The Invisible Structures of the Family Office

Episode 7 April 17, 2023 00:23:48
The Invisible Structures of the Family Office
Purposeful Planning Podcast
The Invisible Structures of the Family Office

Apr 17 2023 | 00:23:48

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Show Notes

Today we are talking about the invisible structures that support family offices. We’ll uncover ways in which we can create more transparency and alignment between the family and the family office to build more trust and support the development of human and family capital.

About Our Speaker

An entrepreneur at heart, Kirby was born into a complex enterprising family and is the founder, innovator, and driver of Tamarind Partners who knows firsthand the critical needs of owners. She is an industry thought leader, world-renowned speaker, lauded author, and trusted advisor to family owners and their family office executives and advisors.

Kirby is the Dean of Family Offices for the Purposeful Planning Institute.

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Episode Transcript

JOHN A: This is John A. Warnick, your host today for this Purposeful Planning Podcast. And I'm delighted to have the privilege of hosting Kirby Rosplock, PhD. Dr. Rosplock received her doctorate degree under the chairmanship of Dennis Jaffe at Saybrook. And Kirby has really, because she's the dean of the family office, and within the Purposeful Planning Institute has been an amazing, very valuable contributor in the Council of Deans. We're very appreciative of all things she's done for PPI. And we were in conversation about a week ago and she raised an issue that I think, really, I've seen rip family offices apart. And I believe it's one that we really need to pay attention to. So for both the advisors, the consultants, the family office, professional and family members that are listening to us today, I think you're really going to enjoy Kirby sharing with us something that I heard first referred to by her as an invisible structure. And before I ask you to tell us more, let me just also say that Kirby is that the chief driving force, the editor, primary contributor to the complete family office, handbook, and that is an amazing volume. I think it's widely acknowledged within the family office world as being the preeminent and somewhat unique published literature on family offices. So Kirby, what can you tell us about the invisible structures that affect family offices? KIRBY: Well, thank you, Johnny. It's a privilege to be here and to talk about something that doesn't get a lot of airplay. But honestly, I'm not the originator, I think Scott Pepid of High Trust in Chicago, probably was the mastermind about bringing these sort of invisible structures to bear and what do we mean by that, when we talk about that, and connection to the family office think ultimately, what we're talking about is how much of what a family office does, right, professional services, investment management, so forth. It's not seen or experienced by family, it's largely under their radar to what their reception of services are. And so they don't see how financial or investment ports reports are created, or how the family offices organizing and administering maybe important tax documents or legal documents, or orchestrating work with outside professionals to opine on, say, in estate planning or tax or business activity. So this is largely missed by 99% of family recipients of the services of a family office. And all of these things are done, well intentioned, but they actually sort of create these invisible structures or relationships between the people and process and planning that family members ultimately proceed. JOHN A: I think it's well said Kirby, I think it's almost like those family members are walled off from what's really happening. And, you know, in the trust world, beneficiaries receive, usually very comprehensive and hopefully very readable, understandable, accountings. So, with the trust side of the family office, there may be a little bit more clarity or awareness. But there are so many as you're pointing out, so many things going on, and so many interrelationships, and I think because they're largely invisible, they're unappreciated. But what happens when a family loses sight of those inner workings? What can happen? KIRBY: Yeah, there's a lot of things that can happen and in the defense of the family office world, they're intentionally trying to be invisible structures, right? They're trying to be conveniencing mechanisms to give more time back to the family owners to make life easier, more streamlined, to be that defense, you know, from risk management and thwarting off predators and creditors and other unsavory types. What happens though, when family aren't really clear on what's going on is that they become vulnerable at certain aspects of their lives because they don't have to exercise that muscle. They don't actually have to do what the office is doing for them. And then it can cause a couple of things. One, it can cause vulnerability on the family member side, it can also create what I'll call like, creep, or scope creep, or service creep or culture creep on the family office side, where they go in a direction they think is serving the family or family members. But actually, it's serving the family office, right, it's helping them maybe do things easier, better faster. But it actually could potentially have an adverse effect, which is, oh gosh, they didn't really want to have flowers at their board meeting, they just wanted a nice clean room with a bowl of fruit. And as simple as an example, as that kind of leads to bigger things where we need to do a bigger, more elaborate trustee meeting or we need to have a bigger retreat or so again, things that are well intended can sometimes start to go in a different direction. If there's not clear awareness, alignment, intention, and purposefulness on the family side, just one thing on the family side, when I talk about those vulnerabilities, a good example is, gosh, if your family office is the first point of contact for say outside context, saying, I really want to talk to so and so family member or I have this great product to sell or whatever. And the family offices, virtually saying no, no, no, we don't do that. And then that family member now comes into contact or has a friend who's pitching a new deal or investment opportunity. The family member sometimes doesn't know how to say no, or doesn't know what to say, and reaction, so it can kind of expose themselves. If they're not clear that oh no no, this is something my family office should be directed to handle. So again, when we're not clear about the structures, invisible structures, it can have adverse effects basically. JOHN A: It's you know, if you describe that I'm thinking back to situations I've seen, and I, I think this can happen at any point. But I think that families are particularly vulnerable at the passing of a generation where there's a shift in kind of the family leadership, and therefore, the new leaders, they don't have a generation of relationships with the family office professionals, there isn't.. loyalty doesn't transfer generationally from the senior generation of a family to the next generation up. So I think one of the big challenges you're highlighting here, Kirby is how do families overcome the opaqueness and the invisibility? How do they make sure that they both understand and that they're aligned? And I would say that they're building appropriately loyalty for their family office for both its scope? Its direction, mission, the purpose? What suggestions do you have for us there? KIRBY: Sure. So I'm gonna use a car analogy. Like, I know how to drive a car, I know where the oil goes, I know where the wiper fluid goes. I know what happens when my car's overheating, that I shouldn't keep driving it. So I know basic things about how it runs and operates and how to maintain it. But I'm not a mechanic, but I know when to take it and see the mechanic right by here, knocking or white snow smoke coming out of the tailpipe. So the family office is kind of similar to being a driver of a car. That if you're a beneficiary, or you're a client of a family office, you kind of need to know how it runs, even if you don't do the day to day driving, or the mechanical upkeep. And you need to sort of keep a little bit of a finger on the pulse of how the family office operates, but how it's evolving. And that's a really important point I want to make evolving, because every family office like every family is changing. So we need to keep a pulse on how is the family office iterating as the family is moving through time and space, so we can't just look at what it's done in the past, but to your generational example when one generation passes, it's a great time to take stock to be clear on what did we do? Why did we do it? Why did we decide to pay for what was being done? And does it still work for this next generation? So these times of transition become great points to bring open and awareness to all that's happening, not to point fingers, not to say this is good or bad, but just to take stock. And then to get clear on where do we go from here. And this kind of level of transparency is how you break down the opaqueness of those invisible structures. JOHN A: Yeah, it does require transparency and clarity. You know, I was just thinking, I was pointing a finger at the problem and it is manifesting in that transition. But I think this problem could be equally shared. You've just talked about how important it is for the family members to feel in alignment and how we can do that. But I think there's a danger here that I'd like you to comment on. I think the family office professionals may just assume their position, their role, and the trust that was reposed in them by the senior generation that's passed, it's just going to automatically pass on down. And they forget that the trust that they built with the now past generation wasn't earned overnight. If there was a lot of discussions, there was a lot of transparency around it. So what suggestions would you offer Kirby to the family office professional, to help them stay on track, and earn this trust? And particularly, you know, I see them. So often giving into the temptation that the really, really important work that we do is centered around the family's financial capital, the the enterprises, whatever, assets, and they, they really lose track of all those other dimensions of family wealth, and family enterprise that Jay Hughs helped us see. So what suggestions do you have for the family office professionals themselves? KIRBY: Sure, well, I'll give you an anecdote from a client where they went on a listening tour. And they really wanted to get a much closer finger on the pulse of what all the family members were feeling individually, not just through a survey, or collectively. It's amazing how much more transparency there is when you see each other, literally see each other. Right? So they were able to sort of ascertain, oh, we've got some issues here or another, this is really rock solid, there's a good alignment, there's a good understanding of what we're doing, where we're headed. So I think that the check ins and the listening tours are really important. I also think it's helpful, one family know that this should be on their plate. Okay, most family members don't have a clue that they should actually be investing in the human capital of the family office. Who is serving us? Do I know their kids’ names? Do I have a relationship with these people? Or do I just know them as, you know, the tax debt desk or the, you know, back office? So I think a lot of it has to do with how there's alignment and communication and awareness. That's what facilitates trust. That's what facilitates rapport. And that's what helps with continuity ultimately. JOHN A: I love this is so powerful. I hope everybody's getting as much out of your observations and suggestions Kirby as I am, I I began to realize as I was listening to you that your point about geography if we think about the classic construction of a family office and the iterations that the early iterations, it's usually geographically located in close proximity to the geographic residents, primary residence of the eldest generation of a family. Not always, but I think that's predominantly the rule. And yet at the passing of that eldest generation, the family office location may be very distant geographically from where the scattered family members reside. So you're talking about, you know, I almost envisioned a tour, on bringing everybody together to allow that. And I do. Well, I totally concur. I think the importance of the family members beginning to recognize the family office professionals, as human beings, rather than just atomic ions that are performing helpful needed functions. That's so wise too. Do you have any stories or anecdotes that you could share with us, Kirby that kind of help shine a bright light on the dangers and the opportunities to overcome the invisible structures? KIRBY: Well, again, I'll lean into something that is pretty recent in my rearview mirror, where a client decided to invite family members to participate. And as sort of a few day strategic planning session internally, right, so internal stakeholders came to meet and discuss the service offering and the cost structures, the needed iterations over the coming years. And for the family members who knew what it was like to receive these services to sort of connect the dots with, you know, the staff and the personnel, but even the discussion of how complex, right, because what also happens oftentimes is what the family client experiences is, like 10 generations more simplified and easy to understand, than the actual what's really going on behind the scenes. And so in that moment of having them there, it did several things. One, it grounded the family client to say, I really appreciate and understand how much has to go into what I think is just a simple rehabbing of a second property in wherever..Tuscany making that up. When in fact, behind the scenes, there was so much work and planning and iterations and risk management and, you know, materials and contractors and everything else. The other thing I would say is that for the family office, connecting to the people they serve, they don't get that opportunity very often. So it can be incredibly inspiring. And it can actually get people really excited to lean into what they're doing, because they see the people that they, you know, see the tax forms, or they see the memos for, but they never actually know these people. So I think though, that's just a great example of how deconstructing some of those invisible structures, bringing awareness creates gratitude, appreciation, and energy for both the client advisor and the client family member. And it also creates a better rapport where that family member will pick up and say, Oh, I know, Alyssa is in the tax department or Jim is on the other end of the line for IT issues that I still am struggling with. So I think it's also how you create a higher performing family office, ultimately, by making those invisible structures real and not taking them for granted. JOHN A: It's really kind of giving a face to the nameless invisible family office professional and flipping that to the family office professional giving a face to the individuals that they serve that, as you say they just often see on the papers that are in the memos that are circulating inside the family office, Kirby I think that one of the ways in which in addition to what you suggested there, another thought that I had is a periodic kind of family office audit function, not an audit function in the traditional sense of accounting, but auditing the roles, responsibilities, that compensation, something done by an outsider who can really help validate that everything's working well, that that would be another I think, very reassuring way to help combat the kind of dark side of the invisible structure and to give it a illuminate better what's going on. I hope everybody listening to Kirby today understands just how deeply committed she is to champion the issues that are the real challenges facing family members and family offices today. And you Kirby, I'd love to have you share. This really grew out of a podcast that Kirby has. Tell us about that podcast, how people can subscribe to follow your podcast. I think that'd be helpful too. KIRBY: Yeah, so Scott Peck that was recently with me on the Tamarind Learning Podcasts that I am the host of just like you're the host of this one. And that's what sort of spawned and inspired this invisible structured conversation. And actually, he's written a lot of amazing thought leadership pieces and, and will hopefully get some ability to connect those some of his pieces from his website, but tamarindlearning.com, and then there's a podcast page, everything is free and accessible, and Scott's podcasts will be there as well. That's kind of a compliment a little bit different. Obviously, we talked more about my personal experience with invisible structures. And the one thing I will leave too is that when we don't make invisible structures known, we take for who can take them for granted, but they can also sometimes get tarnished or shaded. And so that's why kind of aligning and refocusing either through an audit, which is something I've done in the past with family offices, or just having a subcommittee of say, of family members to support the ongoing strategic planning in a family office can be so so so helpful. And I'm not always saying it's the leadership, right, the operating family leadership, I'm also saying sometimes it's good to have just a committee that's laid people that are just members of the family who actually don't know as much they don't come with a bias because they're not invested on the management leadership side. So those are other ways to help bring clarity and awareness and transparency and keep things aligned. JOHN A: Thank you, Kirby. That's a marvelous suggestion. I love that and in addition to the possibility of an audit, that just sounds like a wonderful suggestion. Thank you, everyone. Thank you, Kirby, particularly for sharing in such a relatively brief time, but I hope everybody appreciates the power of the observations and suggestions. Kirby has left with us today. Thank you.

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