Partner Content: The Necessities of Auditing a Family Office

Family offices are not set up with many of the issues families face in mind. The family dynamic is mostly forgotten or ignored. Instead, the effort is focused on the money side i.e. management of the businesses and wealth. They do not get involved with things such as family dynamics, the alignment of interest between the senior staff and the family, and/or next-generation engagement. 

 This is where The Family Office Doctor comes in; we ensure the family office is set up correctly. We assist both the family and the family office in dealing with these issues, from a completely unconflicted perspective. 

 We bring systems and protocols together, getting everyone involved to create a family office that works for all parties. We are effectively a “white knight” coming to the rescue of a family office or wealthy family. We partner with them to find the right solutions to manage their assets and add corporate and family governance into the mix. 

 We offer a much more holistic solution than can ever be provided by lawyers, accountants and money managers. Yes, your accountant is making sure your taxes are efficient, and yes, your lawyer is making sure your structures are together, but rarely do they work in unison. 

 The Family Office Doctor is the conduit that brings everything together more than can be expected from your lawyer, accountant, financial advisor or family office. 

Audit of a family office

How many family offices get audited? Unfortunately, very few and this is a real and ongoing problem for the sector. We have seen many common mistakes that often stem from poor advice or a lack of knowledge due to inexperience. 

I know this happens more than it should, as we come across many different issues, mostly caused by the fact that there is little sharing of best practices and no family office handbook.

For example, I dealt with one family office that did their monthly report using excel. On a monthly basis, their CFO manually produced a 400-page report, which effectively added no value and was a missed opportunity. Our solution was to implement a software remedy that would not only create efficiencies but also improve the quality of their reporting.

The benefit of working with The Family Office Doctor is that we are not managing assets. The only skin in the game we have is to do a thorough review and deliver a solid report. We want you to be satisfied and come back to us again and again. 

Financial advisors, lawyers and accountants can advise up to a certain level. In some cases, they are limited due to legal and regulatory constraints. The Family Office Doctor does not have this blockage. We are always working for the best interest of the family in an unconstrained manner. We have found a way to remove the conflicts of interest. 

We are there to deliver the hard truths, including telling a family they do not need a family office. This is precisely what we said to a very wealthy family from central America. The family cashed out, from selling a business, realising more than $500 million – one would think this is sufficient to merit a family office.  

They believed they needed a family office, but after an in-depth conversation with the family members, we concluded that because they wanted a relatively passive investment portfolio, a family office was not necessary. It was clear that their goals did not warrant a full-time staff to manage their assets. 

In this case, our advice was clear, they required a board of advisors that could meet once a week, over a Zoom or conference call for an hour. Why build a family office with all the expenses that it would incur, when there could be a much more efficient option? 

Alignment of interests

We also often work with family offices where there is a conflict of interest between senior staff and the family, or even between the senior staff themselves. Lack of alignment on goals is a common issue that many family offices face. 

In one situation, a chief operating officer came to us as he felt the family office potentially had an issue and he wanted a second opinion. The primary question was regarding their number of staff members – 45 employees with a family office managing less than $1 billion of assets. 

We found that the family office CEO had a vision to build a multi-family office, with the hope that the friends of the founding family would want them to manage their money.

The problem with this approach was that the CEO did not adequately consider the purpose of the family office – to service the family who set it up. It was also unclear whether this was the desire of the founding family.

 This is not an uncommon issue. Family offices should start small and prove themselves before considering morphing into a multi-family office. Why create unnecessary expenses where one can expand rapidly, if and when necessary.

An additional observation is that a well-run family office has nothing to do with its size or assets under management. You may have the same issues regardless of the size of the family office because in most cases it comes down to human dynamics. The family office’s size needs to be appropriate to the needs of the family.

One of the keys to success in running and maintaining a single-family office is to ensure that all the parties are aligned with the family’s values. That there is sufficient planning to include the next generation to ensure longevity. If the senior staff and the family office are not aligned in this manner, I can guarantee ongoing frustrations and, ultimately, failure.

Samy Dwek is the Founder and CEO of  The Family Office Doctor and White Knight Consulting, Delray Beach firms that provide professional guidance and outsourced chief financial and chief operating officer services to high-net-worth individuals and families globally. 

Prior to this Mr Dwek created and headed J.P. Morgan Family Office Solutions, EMEA and was a member of the EMEA Management Committee for the J.P. Morgan Private Bank. Mr Dwek was also the head of Emerging Europe for the Private Bank for six years and before that, he was a banker for the Turkey-Israel region for three years. Mr. Dwek concurrently worked for J.P. Morgan Asset Management covering institutional clients in Turkey and Israel for 6 years until February 2011. He joined J.P. Morgan Private Bank in 2000 as a senior portfolio manager for Italy. 

Samy is actively involved in the South Florida community, serving on numerous charitable boards.  He is a graduate of the European Business School in London where he graduated with a BA (Hons) in European Business Administration in English, French and Italian. He currently resides in Delray Beach with his wife and three children. He is fluent in English, French and Italian and proficient in a number of other languages.

Samy Dwek can be reached at enquiries@wkconsulting.biz