July 22, 2021

Checks and Balances in the Family

By Sofia Ziegler, Manager, Marcum Family Office

Checks and Balances in the Family Private Client Services

Money is personal. Starting your own family office can often be a fraught process, prudently treading the line of business and personal. This is especially true if a part of your capital’s sustainability planning is the transfer of wealth to the next generation. Working in the Family Office division of Marcum, we look at the wealth administration of current and future generations, while also navigating day to day expenditures and interests. Our role doesn’t start and stop just looking after the families’ wealth, it encompasses looking after their larger interests. Next generation involvement in the oversight of family wealth is an integral part of the conversation. If family members are involved but not putting forth a competent effort, the foundational structure of the family office could become destabilized.

There will always be surprises (as 2020 has shown us) but your family office group should be a stable and consistent resource. A great family office can be more than a group you go to for wealth planning and concierge services, it should be your presidential cabinet of resources.

Transparency and continuous reassessment check-ins are critical. Below are a few ways we use checks and balances with our client base.

  • Expected cash administration should be as automated as possible with regular monthly reports for each relevant family member. Keep user profiles on any account strictly assigned and protected for easy audit trail.
  • Create written policies and procedures involving different individuals at different junctures to show accountability for any access to documents and to releasing funds. Be sure to separate responsibilities and to incorporate review processes that account for the industry knowledge of team members. Keeping investment advice and investment reporting in separate hands is another means of insuring that the information received on account growth is not construed.
  • Establish indicators to act as red flags, ensure that these gauges are known across multiple oversight teams. Confirm all relevant advisory teams are updated regularly and check that you have signed off on applicable client authorization for inter communication. Even if within the same firm, divisions should hold a checks and balances system to protect client information unless written consent is given.
  • Communicate through secure portals. We at Marcum LLP use password secured and encrypted networks such as Marcum Secure and Marcum File Transfer Portal to ensure any document containing private information stays private.
  • Trust & Estates and Tax teams should have easy access to any related documents and be tied in to any relevant correspondence. With the consistent flux of policies you should have a seasoned professional at hand for any sales / purchases of assets or changes in investment allocations. Your advisors should be consistently reevaluating areas such as income tax planning and gift tax planning to stay abreast of legal changes.

At times outsourcing can be your easiest way to incorporate checks and balances without any hurt feelings. You may have significant financial power but the power of managing fraught family dynamics can still fall beyond your control. Having specific family office duties allocated to external offices allows for the voice of another “adult in the room.” Sometimes you just need someone who says “no” so you can strengthen healthy family boundaries. The inherent risks postured by not having even basic checks and balances in place is far greater than we may want to believe; especially when dealing with family members. It is far too costly to not take measures against avoidable exposures. Having a third impartial party overseeing your cash flow is essential to ensuring your interests are at the heart of your spending and investment allocations.