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One of the greatest challenges facing family offices is how best to demonstrate and communicate the value that the office provides to the family. At the FOX Fall Forum session “Setting Expectations and Measuring Success,” representatives from two family offices described how working in tandem with family clients to set goals and objectives has been essential to the long-term success of the family and the office.

How does a family office serving the third and fourth generations differ from one that is serving generations seven and eight? How do the servicing needs change as the family expands and changes? What happens when the cost of services delivered by the office exceeds the perceived value? How can costs be controlled? What back office systems are required?

Among the most crucial functions for the family office is the chief investment officer (CIO). The position might be held by a family member or outsourced to an external professional. A minority of families hire a captive investment professional-a strategy considered by many to be among best practices for families with ten-figure wealth.

Family offices, by definition, are professional-staff intensive and allocate as much as 70 percent of total operating expenses to compensation costs-a significant portion of the budget. (See page 3 for information on FOX studies of wealth management costs and family office compensation.) In light of the current market environment, with markets contracting and budgets shrinking, it's time for family offices to take another look at their compensation plans. Family offices need to understand the role compensation can play in supporting family and family office goals.

According to early results of the 1999 Family Office Exchange Compensation and Benefits Practices survey, a tight labor market in which the most talented professionals are not changing jobs or are being recruited quickly is boosting salaries and increasing benefits. Family offices still have the edge but face increased competition from international banks, investment firms and private trust companies offering deeper and improved benefit packages.

Developing an effective family office can be a formidable challenge. Keeping it headed in the right direction is a constant process of assessment and adjustment. The rapid pace of change in virtually every aspect of the world around us necessitates this monitoring and redirecting process to ensure and maximize the effectiveness of the family office.

The world is changing at a frantic pace. New bestsellers appear weekly on management techniques, time management skills, effective leadership, philanthropy, tax planning, investments, law, etc. Many concepts in these books are revolutionary; others just repackage the "idea of the week."The knowledge necessary for a professional just to stay "average" is overwhelming. Access to quality programs in a time efficient manner is no longer a luxury, it is a requirement for an organization to keep its professional edge.

Regardless of the size of your family office staff, annual employee performance reviews are an integral part of keeping talented people. Performance reviews document an employee's job performance, outline strengths and weaknesses, and align the employee's career goals with the family office goals.

Enumerating the tasks family office employees must fulfill is only part of the goal-setting process. The decisions and actions of every employee impact a family office's success in serving its clients, so it is critical for employees to understand the mission of the office and how their roles, targeted goals, and "behavioral competencies" will help the office meet its objectives.

Family office executive compensation is a topic continually reviewed by the FOX membership. Because the family office industry draws from other financial and legal professions, it is of critical importance to both the executive and the family to gain a wider understanding of the competitive landscape of executive compensation and benefits in order to recruit, retain and reward top talent.