E197: Why Most Family Offices Fail—7 Lessons from Harvard Professor
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode, the intricacies of structuring family offices are explored, unfolding why most are often set up incorrectly. Key insights include treating these offices as proper businesses with a strategic plan, professional team, and clear mission guidelines. The discussion highlights thriving examples like the Koch family and MSD Capital, showcasing the importance of separating investment functions from concierge services and aligning talent with business goals. Aspiring stewards are encouraged to dive into entrepreneurial pursuits, embrace transparency, and foster success across generations through clear communication and structured planning.
Speakers
Christina Sawyer
Expert on family offices and governance, Christina Sawyer teaches the Family Enterprise course at Harvard Business School, advising on optimal organizational structures. Her insights have guided numerous families through successful wealth transitions.
David Lin (Host)
David Lin, former venture capitalist and acclaimed financial podcaster, has experience managing billion-dollar portfolios. His podcast dissects the intricate dynamics of wealth management and family offices.
Key Takeaways
Understand the Business of Family Offices
Treat family offices as a business with clear goals and governance structures. Create a business plan just like any other enterprise to ensure effective management and growth.
Clarify Roles and Specialize
Separate investment roles from concierge services within family offices. For example, the Koch family separates investment functions from other services to optimize efficiency.
Outsource Wisely and Pay Competitively
For smaller family offices, outsource expertise while maintaining a core team. Emulate the Canadian pension funds by paying top talent well to save in long-term costs.
Align Mission and Metrics
Ensure that the mission of the family office aligns with specific performance metrics. If the goal is preservation, growth, or philanthropy, the team’s incentives should reflect that mission.
Foster Open Communication Across Generations
Encourage honest discussions about money and responsibilities between generations to create a legacy of wise stewardship and enable informed decision-making.
Statistics & Facts
- 90% of family offices are structured incorrectly (Harvard Business School Family Enterprise Course). This statistic highlights a common misperception of family offices as non-business entities, emphasizing the need for proper governance and planning.
- The Koch family office separates investment functions and concierge services, setting an industry example (Christina from Harvard Business School). This demonstrates a best practice in structuring family offices for efficiency and clarity in roles.
- The Canadian pension plans' "10x rule" shows that paying staff significantly more can save 10 times in management fees (Ontario Teachers’ Plan, CPP IB). This illustrates an approach to insourcing talent and optimizing costs, relevant to family offices considering competitive compensation structures.
