One of the first senior analysts I worked for when I began my career on Wall Street was quick to explain to me his theory that the background of the person running equity capital markets (ECM) within an investment bank would determine who the most highly compensated people at the firm would be. A motley crew of three sub-departments comprises ECM – research, sales and trading. Research writes the reports, sales distributes, and trading rings the register when clients call to execute a trade.
Each of the three pieces believes they are the most important link in the chain – when the reality is that they are interconnected and inter-dependent on each other. But no matter, the head of ECM – depending if they came out of research, sales, or trading, was most familiar with the hard work of their previous specialty. And whether intentional or not, generally began to evolve the compensation structure of the firm to favor the discipline he or she knows best.
While the story is not directly translatable to the family office world, there are a number of important analogues. In our experience, family offices often begin when a trusted lieutenant within the operating company is tasked with figuring out ‘this family office thing.’ The background of that individual will bring massive benefits to the future shape of the office, but also accompanying blind spots. There are three critical dynamics we want to highlight about selecting this first employee.
First – all people have a natural tendency to hire people like themselves.
If the lead of the family office comes out of the legal world, generally you will see a team built out with deep legal expertise. The same is true for folks with an investment or tax background. Of course, this brings great benefits. The individual will bring a wealth of background and relationships in their specific discipline, and the family will reap the rewards. But there are embedded risks to be aware of due to the second dynamic.
Second, at its core, a family office is more generalist than specialist.
So, while the founding employee will come with their respective background, as they build trust and the family understands the office, that person will find themselves navigating unfamiliar waters. A paralegal on the team may find themselves helping to design an education curriculum for rising teens and twenty-somethings in the family. An estate planning attorney may begin doing work in M&A. An accountant may have to figure out what to do with a portfolio of hedge funds. It will be key that the first employee embrace the broad swath of responsibilities, even if they are somewhat outside their comfort zone. That challenge has to be exciting and not overwhelming for the person to be successful.
Finally, people skills matter.
In my experience around the professional services, professionals generally work independently or in very small teams. Personally, as someone who really hated group projects in college, this was part of the appeal of this line of work. As the team of the family office grows, the leader of the office may find they are spending less time doing the work and more time managing the team, along with more time ‘managing the client.’ Thinking about how to manage and motivate employees, develop career paths, build the team’s capabilities can be a compelling new career challenge. That said, for many who truly love the work, being a boss can be draining.
Here at FCS, we have been fortunate to spend time with many long-time family office executives who have found and built a compelling lifetime of work in the service of a family. The first employee will be the most critical for the near and intermediate term of any new office. This is made all the more challenging by the fact that most often the family itself does not know what it wants, nor does that employee known all of what he or she could or should be doing. Adaptability and a high tolerance for ambiguity will be keys to success.