For many business families, a family office takes shape before anyone calls it one. Dividends accumulate, a division is sold and the family holding company builds a portfolio beyond its stake in the operating business. Eventually, that wealth requires its own resources, people and decisions.
Pontegadea offers a well-known example. Created in 2001 to reinvest dividends from Amancio Ortega’s stake in Inditex, it has since acquired more than 200 properties across 13 countries.
While few families operate at that scale, the underlying shift is familiar: wealth generated by the business becomes an undertaking of its own.
The natural question is whether to establish a family office. Discussions often turn immediately to cost, staffing and asset allocation. Those choices matter, but the family first needs to agree on how it will own and govern the wealth.
Two recent global surveys, by Citi Wealth and UBS, point to a misalignment between investment and governance. According to their findings, family offices tend to develop their investment processes further than their family governance and succession planning.
The operating company may have a board, reporting lines and established decision rules, but the wealth held outside it needs its own framework.
Whether the family manages that wealth through a company executive, a dedicated office or external professionals, it must decide who has authority, how differing interests will be addressed and how managers will be held accountable.
Three questions to answer before establishing a family office
A practitioner-informed study in Family Business Review supports this view, ranking clear governance, preparation of the next generation and agreement on the purpose of wealth as the leading factors of success in running a family office.
In parallel, it suggests three questions to ponder before deciding how to structure the family office:
1 – Who decides what?
Within the business, owners can rely on a board, a budget process, a shareholders’ agreement and a management team, but these systems do not automatically extend to assets held outside the company.
Ownership still requires work, however, from setting direction to determining acceptable levels of risk and defining what success looks like.
Many offices have structured investment processes. Around 85 percent of European family offices have an investment committee, and nearly all formally measure performance.
Fewer than half have board-level oversight or a family council, while only about a third have a succession plan for the office itself. In some cases, the criteria for investment decisions are more clearly defined than the owners’ decision rights.
A good place to start is with the decisions most likely to cause friction:
Who approves distributions?
Who can modify the investment mandate?
Which matters are for family members to decide, and which fall to professionals?
How will disagreements between branches be resolved?
A written distribution policy can set expectations before a request for funds turns into a dispute, while an investment policy statement can give managers a clear mandate and owners a basis for reviewing their decisions.
Neither has to be elaborate, but both need to spell out what the family has agreed to, who can grant exceptions and how the policy may be amended.
2 – How will the next generation develop into capable owners?
Owner families often dedicate considerable resources to preparing successors for the business, sometimes requiring them to gain experience outside the firm, rotate through different business areas or spend time observing the board.
Preparation for owning financial assets deserves the same attention, since someone can learn how to run a business unit without acquiring the skills to assess an investment proposal or challenge an adviser.
Next-generation members may need to evaluate advice, weigh competing needs, make collective decisions and oversee people who manage wealth on their behalf.
The work can begin before a formal office exists. A younger family member might observe an investment committee, help oversee a modest portfolio or lead a philanthropic project with a real budget and regular reporting.
The aim is to build responsibility gradually, with feedback along the way. At the same time, the family should set out clear criteria for joining its governing bodies so the path is visible to everyone.
3 – What is the wealth for?
An operating business often gives family members a shared sense of purpose, but once substantial wealth sits outside it, that purpose may be less obvious.
Will the wealth serve mainly as a safety net, a source of income, capital for future ventures, a vehicle for philanthropy or an endowment for later generations? A family may want to pursue some or all of these avenues, but it still has to decide how to balance them.
Without that clarity, a disagreement that seems to be about portfolio returns may really be about whether the family should spend, preserve or deploy its capital.
Owner families place great importance on their socioemotional wealth, such as the identity, influence, reputation and continuity they derive from their companies.
While a shared business can promote these intangible benefits, a shared investment portfolio alone may fall short of holding relatives together as owners.
Wealth held outside the business calls for deliberate efforts to sustain cooperation among family members. Before deciding what kind of family office to build, families may want to first ask whether they are ready to govern what they own.
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