The dos and don’ts of building a family office

When people hear about my family office, The Kaulig Cos. Ltd., a single member family office, many wonder what a family office actually is.

Here are some examples of family offices, and some dos and don’ts of what I learned when we created the Kaulig Cos. Ltd.

To start, what are the different types of family offices?

  • Multifamily offices. This is where a professional team of advisers comes together to service the needs of families that have accumulated significant financial assets, some liquid and some illiquid. A common example of a liquid asset is a portfolio of publicly traded stocks. An illiquid asset is a large piece of real estate that would take significant marketing to sell and convert to cash.
  • Generational family offices. This is where a group of people from the same family comes together as partners to hire a team of asset management professionals to manage previously created wealth. Many wealthy families created their wealth long ago, and those assets are to be used by family members into perpetuity.
  • Single member family offices (SFOs). These are considered the most exclusive and are created when professionals are hired by one family to manage their assets and those of direct family members.

In 2016, we decided to create an SFO, but that didn’t come without challenges.

The biggest challenges when starting Kaulig Cos. Ltd. were twofold. First, how were we going to handle President and CEO Tim Clepper’s FINRA and SEC licenses? He previously was in the wealth management business and worked with high-net-worth individuals and businesses.

From a legal and compliance perspective, to get our SFO set up properly, he had to put his securities licenses on the shelf for a year before we could start our Registered Investment Advisory business, Ellsworth Advisors. This was necessary to not be conflicted by “selling away” rules from his previous firm as we built businesses and invested in private equity and real estate that were not registered investments.

The second challenge was making sure we had all of our bases covered from an infrastructure perspective. An SFO is provides unbiased financial, accounting and legal advice to one individual or family. For us to get the very best talent, we had to break many professionals out of their prior roles in their previous firms.

Dos and don’ts

Here are some additional dos and don’ts.

  • Do use weekly meetings to trust, verify and review everything.
  • Do demand complete transparency into all of your accounts.
  • Do build a world-class team of advisers that will last for generations.
  • Don’t skimp on building the infrastructure. You need the technology to manage and view everything at all times.
  • Don’t start it if you’re being sold it. There are a lot of moving pieces to consider before you make this big step.
  • Don’t forget to be present. It’s the business of managing your money.
  • Don’t let it be a free ride for family members.
  • Don’t sign any document unless your lawyer says it’s OK to sign.

These tips may seem like common sense, but the world of business is chaotic and it takes a team to win. More often than not, common sense is the best formula for success.

Matt Kaulig is executive chairman of Kaulig Cos. Ltd.