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The challenges of retaining quality family office staff

Family offices which fail to manage their staff will not only lose income and suffer a drain of capital.  In an increasingly competitive environment, they are in danger of putting their very legacy at risk. 

Family offices need to attract and retain the best staff to prosper, yet with notable exceptions, even the larger ones suffer from the kind of staffing problems you would only expect to find in small family-run businesses. 

Many a family office executive has been lured to a new job on the promise that the principal wishes to diversify away from a much-loved asset class – like real estate –  only to discover they have no firm intention of doing so

 A major issue is that there is commonly no dedicated human resource function in a family office.  This means there is no-one formally trained and responsible for keeping the organisation’s people fit-for-purpose. In some cases, no-one is responsible at all, or this function is sidelined to administering employment contracts.

 Professional education and membership budgets can be non-existent while much of what passes for family office personnel development is provided for “free” by service providers whose content offers questionable value.  

Because the family office sector does not yet have a functioning professional membership association they lack access to peers and this can make executive “professionally lonely”, with no-one unbiased available outside the office to bounce off ideas or provide a sense check.

 The difficulty in accessing information on best practice on other family offices can also mean that compensation levels vary enormously between family offices, and within them. 

I have heard of some staff being significantly over, or underpaid, often within the very same office. As ever, the discovery of such disparities has unwelcome consequences.

 Families can be unwilling to employ “enough” staff in family offices, and many employees end up doing work for which they are not suited. Often they are obliged to carry out large and complicated tasks – such as buying a new yacht – which leads to mistakes and a distressingly high learning curve.

 Two investment trends have also lead to rapid changes in how family offices are structured and staffed.  The first is the trend towards much more direct investing in private equity and venture capital. The second is that families with captive or internal funds are now opening these up to co-invest with third parties. 

Both innovations demand that families undertake professional due diligence, manage investments to the highest standards and access quality deal flow. 

And both trends mean family offices are increasingly competing for staff with the asset management sector.  

Such staff are extremely expensive and may not be used to the endearing idiosyncrasies of the family office world. To pay what it takes, families are regularly charging fees to peers from their trusted circle. 

The fees are often more modest than those charged by alternative providers who have armies of staff and shareholders to feed.

Some family office staff will welcome this. Indeed they may be driving this forward with gusto because they currently lack challenges or because compensation levels or funds raised are linked to their performance. 

American families are already creative in their compensation packages and, in a recent US survey of family offices, remuneration adviser Botoff Consulting discovered that 60% of respondents were prepared to allow key staff to co-invest on deals. 

 To staff seeking new challenges all this is good news because investment strategies in more conservative family offices may hardly change year-on-year.   Buying the same low-risk investments can simply become boring.

 On the other hand, working at a new or less conservative office can mean idiosyncratic and unsettling leaps in strategic direction.  Many a family office executive has been lured to a new job on the promise that the principal wishes to diversify away from a much-loved asset class – like real estate –  only to discover they have no firm intention of doing so.  

Many families talk a good game. But they find it hard to invest as much as they ought or ignore the advice of seasoned professionals when they take the plunge. 

 Employees of family offices have no choice to accept this risk of disappointment or move on.  Working closely with a keen-minded principal can be a joy, but if the relationship sours then staff who fall from grace are often finished.  To avoid this, it is best to define the line between employee, servant, friend and family as clearly as possible. 

 All this means the traditional focus on hiring based on “cultural fit” rather than skills is outdated.  This approach, plus an inability or unwillingness to advertise posts or pay for recruitment agents, has limited hiring options to a “charmed circle” which is way too small. While finding trusted staff this way can appear a boon, it brings with it the danger of recommendations based on friendship and favours, rather than merit and skills.

 Career progression in a small office can be as non-existent as its public profile.  Not all staff want to be anonymous and some take pride in enjoying a limited profile within their profession. 

 While working for a well-known captain of industry will carry kudos it’s just as likely the family office will be so discrete that most people, including future employers, will have never head of the family.    A ban on social media, including LinkedIn, can also limit employees career options down the line.

 You may think these drawbacks would see executives fleeing from family office jobs with alacrity.  But just the opposite is true.  

What is notable is how few family office executives, even if they have had a bad experience, ever want to leave the sector. The perks of the job can be enviable. While it is not exactly most people’s idea of a vocation, if the people are managed properly, they will exhibit extraordinary loyalty not typically seen in the job market.

You can end up concluding that family offices are idiosyncratic places to work.  But given idiosyncrasies commonly range from being charming to downright irritating this may not be saying much.  

What is true is that family offices with ambition are investing sufficient time and money into human resources and this is helping them hire and keep the professional staff they need to achieve their mission 

 Keith Johnston is a contributor to Family Capital and helps manage an exclusive single-family office club 

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