United States: Staffing The Family Office: Attracting And Retaining Talent

Key Duties That Families Require of Family Office Executives

  • Investment Strategy and Implementation
  • Accounting, Reporting and Control
  • Banking and Liquidity Planning
  • Legal, Governance and Estate Planning
  • Risk Management / Liability Management
  • Education, Family Continuity; Mission Statements; Family Charters
  • Integrated Financial Planning
  • Tax Reporting
  • Family Philanthropy

See Annex A for a more detailed description of the items listed above.

Need to Align Qualitative and Quantitative Functions Within the Family Office

  • With increased sophistication of family office investment programs and operations, family offices are becoming more institutionalized and adopting best practices.
  • While family offices are moving toward greater institutionalization and emphasis on quantitative functions (such as investment management and accounting), we are seeing an increased focus on qualitative roles (such as education, governance and family mission/values).
  • It is important for family offices to align and balance those quantitative and qualitative functions to drive and reward behaviors by the family office team that further those goals.

Non-Financial Goals That Families Should Consider in Gauging Whether Their Family Office is Being Successfully Managed

  • Developing/delivering a high-quality business plan and cash flow budget annually
  • Developing/executing a sound investment program responsive to current conditions, supported by effective processes
  • Developing/maintaining a strong investment team of employees, consultants and third party firms focused on managing the family's assets and supporting a positive and collaborative culture
  • Developing a competent middle and back-office support team
  • Managing the family's external financial, tax, and accounting advisors and legal counsel to avoid, limit, and manage liabilities, including tax exposure and litigation risks
  • Working with the family to improve reporting systems, and reporting thoroughly and in a timely fashion to the family's board, family owners, and other internal constituencies
  • Developing a family charter and family office policies (HR, compliance, office policies, etc.)
  • Managing and funding expenses
  • Working with counsel to comply with applicable rules and regulations and support a compliance culture
  • Assisting and advising family members on their professional pursuits (inside and outside of the family office/business)
  • Enhancing the family's reputation for competence and integrity among key employees and current and potential partners
  • Maintaining confidentiality and protecting the privacy of the family
  • Studying other family offices to identify useful innovations and "best practices"

Methods of Compensation Utilized by Families to Align Their Short and Long-Term Goals and Values With the Performance of Family Office Executives

  • Compensation Tools Aligned With Short-Term Goals:

    • Base compensation
    • Attractive benefits package (less common in family offices)
    • Annual discretionary cash bonus
  • Compensation Tools Aligned with Long-Term Goals:

    • Deferred Bonus/Incentive Compensation (often subject to time-based vesting)
    • Co-Investment Opportunities
    • Carried Interest (often subject to achieving after-tax hurdle rates of return)
    • Loans Programs
    • Phantom Equity
    • Equity in Portfolio Companies
    • Profits Interests
    • Supplemental Executive Retirement Plans (SERPs)
  • We often see the payment of incentive compensation subject to achieving certain milestones, such as:

    • after-tax or after-inflation returns for the given year or a longer period;
    • assessment of liquidity and amount of risk taken to achieve the returns; and
    • assessment of returns generally available for similar liquidity and risk factors.

Recent Trends and Best Practices in the Marketplace for Compensation of Family Office Executives

  • Larger family offices ($1 billion plus) with broader mandates, especially if active direct investment programs, paying higher compensation with more components
  • While vast majority of family offices pay bonuses to the top executives (management and investment teams), discretionary bonuses still favored approach, but trend toward increased use of Long-Term Incentive (LTI) plans with objective performance milestones
  • Written employment agreements more common now, but still not universally used (best practice is to document compensation arrangements and restrictive covenants)
  • Co-investments and deferred bonus/incentive compensation are most prevalent Long-Term Incentives (LTIs)
  • Phantom equity still more prevalent than direct equity in family-owned operating companies and the family office investment vehicles
  • Increased use of vesting for phantom equity and direct equity participation to promote retention (3-5 years most common)
  • Increased use of restrictive covenants:

    • Non-Disclosure Agreements to protect family financial/investment information, personal data and other confidential family information
    • Non-Solicitation restrictions on hiring of family office personnel
    • Non-Competes are less common due to nature of the family office's activities and lack of outside clients
  • Increased use of industry data/surveys/consultants to better benchmark compensation structures and packages to ensure competitive with industry and adoption of best practice in order to attract and retain top talent

Structuring Family Office Co-Investment Vehicles to Permit Friends to Co-Invest in Deals Without Jeopardizing the Family Office Exclusion From Registration

See Annex B for Case Study.


Investment Strategy and Implementation

  • Prepare periodic market updates (markets, trends, risks and opportunities)
  • Develop and implement an Investment Policy Statement and review/update periodically
  • Develop, agree and implement an Asset Allocation Strategy
  • Work with external advisors to research and select external fund managers to implement the agreed Asset Allocation Strategy, monitor manager performance and adjust or replace managers as appropriate
  • Source, review, negotiate and invest in illiquid opportunities in real estate, private equity, venture, credit, special situations, etc.

Accounting, Reporting and Control

  • Prepare and maintain an inventory of all assets and entities
  • Oversee and maintain ownership structures for entities and assets and new investments
  • Oversee collection and reporting of financial and accounting information for the assets and new investments
  • Coordinate work of external accounting and property management advisors

Banking and Liquidity Planning

  • Maintain banking relationships; supervise and report on bank accounts and oversee all banking transactions

Legal, Governance and Estate Planning

  • Review, develop and implement restructuring and central control of the family's asset structures; optimize legal, accounting, tax and other risks
  • Facilitate and coordinate estate planning programs for the family and successors; facilitate wealth transfer(s)
  • Develop and implement legal structures (with assistance from external advisors)
  • Develop and implement shareholder agreements among beneficial owners.
  • Coordinate and manage work of external advisors and corporate service providers

Risk Management/Liability Management

  • Perform general and focused risk management
  • Organize and manage periodic evaluation of liabilities and risks

Education, Family Continuity; Mission Statements; Family Charters

  • Identify and help access various informational and educational opportunities for the family and other individuals to further professional and personal growth (both within and outside of the family office/business)
  • Share information on best practices relating to family planning, communication, dispute avoidance/resolution, wealth management, spending and philanthropy

Integrated Financial Planning

  • Help the family develop a strategic plan, and annual cash flow budget
  • Design systems to monitor major assets and liabilities, businesses, portfolio investments, personal liquid resources and cash flows
  • Work with external advisors to develop and implement tax and income planning

Tax Reporting

  • Oversee preparation/filing of tax returns in relevant jurisdictions

Family Philanthropy

  • Develop and help implement philanthropy programs, including forming a family foundation


Case Study: Single Family Office Co-Investment Partnership

Background: Day Pitney is currently working with a single family office client now who has made a fairly significant direct investment in cryptocurrency/digital assets and wants to have two close friends that are knowledgeable about the crypto space (and who brought the investment to the family), but are not "family clients" (i.e., neither family nor key employees), participate in the investment along with the family. The client wanted to ensure that doing so did not violate the family office rule that requires that the family office only advise "family clients."

"Family Office Rule" Analysis: In this particular situation, the family office was neither recommending this investment to the non-family client investors nor charging them any fees (in part because they brought the deal to the family but also due to a long and close relationship). Since the family office was not charging any fees (including no promote or profit split) and was not recommending the investment to the non-family clients, having them participate along with the family together in a single investment vehicle should not be deemed to violate the family office rule.

Investment Structure: We structured a Delaware LLC and had separate classes of units for the family members, key employees and the non-family clients. The family gave the non-family clients a "profits interest" in the LLC in recognition of the value provided by bringing the investment opportunity to the family. The profits interest is tax-efficient for the recipient and was subject to a vesting period. The profits interest was in addition to the capital interests issued to all members, including the non-family clients for each member's respective cash capital contributions. Governance of the investment vehicle was ultimately controlled by the family office.

Loans to Key Employees: The family office provided a loan to two key members that matched the amount of cash put up by the key employees (CIO and COO) to boost the amount of their investment. The loans were at 3% interest (interest and principal to be deferred until maturity) and were secured by half of the equity purchased in the LLC (i.e., the amount of the interest purchased with the loan proceeds). The loan balance was required to be paid down with any distributions from the LLC.

Tracking Partnership: We also are working with the client to establish a tracking partnership to create flexibility for family clients and key employees to co-invest together in a single investment vehicle. A tracking partnership allows the partnership to separate its assets into classes or pools, enabling partners to participate in each asset class to varying degrees. For example, a tracking partnership may hold securities (Class A), commodities (Class B), and alternative investments (Class C). Some partners may want heavy exposure to Class C, while others are more risk averse. A tracking partnership allows each partner to have a fixed partnership "percentage interest" while holding varying percentages of each asset class. The partnership is treated as a single entity from both a state law and a federal tax perspective. The tracking partnership allows families to then decide how they want to allow key employees and/or family members to participate in some or all of the investments made by the tracking partnership and to vary the sharing ratios of each depending on a variety of factors (e.g., origination, finding co-investors, lenders and exit partners).

Click here to read further Insights from Day Pitney

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Kirkland & Ellis International LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Kirkland & Ellis International LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions