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The Family Office segment of the US wealth management industry is one of the fastest growing. However, we have repeatedly seen US Family Offices make easily avoidable mistakes that limit their effectiveness and sustainability. With a strong presence in the US and having served our clients there for several years, we would like to share some of the 5 most common mistakes we see most US Family Offices making and provide you with practical solutions.
1. Premature launch
In our recent report ‘Industry Leaders’ Perspectives on Starting a Family Office’, we highlighted an increase in Family Offices starting up that were not prepared to do so.
The US millionaire population is growing rapidly. According to Capgemini, it will grow by 7.3% to reach 7.43 million by 2023, far outpacing the rest of the world. This has led these new millionaires, whether families or individuals, to rush to set up a family office to manage their new wealth, often prematurely.
Establishing such a sophisticated entity requires careful planning that is tailored to the goals and needs of the family or individual. For comprehensive information and advice from industry leaders on how to set up a family office, download our guide.
2. Poor recruitment process
Overlooking the importance of a professional and standardized hiring and retention process is a common and critical mistake. Given their small size and scale of operations, family offices often lack the infrastructure, time or know-how to hire staff. As a result, they often resort to hiring people they know (friends or from the same firm they operate in) or who are recommended by their peer network.
At first glance, it may seem like an ideal solution to work with friends and family who can be trusted and who will be discreet. However, this comes with the risk of putting significant wealth and assets in the hands of an unqualified or incompetent person.
Without a robust recruiting process to find top-notch professionals, family offices miss out on the expertise needed to effectively manage complex assets.
You can read our guide on how to approach recruiting here.
3. Neglecting benchmarking of remuneration
A key aspect of employee recruitment and retention is the provision of competitive compensation and benefits packages that meet industry standards. As discussed in our previous article, compensation benchmarking is a much-needed practice in the world of Family Offices.
Family offices should not overlook the importance of establishing benchmarks for their compensation to ensure the fairness and competitiveness of their compensation structure. This is particularly important because family offices tend to lack standardized job functions and industry-wide benchmarks, and their directors may not be familiar with financial sector compensation practices.
Each year, we publish an annual report that provides valuable insights into salary trends, compensation structures and demographic profiles globally to provide Family Offices with actionable information to optimize their compensation practices. You can read the report we created in collaboration with KPMG Private Enterprise in 2023 here.
4. Overlooking cultural fit
Family Office professionals often have a close relationship with their family and stay with the company for a long time. It can almost feel like a new member is being added to the family. This unique bond sets family offices apart from other types of organizations.
Hiring someone who is not aligned with the values and goals of a family and its Family Office can have a significant negative impact on staff morale, performance and productivity.
When hiring, it’s critical to look beyond the responsibilities and skills of the role and pay equal attention to the candidate’s values, priorities, and goals to ensure cultural fit. You can access our “Complete Guide to Cultural Fit” here to learn more about cultural fit hiring.
5. Succession planning
According to the North American Family Office Report published by Campden Wealth and the Royal Bank of Canada, despite being the country with the largest number of family offices in the world, the United States appears to be lagging behind Europe and Asia when it comes to succession planning. This lack of foresight can have serious consequences. Without a clear plan for leadership and ownership transitions, family offices risk internal conflict, disrupted investment strategies, and even jeopardizing the family’s wealth altogether.
In contrast, a well-defined succession plan ensures a smooth transfer of power, allowing the Family Office to maintain its legacy and financial security for future generations.
We already covered this topic in an article we published last year, please revisit it here.
That said, these common mistakes are not limited to US family offices. In fact, any family office can fall into these traps without proper planning and expert guidance. By addressing these issues appropriately, family offices can improve their effectiveness and longevity.
