That natural evolution is one reason why it is often older, multigenerational family offices that seek nontraditional managers. Fredda Herz Brown, who works with family offices as managing director of the Metropolitan Group in Cresskill, N.J., cites a 200-person family in its fourth generation, operating a family office long headed by a finance expert. As the family grew more numerous and spread into five branches, its members began to lose the ability to make group decisions. Strong personalities with different goals clashed at these pivotal junctures. When the veteran CEO decided to leave, he suggested the family hire, as his replacement, someone who not only understood family dynamics, but who could also help with educational issues.Eventually, the family found an individual with a financial planning background who had not only headed up educational services for financial planners in a large bank, but had also left his job to pursue a master’s degree in education. Since coming on board, he has developed programs for teaching family members everything from governance techniques to the intricacies of the family holdings. He also supervises investment specialists on staff, who attend to the family finances.
Compensation for these professionals varies, depending on their areas of expertise. In almost every case, unconventional CEOs come at a premium. Often, a family simply pays a nonfinancial CEO a salary comparable to the one usually found in the industry from which he or she came. Because families cannot use investment results as a benchmark for evaluating job performance, they tend to set goals and objectives at the beginning of each year and measure how effectively executives reach those goals 12 months later. If the family office CEO has a soft-skills background, the family must bear the additional expense and time of hiring and managing additional staff members to oversee investments and other financial matters. Total expenditures for such a multifaceted executive team can run $2 million to $5 million a year in salary and infrastructure expenses, according to Wasserman. “Only a family with significant wealth can support that kind of infrastructure,” he says. Generally, families should have at least $250 million to $300 million in net worth for such a move to make economic sense. But, if they do, it might be the best strategy to make sure their family office effectively meets their goals. Anne Field is a freelance writer based in Pelham, N.Y., and is a frequent contributor to Worth. annearf@aol.com Illustration By Kevin Spaulding
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