How Family Offices Last an Interview with Kirby Rosplock, PhD

By Lee Hoverd

Understanding the dynamics of enterprising families — the largely invisible forces that drive their success across generations — is part of Kirby Rosplock's DNA. As an author, consultant and the Founder of Tamarind Partners, a family office consultancy firm, her passion for sharing knowledge with the family office community is informed by her family’s rich business history.

As a member of a successful entrepreneurial family whose business activities date back to 1887, Kirby Rosplock learned about family wealth basics in the board room and the dining room. She compiled and shared those valuable insights in her seminal books, The Complete Family Office Handbook, 1^st and 2^nd Edition, and continues to advise and educate on the family wealth landscape through her consulting, teaching and speaking engagements. Her experiences have given her a unique perspective on the importance of communal harmony, which starts with an understanding of what it means to be part of something much bigger than any one individual.

We spoke with Kirby Rosplock about the ever-changing family office space, and how it's influenced by the next generation of wealth holders and disruptive forces such as technology, climate change and the COVID-19 pandemic.

What inspired you to focus your practice on the family office field?

My decision to work with family offices is rooted in my family’s history. I was born into a very complex enterprising family involved in the timber industry. The company was founded in Pittsburgh by my great grandfather, Edward Vose Babcock and his brothers in 1887.

That business operated for nearly 120 years, with hardwood lumber and timber activities that stretched from upstate New York to Miami and across the US into Georgia, Alabama and Ohio. My father was deeply involved in many of the enterprise's complicated partnerships and entities, and I also maintained a connection to our family’s business interests as a shareholder. As a beneficial owner, I would attend shareholder meetings and involve myself in the way that responsible family owners typically do.

Then in my 30s, I was working on the first edition of my book when my mother and father nominated me to sit on the Board of Directors for our parent company. I was by far the youngest board member, and it was my first real direct involvement as an active board member in our family business.

Being a board member helped me gain perspective on the breadth of this role, along with the power and influence that comes with such an opportunity. But it also taught me about the governance and protocols that are attached to business and wealth ownership; being a beneficial owner, a board member, a shareholder and what it means to be a steward of something that is multigenerational and much bigger than myself or any individual.

I also witnessed the shift — one that I did not start but became a part of — in our family enterprise from a more paternal leadership structure to one where women were included and involved as my aunt also joined the board at the same time. And I believe our transition, along with changes generationally, is mirrored on the global stage as the family office landscape is in a major transition. It’s a process that often involves challenging discussions, decisions and hurdles for families. I’m fortunate enough to have first-hand experience with these discussions along with direct experience with many family office clients.

Part of my mission is to empower others by sharing my personal and professional experiences.

How do the dynamics differ between families that run a business and families that manage a family office?

When the core assets of a family are tied up in investments, such as a closely held business, and are not easily made liquid, the focus of those various family members coalesces. They tend to organise in the same direction, and their dynamics are more streamlined because they are all pulling in the same direction.

Decisions that are tied to money may have different dynamics in a family. For example, unhappy stakeholders within a business-owning family may vent their frustrations but may have few opportunities to extricate themselves from the business. But when liquidity becomes more of a driver, like in a family that has just sold its business, family members must have a clear sense of purpose on why they desire to invest and stay together. And at that point, it begs the question whether the family business should continue to oversee the family’s investment focus or if a separate family office is needed.

As the family’s wealth demands grow, creating a new entity in the form of a family office with a specific mission and a curated wealth strategy becomes more prudent. Even for families that keep the duality of running a business and operating a family office, the structures put in place on the investment side can once again streamline the dynamics, similar to how they were before liquidity entered the picture.

How has the family office space changed over your career?

The history of family offices dates all the way back to the crusades in Europe and the dynasties of Asia. However, the majority of family offices as we know them today have only emerged in the last 20 years (though there are several notable exceptions). To visualise this proliferation, if you look at ten family offices globally, about four of those will have been formed in the last decade.

When we think about the growth of wealth historically, we’ve seen a massive rise in affluence just in the last two decades. As a result, the contemporary family office is talked about more than ever, and that’s in large part because of commercial entities co-opting the language as part of their service offerings. There’s nothing sinister about that, it’s just they see the opportunity to serve the affluent in that capacity.

The family office as we know it today has changed considerably since the 80s and 90s, specifically because of technology — especially AI, information exchange and new currency options. For example, 20 years ago, we didn’t have Bitcoin; we didn’t have any cryptocurrencies, for that matter. Furthermore, we didn’t have the global wealth fluidity of exchange across markets, countries and institutions.

Moreover, the average family office has professionalised considerably compared to 20 years ago. Historically, family offices have been more clandestine, tending to stick to smaller, more parochial circles. There are still some family offices who keep a very low profile and prefer to keep operations more simplified — relying on spreadsheets and minimal staff. But more and more, those family offices are facing the hurdles of virtual work environments due to the pandemic. They are rethinking their risk management protocols, human resourcing and staffing.

Family offices have, for better or worse, a certain mystique due to the secrecy of their operations. Is this new wave of family offices more transparent than their predecessors?

The answer is yes and no. There’s a lot more networking than ever before, even ten years ago; however, family offices themselves are even more veiled. Oftentimes, if you visit a family office’s website, it’s difficult to tell if it is a family office or an investment shop; you may never see identifiers indicating its principals or the owners behind it.

So, there’s still a very real need to create a barrier and bifurcation between these owners, their assets, their wealth, their invested interests and the rest of the world. I do think families want to connect more to their peers versus providers, hence why they are also much more guarded.

We are in an era defined by uncertainty. How does this uncertainty manifest itself in family offices around the world?

In a strange way, family offices have provided a grounding point for families during these extraordinary times. They’re the backstop — a constant in a time of turmoil. Family offices are there to provide reinforcement and reassurance that a family’s assets are invested with proper protection. A lot of family offices have gone through a streamlining process. As a function of COVID-19, they had to get more efficient and look at risk controls differently.

They’ve had to overcome physical limitations with Google Teams, Zoom and GoToMeeting. Communication technology has enhanced their ability to operate at a distance. So, strangely, the family office has been more front and centre for a lot of families because it gives them greater confidence that they'll get through this crisis.

The family office was intended to help families ride out disruptions such as the one we're dealing with now. For the most part, owners don’t think about their family office when everything is good, especially if they’re making money and life is great. But now, family offices are stepping up to help families get through the confusion, the consternation and the fear. We don’t really know how COVID-19 will impact the global economy in the long-term, but we know it will; right now, a new reality is being written as we speak. We’re never going to go back to how the world was before the pandemic, and frankly, I think it’s a time of innovation, expansion and opportunity.

We're also in the midst of the greatest generational transference of wealth that has ever happened. How might the rise of next-gens change the family office space?

One powerful trend that we're seeing with regard to wealth transference today is a shift away from the primogeniture model of succession that has been the norm for centuries. Daughters and sons inheriting equally is a phenomenon that is more predominant in the West, but it has evolved globally, becoming common elsewhere now as well.

An interesting twist comes from the fact that women typically outlive men. As a result, many wives will have the final say on the impact of the wealth transferred to their children. It’s an important development because my research has shown that women are more charitably inclined than men. It implies that there is a shift coming — a dramatic deviation from the old guard perspective of making charity dependant on the amount of wealth created. Let’s also not discount the fact that there are more women wealth-creators now than ever before, which opens more doorways too.

Many in the next generation have a different view. They believe in a multi-pronged approach to investing where philanthropy or impact investing is equally important to everything else in their portfolio.

For them, purpose, people, the planet and profits share the bottom line. Through the lens of climate catastrophes, social injustice and political instability across the entire planet, the next generation has seen where the decisions made by previous generations have led them, and they want to chart a new course. Because social media is now the lens to the world’s problems, they are more inspired to do good at the same time as doing well financially with their investing.

Do you see the shift in wealth concentration extending beyond gender to racial divides too?

I think technology has levelled the playing field somewhat for everyone. Recently, I spoke with an African American entrepreneur who is extraordinarily successful in the e-commerce and technology space. He worked for family offices and then branched out.

Now, he created his own personal wealth and has his own family office among other businesses. But even though there are opportunities, there is still the historical fact that wealth begets wealth. It’s much harder to come from nothing and create something than to come from something and make something else.

Serial entrepreneurs rarely get it right the first time, and those who come from means have the luxury of taking many more chances. There's a lot more work that needs to be done, but there are more entrepreneurs from visible minorities finding ways to become successful than ever before.

How can family office members use education as a tool to support multigenerational continuity?

Because many of the family members in multigenerational family offices didn’t necessarily have a hand in creating the family’s wealth, they are sometimes not aware of what it entails. Education is a key component in financial parenting, where children learn how to save, spend, budget and be charitable. But when those generations far removed from the founders emerge as adults, it becomes increasingly difficult for family offices and family members to know how to groom them — to instil competence and confidence around the meaning of stewardship.

What does it mean to be a good beneficiary? How does one support and work with their trustee to be efficient and effective with their trust? There are tax matters, investing considerations, compliance needs and administration skills among others that must be built-in with education.

Still, we see a real gap in the adult side of that education. That's why we created a platform allowing family members, fiduciaries and advisors to learn at a distance because we didn’t have the luxury of meeting in person. We couldn’t provide one-on-one mentoring to family members, and we desperately needed a private, secure and self-paced environment where family members could consume bite-sized learning that was interactive, innovative, interesting, engaging and, most importantly, practical.

What would you say to families who are just starting their journey as a family office?

It’s important to go slow — it may seem counterintuitive, but rushing the process of setting up structures and trying to put everything together quickly does not foster long-term success.

I always tell families to step back and become cognisant of what they need and what they’re trying to achieve for their family. They shouldn’t hesitate to work with a third-party consultant or advisor who can call them out if the reality doesn’t match what they want for them.

Firstly, they need to figure out if a family office is something that’s actually going to work for their family. Then, it’s important to build it out like a true business, and not try to bootstrap it in a way that compromises its ability to function in the future.

Many families make the mistake of simply pulling people over from their operating companies and choosing to keep their investment segment housed inside their main business until they feel they have more resources or time. This methodology can be harmful for a number of reasons, including conflict of interest, employees having too many hats, confusion surrounding the supervisory structure and the lack of a defined service offering.

It’s key that families start the process of establishing their family office right. Nobody would jump in the cockpit of a plane just because they read the manual. Likewise, families should go slow, figure out what they need, build out the strategic plan, develop the budget, then chart the course that will get them to where they want to go.

Link to original story Kirby Rosplock: How Family Offices Last - Tharawat Magazine