Ep. 31 — Navigating the Intricacies of Family Offices with Thomas Dexter

Welcome to the "Show Me The Way" podcast with David Seitter

In this episode of “Show Me The Way,” Dave sits down with Thomas Dexter, or TD, about his experiences helping individuals create and operate family offices. We discuss the different types of practices, who should consider a family office, and get advice on best management practices.

Ep. 31 — Navigating the Intricacies of Family Offices with Thomas Dexter

The episode begins with an in-depth exploration of the family office industry with seasoned expert, Thomas Dexter, or TD. He explains his diverse background that includes growing up across the United States and leveraging his athletic abilities to gain an MBA from the College of William and Mary.

TD then provides a detailed overview of the family office industry. He shares his experiences of assisting individuals in creating and operating family offices, which involves arranging, handling, and counseling families, as well as dealing with Mergers and Acquisitions.

Thomas explains that a family office is an organization that manages the financial affairs of a family. However, not all family offices are the same. They differ based on investment discipline, structure, and other factors. He points out that a family with $250 million in assets and above would generally be a candidate for establishing a family office.

The reason for this, TD explains, is that the costs associated with running a family office (including staffing and investment fees) can be justified at this level. He notes that smaller family offices might be better off leveraging the resources and infrastructure of outside firms.

The discussion also delves into the criteria that may prompt the establishment of a family office. For instance, a family might establish a family office if they have a large number of children or grandchildren, requiring more intensive administration. Confidentiality concerns might also prompt the establishment of a family office, as bringing all operations in-house can provide an additional layer of identity protection.

Managing a Family Office

TD then delves into the essential aspects of managing a family office. His primary emphasis is on the absolute necessity of having a mission statement and bylaws to ensure the smooth functioning of a family office. He believes that these are crucial in outlining the organization's purpose, goals, and rules of operation, thus providing a clear direction and a set of guidelines to follow.

A key aspect that TD underscores is the pivotal role of the family office manager. This individual needs to be in constant dialogue with family members or trustees to understand their goals, objectives, and risk tolerance. This understanding allows for more accurate planning and decision-making, tailored to the unique needs and expectations of each family member. He points out that a successful manager must foster open dialogues, comprehend the family's objectives, and grasp their risk tolerance.

Furthermore, TD highlights the value of having an investment policy statement. This document outlines the family's investment strategy, providing a roadmap for the family's investment decisions and ensuring consistency in their approach. It provides clarity on risk tolerance, asset allocation, and investment objectives, helping to avoid any misunderstandings or disputes over investment decisions.

Lastly, he underscores the importance of educating the next generation about risk and spending. This not only prepares them for future financial responsibilities but also ensures the long-term sustainability of the family wealth. He also discusses the pros and cons of involving qualified family members in the family office, noting that while this can bring valuable insider perspective and commitment, it can also potentially introduce conflicts of interest or interpersonal tensions.

Objective Arbiters in Conflict Resolution

Given that family offices typically involve multiple generations of a family, there is often an evolution in the dynamics of the family office. TD explains it is thus critical to have these bylaws in place from the outset, providing clear guidelines on how to navigate various issues such as hiring family members, determining criteria for roles and outlining authority chains.

He notes that conflicts are almost inevitable in any family-run business, and it is the same for family offices. TD explains this is why it is crucial to have an objective arbiter who can handle such situations professionally and objectively. The role of an objective arbiter could be filled by a trusted family member, a legal expert, or a third-party mediator.

TD also discusses how to exit a professional who is not living up to expectations in the family office. This process can be quite challenging, especially if the professional in question is a loved one. It is recommended to have a clearly outlined process in the bylaws for s