Key factors to help define your family office success

Danielle Valkner Family Office Leader, PwC US August 19, 2020

How does your family office define success? How do you measure that success? Our recent article, How to Determine if Your Family Office is Successful, generated a lot of discussion around defining — and reporting on — success. Much of what family offices typically report on are really derailers rather than indicators of success. For example, when they don’t go well, things like investment returns, family office cost metrics and tax performance may indicate that the family office somehow failed. On the other hand, when these metrics look good, they are usually expected and not always acknowledged as a success. This is why it’s important to develop a set of key performance indicators (KPIs) to highlight both success measures and derailers, as well as corresponding trends.

What indicates success for the family office? KPIs should be tied to the strategy and goals of the enterprise. Some common attributes to consider include measures of financial results as well as compliance, timeliness, risk and impact. It’s important not to overlook “softer” items that address the family’s legacy, such as maintaining family unity or preparing the next generation for leadership.

Your KPI dashboard might have an annual version with more complete information, plus quarterly or monthly versions that are more focused on quantitative measures. The annual version might contain qualitative sections that don’t fit neatly into a chart or graphic. While your dashboard should naturally be customized to fit the legacy and purpose of your family office, here are key areas to consider as you set up your dashboard. We’ve broken categories into two buckets, financial and nonfinancial, and included relevant subcategories in each one. We think this is a good starting point to help provide meaningful reporting to the family and key advisers.

Financial KPIs

Profitability

  • Revenue and expense metrics
  • Investment performance, trends and attribution

Activity

  • Tax planning and compliance efforts
  • Compliance with asset allocation and risk measures

Liquidity

  • Working capital
  • Liquidity metrics

Solvency

  • Leverage
  • Debt covenant compliance
  • Current ratio (current assets/current liabilities)

Non-financial KPIs

Family goals and expectations

  • Family Legacy
  • Strategic planning
    • Development and ongoing activity around the long-term strategic plan
    • Progress toward the key initiatives in the plan

Learning and Growth

Enterprise risk management

  • Risk planning and control update, including policy review/approval and testing results (for example, cyber penetration tests)
  • Disaster preparedness, including policy review/approval and testing results
  • Incident tracker - breaches/events including compliance, cyber, fraud etc
  • Insurance coverage and other mitigation

Process

  • Controls implemented, testing results
  • Service level agreements (SLAs), for example, milestones and timeliness
  • Technology and automation update (for example, processes that have been automated)

This is not an exhaustive list and not all will apply to your organization. Your office may have additional sections or measures to include. The key is to determine the items most relevant to your family organization. It also is important to consider data quality and the costs and benefits of compiling and reporting on this information.

We’d love to hear from you: What metrics do you find most thought-provoking and meaningful, and what additional items do you want to report on?

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Danielle Valkner

Danielle Valkner

Family Office Leader, PwC US

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