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New Trends in the Family Office Landscape An Interview with Daniel Goldstein

Posted by Dr. Kirby Rosplock on 5 October 2015

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In this week’s blog, I interview family office expert, Daniel Goldstein, who has been advising UHNW families across Europe and the United States on their liquid investments, businesses, structuring, direct real estate investments, family dynamics, yachts, concierge services and philanthropy since 1994.

Tell us about your background.

For 15 years, I was director of a global Single Family Office principally located in Europe and with activities ranging across Europe, the US, Africa and India. Before, that I was the investment analyst on a two-person team managing a $1.25B portfolio for a US family foundation. I have spoken at and Chaired numerous family office, investment, family business and philanthropy events around the world, and I am a founding Board member of several international non-profit organizations.

Before I entered the family office field, I worked in finance in both the private and public sectors in the US. I graduated from Colgate University and earned two Master’s degrees, an MBA in Finance and an MS in Science and Technology Studies, both with honors.

I’m also an avid outdoorsman and enjoy scuba diving and underwater photography, sailing, snowboarding, competitive canoeing and trekking in any season. I’m a citizen of the US, UK and Italy and is fluent in Italian with English as his mother tongue.

What one or two trends do you see in the family office marketplace that you think will positively impact family office sustainability or longevity?

Two trends that I see in many family offices, and that are often inter-related, are the desire to do more direct deals and the desire to deploy capital with greater coherence to family values. 

The direct deal focus comes from a number of motivations. Many family members want to be active investors because they have lost faith in financial intermediaries, because they have lowered expectations for returns from public market investments, because they want to utilize their skills and networks to continue creating profitable enterprises, and because it is much more fun than simply “getting a job!”  Doing direct deals may positively impact family office sustainability and longevity by making families more proactive participants in and determinants of their continued existence. Placing all investment decisions into the hands of third party managers could cause a sort of learned helplessness, distancing principals from ownership and decision making that, I believe, could be detrimental in the long term for the continued existence of a family, particularly regarding the passage of stewardship skills from one generation to another.

That being said, it is not such a simple task to effectively carry out a direct deal strategy and there is still, in any case, an important role for old school portfolio management for some of a family’s liquid wealth.  Not every family has the skills and access to source deals, do the due diligence, structure terms, execute and harvest, and have the discipline to write off deals that should be put out of their misery.  Also, there is a difference between doing a few small deals and allocating a meaningful portion of net worth to deals so that successes will significantly increase net worth.

The other trend is that families, often led by the next generations, are looking to achieve greater coherence in deploying their capital along the entire spectrum from direct deals and financial investments to philanthropic funding and lifestyle expenditures. The intersection between values alignment and direct deals is often seen in the area of impact investments that seek to create both financial and other gains--including meeting unmet societal needs, encouraging use of renewable energies, adapting to biological and sustainable agriculture, and a great variety of other environmental and societal gains. This trend is also seen in more effective and metrics based philanthropic funding that moves away from dependency based giving to sustainable and capacity based philanthropic investments.

The greater attention to deploying capital in coherence with family values will also positively impact family office sustainability and longevity because it will create greater affinity in a family’s ecosystem, even as that family increases in size and geographic dispersion.

Why do you think so many family offices fail at succession planning? Is it the old adage, "if you fail to plan, you plan to fail"?

Almost nobody wants to face their mortality, nor the lessening of their abilities or importance.  Succession planning, viewed from one vantage point, is the planning for when you are no longer there or relevant. That can be a distasteful subject that calls into question a person’s own introspective consideration of what their entire life philosophy or raison d’etre is and what it will be as they continue living through and on the back end of a succession plan.  If a greater importance were given to changing succession planning’s emphasis to that of how to create a lasting positive change for heirs and, specifically to create, celebrate and facilitate that change during a person’s life time, then there would probably be greater enthusiasm to participate in succession planning as a lifetime achievement.

I do believe that there is some greater planning that has occurred around this because of the need for efficiencies in trust and estate planning to maximize tax advantages.  There is still a gap, though, between what is structural planning and what is intentional or non-legal, non-investment planning.  The most efficient trust and estate plan does not necessarily address emotional issues nor how the transfer of wealth and control of assets, companies, philanthropy, and family leadership will affect beneficiaries’ lives.

Every 25-40 years there is a change of generation that will most likely bring significant change in attitudes, abilities, objectives as each generation has children, those children grow, and those children demand or are passed some role in the family enterprise oversight.  Even within each generation’s tenure there will be need for adaptation due to economic changes, technology changes, and changes in family fortune (financial or otherwise). This is all to say that a family’s plan, and therefore a family office’s plan, is one that must be in continuous review and adaptation.  Succession is really a continued process of micro-successions through market, family and other changes that culminates in the larger succession caused by a departure (whether by death, illness, divorce or other).

What do you think are the core capabilities of the family office executive of tomorrow?

The core capabilities of the family office executive of tomorrow are those of the family executive of today. Each family’s needs are going to differ so there is not one size fits all for every family office.  There are some general guidelines that most families can follow once they have clearly identified their needs.

First, is prior family office experience.  Fifteen years ago, not much was known about best practice among family offices.  Most families employed a trusted advisor or long time employee from a family owned operating business to run their family office.  A successful advisor or employee does not necessarily, or usually in my opinion, make a successful family office leader.  Unless the family office has very restricted parameters to operate in a narrow field (e.g., a captive investment management function) then the family office leader is going to need a wide range of experiences with deep contacts and knowledge in many of those areas.  A trusted accountant or attorney will excel in accounting and legal roles but have little relevance to other areas: family governance, philanthropic mission, structuring next generation involvement, cross border business structuring, etc.  There are family office leaders with specific family office experience who bring their experience, their networks and their insight from working with other families, to benefit the current family office relying on their leadership.

Second, is adaptability. Families are not corporations. Families are influenced by emotions, intellect, long term planning, short term changes, generational changes, marital changes, changes in net worth, and much more.  It is important to develop governance and process. It is equally important to be ready to roll with unending waves of change and adapts to serve the family as their circumstances change.

Perhaps most of all, is integrity. A family office leader is entrusted with information and decision making that is personal and goes much more deeply than simple business decisions.  Their integrity may be tested at times by those surrounding the family or by family members themselves. A family office leader must also have the foresight to understand that their own personal legacy is not a part of their employer family’s legacy, no matter how long term their tenure with the family office. For a variety of reasons, there may come a time when it is better for the executive to walk away from the family office to preserve their own personal integrity.

Lastly, a successful family leader will build systems, process and staffing that allows for their own succession. Non-family executive leadership succession is as important to the family’s continuity as is family succession planning.

What will differentiate in your mind the family offices that thrive for more than three generations?

A family office that thrives for more than three generations must survive several factors.  Of course, there must be a continued financial capital basis that merits the continued shared family identity.  All of us are 3rd, 10th and 30th generation but creation of great wealth usually also created documents (corporate charters, title deeds, philanthropy mission, etc.) that add to the ability of maintaining a greater shared family identity.  Without great wealth and without the accompanying shared structures, there is often little that helps maintain efforts to preserve a greater shared family identity.  That is why most non-UHNW would never introduce themselves as 3rd or 7th generation.

If the capital basis remains, then there needs to be intentional creation of, preservation of, and interaction with, a shared family mission.  Geographic mobility can be countered by technologically facilitated communication but there still needs to be an underlying purpose that keeps expanding families, perhaps ever more dispersed geographically and ideologically, to find reason and satisfaction in continuing to identify as a family.  For some families, this may be entirely social, gathering together cousins and generations at family retreats and meetings.  For some families, it may be jointly held assets or investments made together.  For some families, it may be a family foundation.  For some families, it may be an estate that has shared privileges of use.  There is no one model that fits all and most likely there will be elements of all these that help define family identity.

In short, the defining elements that will help families thrive for three or more generations will be good governance, good communication and adapting to the needs and changes of the family so that the family finds purpose and value to continue identifying as a family.

Here’s a fun closing question. If you could be any animal, what animal would you be and why?

This is easy--an otter! Otters have fascinated me since I first saw them at a zoo. Otters are playful animals but are also extremely intelligent. They are one of the few animals that use tools in their daily life, using stones to open shellfish. And what is there not to love about a daily diet that is essentially sushi?! Otters are very active in their play and food gathering but they also know how to enjoy a good rest, sunning themselves on the rocks or rolling in the waves. Otters are also very cute and often can be seen cuddling with other otters. Perhaps I could be an otter entrepreneur and work on some personal hygiene products to just get them to smell a little better…!

 Daniel Goldstein

Family office advisor, Daniel Goldstein.