Staff Turnover in Family Offices

I have heard several times about the relatively-high turnover among both internal professional staff and external advisors in the first few years of a new Single Family Office (SFO.) And I have seen repeatedly that wealthy families can fracture and have internal disagreements in the 3rd or 4th generation, which would of course contribute to high turnover among the professional staff in their SFO.

I can explain some of the reasons behind this – reasons I have come to know from my experiences with the SFO clients and SFO friends I have, and from the two families I was lucky to be born into.

Naiveté in first-gen families is obvious and must be expected. I see this most pointedly today in mainland China, where there is no history of multi-gen wealth, or even of wealth itself in societal memory – virtually all the wealth in mainland China has been created in the past 10-20 years. 

But I also see first-gen naiveté here in the States – specifically in how new SFOs pick money managers or CIOs to hire, and how they pick the external service providers needed to support family wealth. More importantly, I also see naiveté around the fundamental questions of managing the impact of the new-found wealth (and its accompanying public visibility) upon the family; around propagating (or exiting) the source of wealth (e.g., a family business) in a satisfactory and non-detrimental fashion; and even around the perceived-as-simple challenge of how to spend the wealth with at least a modicum of wisdom. These questions should be the focus of those of us who provide services to family offices.

A significantly higher turnover rate among the professional staff and advisors of first generation (G1) families, compared to G2 or later-gen families, must also be expected. Partly this is due to the pure inexperience of hiring such people. Partly also it is due to a common characteristic of the individuals who are the successful wealth generators: they can be hard-headed, demanding people, more so than the later generations of family-leaders may be. Indeed, such hard-headedness, I-know-exactly-what-to-do strength can be the very characteristic that led to the original wealth-generation. 

And some of the high turnover of staff may be due to another slight shortcoming of many creators of new wealth: they think that because they have been successful building their company that makes widgets (or whatever) or developing their real-estate portfolio, they will also be exceptionally good at recognizing quality investments or superior money-managers or even at hiring people of any type (such as in-house CIOs, or executive-directors for their new charitable foundations.) It should not surprise anyone that great success and even wisdom in one dimension (the original widget business, as an example) does not necessarily lead to success in another dimension (due-diligence on money-managers, for instance.)

Finally, there is also an increasing misalignment of objectives and expectations within families as the generations march on: sadly, this will be true too often and is inevitable unless the early generations plan for it and allow such evolution-of-interests to happen. It’s obvious enough that few families “make it” as a cohesive unit past the third or fourth generation: people follow their individual paths, grow up and ‘evolve’ in different dimensions due to varying (and quite understandable) pressures and environmental influences, and thus over time must begin to grow apart. 

I’ve seen this only a few years ago with one family with which I am very close, in which a nearly one-hundred-year-old trust that owns and controls a large family business was intentionally split (long before it was due to terminate naturally) into a number of distinct trusts by family branch (each identical in form to the original) because, of course, the ten family branches have wildly differing needs today and must have the flexibility to do what is best with that valuable asset, as dictated by their specific situations. Fortunately the family saw this coming and allowed the split to happen – and in fact the family is ‘more together’ today because of that empowering split a few years back. There was nothing sad or ‘fractured’ about this – it was exactly what should have been done to keep the family together and benefiting optimally from the closely-held business, and to relieve the internal family pressures deriving from the growing diversity within the family branches. 

More generally, common governance by a large family of a substantial closely-held business is rarely going to be successful, when there are more than fifty people. Truly exceptional family-charters are going to be necessary for this to have even a slight chance of happening – and they are rare indeed. And those family charters cannot be rigid – they must provide flexibility to evolve as the external world changes and as the family itself grows and diversifies.

But many families do ‘stay together’ across many generations – with or without a family business. I was lucky to be born into such a family now facing its eleventh generation with more than 3,500 living cousins who continue to share a large number of ‘institutions’ and traditions and family activities that keep us together and strengthen our bonds as the youngers become the elders. 

There are a variety of tools and mechanisms that help bind families together over decades, from family charters and genealogies -- to family trusts that fund family events -- to private websites -- to geographic locations of historic importance -- to stories from the past (apocryphal or real) -- and even to cemeteries (indeed, the dead ones may well ‘stay together’ for all eternity. ;-)

I once heard someone say that a high degree of “emotional IQ” was required among family-office professionals if they are to hold their jobs or their clients for longer than a generation. Indeed, family offices and the newly wealthy themselves should ALWAYS hire a professional who has experience preventing staff-turnover and keeping families together across generations, and emotional IQ is a key part of this. 

And I would say to the investment managers and consultants and advisors who are hired by wealthy individuals: you MUST have experience in a diversity of tools that can bind-together -- in positive ways -- multi-gen families across generations. 

Only then is it possible for the newly-wealthy to achieve what all wealthy families want: for the family wealth to provide health and education and self-actualization for all descendants, close or distant. And this is true whether ‘the wealth’ is a business, or liquid/monetary, or non-monetary such as a wealth of stories and principles and shared heritage.

- Pierre

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