decision making.  Family members themselves, from the patriarch through newer generations, need to have confidence that all family office operations are working to achieve the goals of the mission statement through all the coordinated, ongoing family office operations.  Through a robust set of policies, procedures, and internal controls, the mission is translated into an operational guide for all family office participants to ensure objectives are met. Family offices are not stagnant, however; they continuously grow and change, adding new clients, and supporting new family ventures as time goes on. 

As operations change, the risk profile of the organization changes as well.  New ventures, such as direct investments, real estate, and private equity deals, change the information needs of the family office and their clients (family members).  A “risk” is anything that can prevent the accomplishment of an objective, and include both internal and external risks and the risk environment constantly changes, for example from government regulations, business competition, financial markets, etc.  Family office operations must be resilient enough to quickly identify new risks, and take appropriate actions to mitigate that risk to an acceptable level. 

A Family Office Operational Review is a comprehensive analysis of family office operations to ensure operations are within the guidance of the mission statement, and are efficient and effective.  Some family offices operate without written policies and procedures, which may be adequate when the family office staff is small, but as it grows, and certainly when staff members change, they become essential.  The operational review output is a comprehensive written plan to improve operations and implement state of the art techniques in the family office operations. Additionally, the operational review is a risk checkup to identify areas where risks have changed and ensure operations are changing to adequately mitigate that risk. 

For example, family communication is often an area ripe for improvement.  Family members, especially younger generations, are conditioned to receive rapid, if not real-time, information about all aspects of their lives, from sports scores, to travel information, to their personal bank balances.  This is a change in external risk – the new expectation of clients.  This expectation naturally is placed on information from family office operations.  Gone are the days where a 14 day accounting close, and 30 day financial reporting cycle is considered adequate. Also, communication is complicated by providing faster, more accurate information, but solely to those who should receive it.  For example, certain reports may show personal information of family members, and distribution must be restricted to solely those clients.  Fortunately, modern communication methods, including dashboards and secure information sharing systems can help enable this information flow. 

A family office operational review can provide tremendous value to a family office, and help prepare the office to support their clients for generations to come. 

Harry is the Founding Member of Cendrowski Corporate Advisors. He has worked in the family office space for over 35 years, and combined with his additional certifications in financial forensics, business valuation, and fraud examination and deterrence, he has a deep well of industry expertise.

Jim Martin is Managing Director of Cendrowski Corporate Advisors (CCA). Jim specialises in providing comprehensive risk assessments, focusing on the evaluation of operating effectiveness of business processes, internal control structures, and the development of recommendations for improvement.