September 2019

Do You Need a Family CFO?

Author: Joel Goodman, CFA

As you accumulate significant wealth, your financial world becomes increasingly complex. Your wealth may include not only stocks and bonds, but also private equity investments, real estate and perhaps a family business. Your estate plan may be complicated as well and may include a private foundation.
At some point, high-net-worth individuals may find their attention shifting from earning money to growing and protecting it for future generations. Quite often, this type of financial management requires different skills than what is required to create wealth.

A family with significant wealth often resembles a business. If you’re a businessperson, you’re no doubt familiar with the important role of the CFO, or chief financial officer. As a C-suite executive and a trusted advisor to the CEO, the CFO is in charge of steering the overall financial ship to help the company achieve its goals. This person analyzes financial data, monitors revenue and expenses, maintains relationships with banks and other financial institutions, and helps to ensure the organization is financially healthy.

Family CFOs are similar to corporate CFOs in many ways. They organize and interpret financial information to help families make decisions. They also analyze revenues and expenses, although the character of the balance sheet and the income statements for a high-net-worth family is different than for a corporation. For example, the family CFO typically forecasts income generated by investments and can help a family decide how and when to sell assets to meet various needs. Like their corporate counterparts, family CFOs look at overall financial health, making recommendations on how to best use the assets to sustain the family’s lifestyle and legacy.

Family CFOs are relied upon for several primary functions. They often perform administrative, transaction-oriented duties such as bill paying and recordkeeping. They can also help modify and modernize financial tasks, such as automating estimated tax payments.

More important, the family CFO brings strong analytical tools to the table, providing intellectual horsepower to tackle complex financial issues. This person is often directly involved in investment management, helping the family understand how different investments impact their overall financial picture, including alternative asset classes such as private equity, real estate and hedge funds. If a family owns a small business, they may have a significant portion of their net worth tied up in that business and may wish to explore monetizing that asset. Or they may have other illiquid assets such as real estate. Because the family CFO is looking at family financials from the broadest vantage point, this person can help the family think through and plan how its overall asset mix and balance sheet may need to change over time.

Family CFOs are also part counselor and advisor. They walk the line between knowing the family’s intricate details while also staying objective. In this role, they can help align family members on competing financial goals, lending an ear and providing support when needed, helping to keep families from making poor financial decisions.

It’s important to choose a family CFO that is held to a fiduciary standard, meaning he or she is accountable for acting in the family’s best interests in all matters. A family CFO should draw upon a team of professionals such as attorneys, CPAs, financial planners and investment advisors, as needed. A strong family CFO also manages a robust technology infrastructure to support this effort, which includes portfolio management tools, reporting systems, and the appropriate research and resources to advise on the vast array of problems for which a CFO needs to provide solutions.

The best family CFOs are those with financial skills and knowledge, and experience serving as a family CFO. It’s advantageous if they also have experience working intergenerationally with a family, because that will help them understand your family’s values and the motivations of the various individuals within the family.

Apart from smarts and skills, emotional intelligence is probably the most important attribute a family CFO needs. What sets great CFOs apart from the good ones is that they really know how to work with family members, building trust while also providing high-level recommendations and advice. The family component is the critical aspect of the role. Because at the end of the day, it’s all about the family and how the family members want to use their wealth to support their own personal missions and provide for generations to come. 

Joel Goodman, CFA, is the chief investment officer at The Fiduciary Group in Savannah and Bluffton. He can be reached at (912) 447-6884 or joel@tfginvest.com.

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