Successful family offices establish procedures that protect the clients of the office, ensure focus on goals that have been agreed upon, and enforce the decision-making agreements that reinforce confidence in the family office by its members.

Each office will need to choose the frameworks appropriate for them depending on the services they deliver, the complexity of their operations, and the resources available to their offices. This framework may include a procedure manual, a set of internal controls, governance, fraud deterrence, and integrated risk management systems. Some single-family offices (SFOs) may find that, given their aspirations, some resources may need to be added to their operations in order to achieve a reasonable degree of standards.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has developed an excellent set of frameworks and tools that are worth considering (www.coso.org).

Copedia (www.copedia.com) is also a good source of road-tested policy and procedure templates that can be customized to an SFO's needs. It is helpful to create workflow templates rather than a large book of text-only procedures because they are clearer and can be easily adapted eventually to a dynamic online system of workflows. If you already have a procedure handbook, you can start creating these workflows based on that material, updating as you go to conform with your current practices, and incorporate best practices from the organizations mentioned previously. And these standards, while not fully universal, apply to many family office operations. There is no need to create them from scratch as other family offices have already thought about and documented the necessary procedures. Collaboration among the community is key to better protection and productivity for the members of the community. Following is an example of one such procedure, expressed as a workflow, intended to manage the potentially risky activity of responding to capital calls:

This workflow cites who is responsible for each step as well as the action that is to be taken. When an activity carries a higher level of risk, increasing management scrutiny is required. Also note that the published standard which justifies the activity should be documented (e.g., COSO, Ch. 6, p. 73 “Segregation of Duties”). Do not create unnecessary work for your staff. If they are like mine, they are already overtaxed!

Such online workflows, typically part of customer relationship management (CRM) systems, are the future of procedure implementation compliance. Procedures that only exist in a manual are seldom referenced and rarely updated to current standards, and they are difficult to enforce without an online regime. Such online systems (sometimes called process automation) have existed for many years and are used by many businesses, including registered investment advisors (RIAs). Redtail and Wealthbox are two examples of CRM/workflow management systems targeted at RIAs. Keep in mind that RIA procedures must take regulatory requirements into account, only a minority of which are applicable to an SFO.

I believe that these or other software vendors will begin to fill the more specialized needs of SFOs. Eton Systems, for instance, has developed a general ledger and performance system that is workflow-based. These are not yet customizable in a way that is useful for global procedures, but it would be theoretically desirable to have such procedures well integrated into a general ledger and bill payment system such as Eton's.

Family offices that have developed comprehensive procedures that are explicitly documented workflows will be well prepared to exploit these new technologies as they are deployed. Such systems ultimately will mean that a family office's processes can be automated, dynamically updated, audited, and managed in real time by office leaders. Such an advance would do much to standardize and de-risk the family office industry.

Additional Resources

1. Rose Hightower, Internal Controls: Policies and Procedures (Hoboken, NJ: Wiley, 2009).
2. Lynford Graham, Internal Control Audit and Compliance (Hoboken, NJ: Wiley, 2015).
3. Todd D. Mayo, ed., Private Trust Companies, Part 1: Design and Operation of Private Trust Companies (Surry, UK: Global Law and Business, 2020).

Biography

Eugene Lipitz is currently chief financial officer and wealth strategist of Commodore Management LLC, a private family wealth manager. Prior to this, he was a strategic consultant with Price Waterhouse and founded the strategic consultancy Document Concepts. He is the author of Daddy, Are We Rich? which critically reviews advice given to wealthy parents over the last two decades and “Blissfully Unaware: Family Offices Living in Operational La-La Land” in The International Family Offices Journal. He has also been a guest lecturer at the Berkeley-Haas School of Business on the subject of entrepreneurship within a family office. Among several professional organizations, Gene is a member of the Center for Families Flourishing, an international group of 100 of the professionals within the Wealth Management Community dedicated to service to families and the IPI investor network, where he has been a student, faculty advisor, and a speaker on the subjects of “Choosing a Trusted Advisor” and “The Use of Behavioral Finance in a Family Office.” Gene holds the CPWA^® designation, administered in cooperation with the University of Chicago and the Investment Management Consultant Association^® and is a Global Fiduciary Strategist^®.