A good investor is not necessarily a good family office manager

A client hired a top investment professional to run his new family office. We then spent twelve years trying to get his estate planning moving forward. But at least we had great investments.

The office made money (those investments were great). And trusts worth hundreds of millions of dollars sat with a distribution date written into them - outright to the children at twenty-five - while nobody inside the office owned the problem. We raised it. We raised it again. The fix, when it finally came, was an LLC, a manager and a signing ceremony, and it could have happened in year one. They have never addressed GST-tax issues they will face soon enough.

The founder had hired for one job and that is exactly what he got in, and he did not notice what he was missing. Picking investments requires judgment, research and an understanding of risk. Running an office requires people, processes and follow-through - someone who makes sure the accounting closes, the information reaches the right adviser, the employees know their assignments, and the planning that everyone agreed to in March is actually done by December. Add the houses, the plane and a directly owned business, and it is quickly apparent this is a management and operations job.

Running a family office is a management skill, and management is a different skill from investing. I have seen the founder's former assistant put in charge, and it did not work. I have seen the investment person put in charge, and it did not work. I have seen family members of every description put in charge, and it did not work. The ones who make it work come in with the mentality of people who build businesses, and they are routinely successful.

So evaluate the first hire against the whole job. What has this person actually managed? Which systems have they built? How have they handled people whose work is outside their own specialty? If the family wants an investment professional, hire one. Then decide, separately, who is going to run the office - and if the answer is the same person, find the evidence that he can, and give him the support to do it.