Although there is not any precise information on the quantity or increase in single-family offices, strong anecdotal evidence shows that the number of single-family offices is increasing at a significant rate. The growth is a likely function of the rise in the ranks of the super-rich (net worth = $500 million or more).
As more and more single-family offices are being set up, a complication for a substantial percentage of them is that they were set up poorly resulting in them severely underperforming compared to expectations. Many super-rich families make three critical mistakes in establishing their single-family office:
- Not being very clear about the goals of their single-family office
- Not ensuring their single-family office is operationally and structurally flexible
- Not allying senior management with the agenda and structure of their single-family office
According to Angelo Robles, founder and CEO of the Family Office Association and author of Effective Family Office, “Usually, the overarching principal motivation for setting up a single-family office is control. At the same time, a particular extremely wealthy family will set up a single-family office often due to idiosyncratic reasons. Being attentive to these objectives and structuring the single-family office accordingly will get superior results, but this is unfortunately not all that common.”
To ensure the viability and ability of single-family offices to deliver outstanding results long-term usually requires a high degree of structural and operational flexibility. “The very best single-family offices are able to adapt to changing circumstances,” says Rick Flynn, managing partner of FFO Business Management & Family Office and author of The High-Functioning Single-Family Office. “The way they work is tightly aligned with their goals and objectives with the capacity to pivot when appropriate. Being too regimented usually results in subpar performance.”
To get great results, senior executives have to be appropriately motivated. According to Usha Bhate, a leading international authority on single-family offices, “Being able to meaningfully compensate senior executives for their contributions to the success of the single-family office can be foundational to the effectiveness of the operation. There are a variety of ways to ensure senior executives are really in synch with the ultra-wealthy family and failing to do so tends to cause problems from poor performance to even expensive and painful lawsuits.”