Building a Sustainable, Effective Governance Framework
By Helen Rexwinkel, Director and Cameron Dogan, Senior Associate
Key Takeaways
1. Establish a structured governance framework to support long-term family office sustainability.
Without defined oversight, family offices may face inefficiencies, excessive fees and poor succession planning. A well-structured governance approach helps align strategy with long-term goals.
2. Focus on five core governance pillars to help safeguard wealth and improve decision-making.
Addressing fee transparency, advisor accountability and operational risks through clear roles and processes can strengthen oversight and enhance governance outcomes.
3. Work with advisory partners who bring tailored insight and integrated services.
Advisors with relevant governance experience, global capabilities and customized solutions can help family offices navigate complexity and adapt to evolving strategies and compliance needs.
Family offices oversee investment portfolios that often rival those of institutional investors in size and complexity. Strong investment performance, of course, is key. But it is only part of the story.
While the vast majority of institutional investors operate under rigorous governance frameworks, family offices often lack the same structured oversight, which can have undesirable consequences. A sustainable governance framework is essential for supporting the missions of family offices, enabling effective decision-making and safeguarding members and beneficiaries now and in the future.
Where to Focus and Why it Matters
For family offices, long-term success is often shaped by how well governance and operational risks are managed. Without thoughtful attention, specific issues can undermine effectiveness, eroding wealth, trust and long-term purpose. Areas that frequently present challenges include:
- Excessive fees and lack of cost transparency.
- Unchecked accountability across advisors and service providers.
- Operational risks and inefficiencies, including valuations and cybersecurity threats, compliance gaps and liquidity mismatches.
- Inadequate succession planning and leadership.
Proactively and intentionally managing risks such as these helps ensure that the organization continues to align with its purpose, exploiting new opportunities and remaining focused on sustaining the family’s vision and legacy.
The Five Pillars of an Effective Governance Framework
Strong governance is vital for navigating risk within a clear, yet adaptable, framework that can evolve in response to internal dynamics and external influences. To build such a framework, family offices must focus on the following areas:
- Fee Transparency and Cost Oversight
A firm grasp of the layers of fees providers charge is key to discerning whether these costs are creating a drag on financial performance. A thorough analysis of the investment portfolio should be undertaken to identify and assess the advisory fees, fund fees and operational expenses charged. Fees should be fair and commensurate with the service provided. Regular benchmarking and independent reviews can help ensure fees are understood, justified and competitive.
- Advisor Accountability and Performance Measurement
Providers should be accountable for the services they deliver. Clear performance metrics along with transparent and regular reporting are critical to supporting investment performance and the organization’s strategy. Often, an objective, independent evaluation can help ensure that advisors are acting in the best interests of the family.
- Operational Risk Management
Governance should extend beyond investments to operational risks, including valuation, liquidity management, cybersecurity, regulatory compliance and internal controls. Without proactive risk management, family offices may be exposed to inaccurate valuations, fraud and data breaches with potentially damaging financial and reputational consequences and legal liabilities.
- Conflict of Interest Management
Family offices often work with a range of service providers, some of whom may have overlapping relationships or financial incentives. Effective governance requires service providers’ interests remain aligned to yours, implementing policies that are both thorough and pragmatic to help ensure decisions remain objective and in the best interest of your organization.
- Governance Structure and Decision-Making Framework
Institutional investors rely on investment committees and structured governance processes to oversee portfolio decisions. Family offices should seek to adopt a similar approach through formalized decision-making frameworks that establish clear roles, responsibilities and accountability to help ensure the right people work together to make the right decisions.
The Challenge and the Solution
These five pillars are essential to every family office seeking long-term growth and sustainability. As investment portfolios grow in complexity and size, the need to sufficiently oversee the associated risks must be addressed. Doing so requires a clear, structured framework supported by both internal commitment and the right external advisors.
When evaluating advisory firms, family offices should consider whether a prospective partner offers:
- Deep, relevant experience with governance and operational oversight.
- A long track record of working with family offices across varying stages of development.
- Direct involvement from senior professionals who understand the unique dynamics of these organizations.
- Global reach to support internationally active families.
- Integrated tax, assurance and advisory services.
- A technology-enabled approach that improves efficiency and delivers meaningful insights.
- Customizable strategies that adapt to evolving mission, investment objectives and regulatory landscapes.
These are the qualities we bring together at PKF O’Connor Davies through a collaborative model designed to support the evolving needs of family offices, today and over the long term.
Contact Us
With the proper support, today’s family offices are well positioned to optimize time and resources, mitigate risk, expand family engagement and drive growth and sustainability. To learn more about how to implement or enhance governance practices for family offices, please contact:
Michael Stellwagen
Partner
mstellwagen@pkfod.com | 914.421.5654
Helen Rexwinkel
Director
hrexwinkel@pkfod.com | 203.705.4143
Cameron Dogan
Senior Associate
cdogan@pkfod.com | 212.286.2600