Families may come to wealth through entrepreneurship, inheritance, or in other ways, but the management of that wealth presents universal challenges. In particular, the skills that created the wealth may not be the same skills needed to invest it wisely. With Building a Legacy: Family Office Wealth Management, Harvard Business School professor Lauren Cohen offers a comprehensive program designed specifically for high net worth families aiming to effectively manage their assets. We sat down with him to better understand how this program helps families make smarter investment decisions and leave a legacy for future generations.
What inspired you to develop this program?
In our other programs related to investments, I have encountered an increasing number of individuals focused on family offices. It used to be that if you had $50 million, you'd stick with a traditional financial advisor. Now, we see more people with $50 million starting family offices. As we talked with these individuals, we realized they had different degrees of preparation for building and managing a successful family office. We created this program specifically for this group.
Why do family offices have a difficult time managing their investments?
Because of self-attribution bias, talented people often assume that since they've been successful in one area, they can apply their knowledge and skill to investing. In other words, we've seen a lot of overconfidence in investing. One of the aims of this program is to provide that expertise.
How would you summarize the program's key takeaways?
We're helping participants think through important questions: Why do we want this family office? How do we start up the family office? Who should we hire? What are our goals? Do we want philanthropy? And of course: What should we invest in?
The program addresses family offices of different sizes, comprising one or more families; family offices of different ages, industries, and geographies; and families that have come to wealth in different ways. They are all driven by the same issue: What do we do with our money? Through our curriculum and lively discussion of challenges and insights with other families, participants come to understand current and emerging best practices in family office management.
Who would benefit most from this program?
This program is designed for individuals who are directly involved in creating or managing a family office today as well as those who don’t yet have a family office but are considering creating one. We use the term "family office" broadly to represent the central management of family money; whether or not the family has an actual physical office, someone is making decisions. Ideally, the person with the wealth and their trusted advisor both attend the program. Professional money managers would not benefit from this program unless they are already working directly with families.
How is the program structured?
Participants do everything as a group—live together through the experience and work on problems in small learning groups and in the classroom. We cover a broad range of topics, such as family office goals and structure, ways to balance spending and investing, succession planning, modern portfolio management, and how to assess and implement a variety of investment strategies. Nearly all of our cases incorporate governance and the nuances of family interactions.
What are some of the learning objectives from the cases?
This is a truly global program with participants from Australia, Asia, Europe, Africa, North America, South America, and Central America, representing a range of industries. Our cases reflect that wide scope. For example, we discuss a case on the CIR Group—an Italian media conglomerate started by Carlo De Benedetti. The case looks at how to pass on wealth and family business to a generation that is less interested in taking part in that business. Every family faces this challenge at some point, and having a proactive plan can make—or break—the family's future wealth creation and management.
Another case focuses on a Chinese family who made its money in the gaming industry and invested 40-50 percent of their wealth in just two stocks in healthcare and artificial intelligence, because they really believe in those sectors. This leads to a great discussion: Is this the right way to invest? What's the right way to think about managing my family's wealth going forward?
Yet another powerful case explores a billionaire in Nepal who used a large sum of his money to build schools and houses in the wake of an earthquake. The case gets into how to invest in a philanthropic way and how to think about impact investing.
How else do you help participants explore philanthropy?
We look at opportunities for investing wealth to create impact of different kinds, such as return on investment or for society. We help people compare these opportunities and ask: What makes sense for me? What makes sense for my family given who we are and what we believe in?
The Nepali case prompts participants to think about the legacy they're creating and ask questions such as: We've been fortunate in terms of our wealth, now what are we doing for society? Some people think about setting up a foundation that will be around for hundreds of years. Others focus more on acute needs today.
How does this program relate to the HBS Families in Business program?
These are complementary programs that build on each other. Families in Business looks at how to get the firm right, and how to balance business and family needs. We look more closely at family wealth management—how to split up money, think about cash-flow rights, manage voting rights, and other issues of wealth.
You've said that this program offers a "safe" environment for participants. What do you mean by that?
Other universities have created programs by partnering with investment consultants and family-office investment consultants. This means that families are in the same room with people who would benefit from selling their products to the family office. That can be uncomfortable for participants.
We don't want that. We create a learning space where families in similar circumstances can speak openly. Participants learn not only from our curriculum, but also from talking with other families—sharing what they've done right or wrong and what's worked for them. Those interactions are more candid and productive when no one's trying to sell them anything.
How would you sum up the benefits of attending this program?
We have distilled the essence of today's best practices from around the world for creating and running a successful family office. We offer participants an efficient way to absorb these practices. They learn what questions they need to ask and how to approach answering them so they can have a real impact and build a lasting legacy. As they learn, they are surrounded by peers who are facing similar issues, which creates stimulating discussions and enables a participants to take advantage of a broader network of people to whom they can reach out for advice and support.