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Panel Detail:

Monday, April 23, 2007
3:25 PM - 4:40 PM

The Family Office: Tackling the Challenges of Conducting Business in a Global Economy

Moderator:

Timothy Lappen, Founder and Chairman, Family Office Group, Jeffer, Mangels, Butler & Marmaro LLP

Linda Bourn, left, moderator Timothy Lappen and Katie Kalvoda were among those discussing the challenges in running a family office, including many issues that go beyond just caring for portfolios.

"A family office is seen as a concierge solving all kinds of issues, from travel needs to private-equity decisions for families with more than $200 million in investable assets," noted moderator Timothy Lappen of the Family Office Group. Outsourced or in-house, a family office needs to address and mitigate all risks that the family members face.

"The most important factor for a family is wealth preservation, more than their asset growth," said Pierre Rolin Strategic Real Estate Advisors. However, the biggest risk in reality is continuity. "There needs to be a continuity plan," noted Linda Bourn of Marsh Inc., "in case anything happens to the family members." The biggest component of continuity is security. Douglas Kane noted that "just being out there, family members have an inherent risk." The family office needs to have up-to-standard security protocols incorporating changes in lifestyle that can avoid family disasters, such as kidnappings and/or robberies. People management (i.e., hiring and firing of service people, investment professionals and others) and a clear understanding of the family's wealth (i.e., the management of their art collection) are crucial factors in mitigating these risks, according to Bourn.

Insurance is not the ultimate solution for global families, but proactive management is, said Kane. "Education is required on the front end. Kidnappings and robberies are not a random act." For example, families put a lot of effort on security when flying private to another country, but they never consider who takes care of their plane when they are on the ground or to keep their flight plans confidential, putting them in a high-risk situation. "If you give the information out, there is no point of a security system," warned Kane, referring to the importance of managing the people and staff around the family. Background checks are the best way to begin.

Computers are also a big threat for high-net-worth companies. Rolin recommended that individuals increase face-to-face meetings, adding that "the less you write, the better." Code names for family members and family plans should also be the norm.

Another risk is "headline risk," which can come through either intentional or unintentional acts. "Confidentiality with the people that surround the family is crucial to avoid headline risk," said Katie Kalvoda of Newport Wealth Management. The liability is enormous, she added, saying that "everybody views you as a very deep pocket." She also said, "The Golden Rule of the family office should always be: never embarrass the company"

However, as people invest money globally, due diligence in other countries becomes complicated. Rolin suggested maintaining association with only blue-chip partners in foreign markets. "You can't create the same due diligence process in Shanghai or Vietnam." The family office needs to understand that in other markets you are no longer with "country club family and friends."

Families going abroad require a partner with a track record in the territory and with the ability to keep the same investment pace. "Partner up with someone who would go bankrupt if your project doesn′t work," suggested Kalvoda. "Start small -- don't go in big-bang," added Kane. Hiring a local staff and/or people with in-country experience is always a good idea.

Transparency also plays an important role in investment. As a family office, "you should always compare your protocols with other investment institutions and maintain a daily communication with your portfolio managers," said Kalvoda. In this area, more than in any other, background checks should be the norm, up to the fifth level of contact.

The panelists agreed on the important role the family office plays in defending the family's name and mitigating the real-world daily issues that all family members face. An infrastructure needs to be developed for a net-worth family to live in today's world, not only in their native country, but around the World, where they travel and do business.

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