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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a partner at law firm Maurice Turnor Gardner
The inexorable rise in prominence of the family office during my professional life has tested the world of the private client lawyer. The evolution of the family office from a few individuals working in the principal’s business to a fully fledged standalone enterprise reflects the increasing complexity of the lives of successful families. But where does the lawyer sit these days? And how do they avoid falling victim to family office machinations?
Unlimited access to the principal used to be a given for me as the legal adviser. Whatever their status I was accorded the courtesy of private meetings. Now, with these larger, more institutional organisations I have to negotiate with the head of the family office. Meetings and information are controlled by the gatekeeper.
I have variously been told that the reason the head of the family office has been employed is to manage the professional advisers like me. The principal has little interest in what the layperson might describe as the legal “niceties” but what I would consider as fundamental to the shaping of my advice. The principal is exceptionally busy and this aspect of life has been delegated to the family office.
In the case of one family, the access question was flipped. The head of the family office, in response to my lament about access, asked whether — if I were advising a multinational — I would insist on consulting the chair of such a corporation directly on every legal matter. Would I not be satisfied with instructions from the general counsel?
I countered that where the chair was the 100 per cent owner of the enterprise and I was advising on succession to the fortune, I would insist on direct communication. Otherwise how could I be sure that the instructions I received reflected his or her wishes? If access is to be limited, this needs to be agreed from the beginning.
Like clients, the family office comes in many shapes and sizes. The roles can be very different: from exclusively an investment management responsibility, where the focus is on how to deploy the principal’s wealth and manage risk, to a limited concierge service looking after the general day-to-day running of the principal’s life, to a mixture of both. There are also single family offices and multi-family offices.
The first question to establish with the lawyers is who the client is. Is it the principal or the entity or both? There has to be a clear understanding of who is the client and therefore to whom duties are owed. The principal is likely to see the family office as an extension of themselves, blurring the lines between personal and professional representation.
Nowhere is this more important than in the tricky world of identifying what communications attract legal privilege or where it can be inadvertently lost. This is not simply a boring technical detail; it is fundamental to the relationship and needs to be clear from the outset.
One aspect of the relationship with a family office that I have found hard to manage, however strong the protocols and transparent the relationships, is succession in the family office itself. I have been a victim of the political games played by the family office. The principal had fallen out with the head of a family office and recruited a replacement. There had been no question of impropriety — these things happen.
But I was dismayed to discover that the successor had insisted on bringing in his own trusted lawyers, which meant there was no longer a role for me. We had been the architects of the structures, enjoyed what I had thought was a good relationship with the principal (even attended his wedding) but were tainted by association with the predecessor. Sacking felt very unjust!
Strong leadership from the top of the family supported by clear protocols as to the purpose of the family office are key to defining the responsibilities of all of those involved. This is the case as much for members of the family as for those working in the family office or outside service providers. Everyone should understand that the goal is to support the principal (and their successors) and to build relationships on that basis.
Whatever protocols are put in place, who will complain if the principal and the family office choose not to follow them? Ultimately, the lawyer is beholden to the principal and the family office. It is up to the strength of character of the lawyer to make it work, and if trust and confidence are lost, the best advice is to call it a day.