Great is the Enemy of Good - A roadmap for family office operations.

Whenever we speak to family offices about their investment office operations, we often ask for an indication of their priorities or “wish list”.

Unfortunately, there is no perfect solution when it comes to these firms and yet some spend years of analysis, countless product demos with technology providers and a significant amount of network conversations with other families on trying to find the perfect solution with no compromises. In other words, they have let the search for perfection ruin their chances of finding a good solution for now.

Don’t think that compromise is accepting low quality, think of it as an iterative process that requires review and improvement. And even if you found the “perfect” structure, I can almost guarantee that it wouldn’t remain that way forever.

The idea is to break it down by segment, achieve a “good” steady state and improve:

Portfolio Management: Efficiency Over Perfection

Portfolio management systems are central to family office operations. The drive for a flawless system can lead to costly over-engineering. The 'good enough' principle emphasizes using robust and flexible systems that provide accurate, real-time data for decision-making, eschewing the endless customization that often leads to diminishing returns.

Reporting: Clarity Trumps Detail

In reporting, the ideal is comprehensive yet concise (reliable). Some family offices are moving away from the overly complex reports towards a standard that offers clear and actionable insights. They prioritize timely delivery and readability over exhaustive detail, enabling stakeholders to make informed decisions without being overwhelmed.

If you’ve ever received a data dump from a wealth manager Vs a curated report from the families’ internal reporting system, you’ll guess which one the family is more engaged with.

Regulatory Compliance: Streamlined Rather Than Flawless

Regulatory compliance is non-negotiable, yet aiming for a faultless compliance framework can be impractical. Family offices are streamlining compliance processes through technology and clear protocols that ensure effective compliance practices, balancing the need for thoroughness with operational efficiency.

Technology Integration: Compatibility Over Cutting-Edge

For technology, the pursuit of the latest systems can lead to a patchwork of incompatible tools. A 'good' approach is to seek compatibility and interoperability among systems that can seamlessly support operations, rather than chasing the newest tech offerings that may not integrate well with existing platforms.

Risk Management: Prudent Over Perfect

Risk management is about mitigating potential losses, not eliminating risk entirely, which is an impossible task. Family offices now aim for 'good' risk management practices that are prudent and adaptable, rather than perfect but rigid systems that may not withstand real-world stressors.

Investment Due Diligence: Thorough Yet Timely

In due diligence, perfection can mean endless verification and validation, delaying investments. The shift is towards thorough, yet timely due diligence, allowing family offices to act on opportunities swiftly while still maintaining a robust level of scrutiny.

Operational Costs: Balanced Optimization

Cost control in operations is vital, but the lowest cost solution is not always the best. Family offices are balancing cost with value, opting for 'good' services that offer optimal cost-efficiency rather than minimal expenditure, which might compromise service quality or reliability.

Conclusion

The shift towards a 'good' operational approach does not signify a lower standard; rather, it represents a more realistic and agile operational philosophy. Family offices that adopt this mindset understand that in the dynamic investment landscape, flexibility and responsiveness are as crucial as thoroughness and precision. By accepting that 'good' is often more achievable and effective than 'perfect,' family offices can navigate the complexities of investment management with a focus on sustainability and long-term success.

Cheers

Shaun & James

Hall Road Services.