A common mistake made by many high-net-worth individuals and families is failing to treat their family’s financial affairs as a business entity in their own right. Managing the business of the family’s assets is a critical practice that demands the same rigor  applied to their underlying business activities.

An effective family office will provide several benefits, including:

  • Helping to manage and grow investment assets
  • Improving financial reporting and communications
  • Enhancing risk management (both from the perspective of investment risk and preventing the potential misuse of assets)
  • Strengthening estate and transition planning

Setting up and maintaining an effective family office requires a mindset that’s based on understanding the family’s assets beyond investment returns to include maintaining a healthy balance sheet, installing the appropriate controls, and providing effective software tools — exactly as you would in your business.

Financial and Business Management

Whether you create a single-family office or work with a provider that serves several families, it’s important to understand that a family office can play a pivotal role in effectively protecting your assets.

Your family office should go beyond bookkeeping and paying bills to help you understand and improve your entire financial picture and risk management strategies to ensure asset preservation and peace of mind.

For example, you want a professional (or a team) with experience in day-to-day operations such as paying bills, bank and credit card reconciliations, cash flow management, and financial reporting and forecasting, as well as medium and long-term planning,  risk management, insurance, tax planning and compliance, and other considerations.

Another important aspect to think about is creating an internal controls framework that, just as in your business, separates duties and responsibilities.  You may reduce the risk of fraud and malfeasance that occurs if a staff member creates and pays vendors that are not serving the family.

Fraud and malfeasance in your family office is something no one wants to believe happens because, over time, staff may feel like they are family.  However, it’s important to recognize that 27% of family offices have experienced some form of dishonesty, so it is prudent to develop appropriate measures to mitigate such possibilities.

It’s also helpful to ensure your family office is using appropriate software tools to effectively manage your affairs. Spreadsheets and basic accounting packages won’t offer the appropriate degree of sophistication and internal controls required by the family office team.  The right software will enhance efficiency, strengthen key internal control processes, and provide relevant reporting and risk management.

For instance, accounting platforms such as Sage Intacct can streamline financial reporting and provide real-time access to performance data, as well as insights to help you and your advisers manage the family’s assets more effectively.

It can also support complex accounting requirements and the institution of internal controls, as well as the ability to aggregate information from various investment portfolio custodians and identify anomalies in your financial transactions that may indicate fraud or other problems.

Creating and maintaining an effective family office starts, however, by recognizing the need to treat your family office as an independent enterprise and to ensure it has the appropriate operational, financial and technology infrastructure to meet your needs today and to help you plan for the next generation.

For more information about Sensiba San Filippo’s Family Office Services and to meet our team, email us at info@ssfllp.com.