Exceptional families understand that having the right advisors can significantly enhance their ability to achieve long-term success. Advisors who possess the right capabilities and the necessary overview can guide family businesses through the complexities of wealth management, governance, and succession planning. The Family Council Canvas, our upcoming strategic tool designed for Family Offices, encourages families to critically assess their advisors through questions focused on performance, reliance, and coverage of essential areas.

Measuring Advisor Performance

Exceptional families recognize that measuring performance goes beyond financial outcomes. It includes evaluating how well advisors align with family values, their ability to navigate complex family dynamics, and their contribution to both long-term strategic planning and day-to-day decisions.

Best Practices:

  • Regular Assessments: Conduct periodic reviews to evaluate whether advisors are meeting expectations and delivering value. This assessment should consider both tangible business outcomes and the advisor’s ability to address sensitive family dynamics (Cesaroni & Sentuti, 2017).
  • Feedback Loops: Foster a culture of open communication where family members feel comfortable providing feedback on advisor performance. Regular feedback ensures advisors stay aligned with the family’s evolving needs (Michel & Kammerlander, 2015).
  • Set Clear KPIs: Define key performance indicators (KPIs) that align with both family and business goals, such as decision-making efficiency, risk management, and contribution to succession planning. For best practices in tracking and assessing family business performance, refer to our previous article on How Exceptional Families Measure Progress.

Reliance on Advisors

Over-reliance on advisors can create risks, such as reduced family autonomy or an over-dependence on external opinions. On the other hand, well-managed reliance can fill crucial gaps in knowledge and expertise, especially in complex areas like tax planning, legal matters, or governance.

Best Practices:

  • Balance External Input and Family Control: Maintain a balance where advisors provide expertise without undermining the family’s decision-making power. Family members should retain final authority while leveraging advisors for specialised insights (Su & Dou, 2013).
  • Knowledge Transfer: Encourage advisors to transfer their knowledge to family members, empowering future generations to handle key decisions with greater independence (de Groote & Bertschi-Michel, 2021).

Valuing the Right Qualities

Exceptional families value advisors who demonstrate transparency, expertise, and the ability to understand both the technical and emotional dimensions of family businesses. Soft skills, such as emotional intelligence and communication, are often just as important as financial acumen.

Best Practices:

  • Look for Soft Skills: Choose advisors who excel not only in technical areas but also in navigating family dynamics with empathy and emotional intelligence. Advisors who listen effectively and foster open communication are more likely to build long-term trust with the family (de Groote & Bertschi-Michel, 2021).
  • Beware of Mismatched Advisors: Be cautious of advisors who prioritise their own interests or fail to align with the family’s core values. Misaligned advisors can increase agency costs, creating inefficiencies and conflicts within the family (Arshed et al., 2021).

Addressing Gaps in Competence and Capacity

Exceptional families ensure that their advisory team covers a wide range of expertise, from financial planning and legal matters to governance and succession.

Best Practices:

  • Comprehensive Needs Assessment: Conduct a thorough assessment of the family’s strengths and weaknesses to identify areas where external advisors are needed (Cesaroni & Sentuti, 2017).
  • Specialised Advisors: Engage advisors with niche expertise in areas where the family may lack experience, such as international tax law, estate planning, or crisis management. This approach ensures that no critical areas are overlooked (Michel & Kammerlander, 2015).

The Hidden Costs of Information Asymmetry

In many advisory relationships, information asymmetry—where one party holds more information than the other—can lead to agency costs, inefficiencies, and misaligned decision-making. Exceptional families actively work to bridge this information divide. According to research, better alignment and communication between advisors and family members can reduce these hidden costs and promote more effective collaboration (Michel & Kammerlander, 2015).

Best Practices:

  • Foster Open Communication: Regularly engage with advisors to ensure that they have a comprehensive understanding of the family’s goals and challenges. Open communication helps reduce information asymmetry and ensures that advisors can offer relevant, timely advice.
  • Engage Multiple Perspectives: Ensure that advisors communicate with multiple family members to gather diverse perspectives. This approach helps advisors form a more holistic view of the family’s needs and promotes stronger alignment across the family (Su & Dou, 2013).

Conclusion

Advisors are key to the success of family businesses, but their effectiveness hinges on how they are selected, evaluated, and utilised. By fostering open communication, setting clear performance metrics, and balancing reliance on external expertise with family autonomy, exceptional families can ensure that their advisors contribute meaningfully to long-term success. The Family Council Canvas helps families address these critical questions, ensuring a robust advisory structure that supports sustainable growth and prosperity.

References:

Arshed, N. et al. (2021) ‘The hidden price of free advice: Negotiating the paradoxes of public sector business advising’, International Small Business Journal: Researching Entrepreneurship, 39(3), pp. 289–311. Available at: https://doi.org/10.1177/0266242620949989.

Cesaroni, F.M. and Sentuti, A. (2017) ‘Family business succession and external advisors: the relevance of “soft” issues’, Small Enterprise Research, 24(2), pp. 167–188. Available at: https://doi.org/10.1080/13215906.2017.1338193.

de Groote, J.K. and Bertschi-Michel, A. (2021) ‘From Intention to Trust to Behavioral Trust: Trust Building in Family Business Advising’, Family Business Review, 34(2), pp. 132–153. Available at: https://doi.org/10.1177/0894486520938891.

Michel, A. and Kammerlander, N. (2015) ‘Trusted advisors in a family business’s succession-planning process—An agency perspective’, Journal of Family Business Strategy, 6(1), pp. 45–57. Available at: https://doi.org/10.1016/j.jfbs.2014.10.005.

Su, E. and Dou, J. (2013) ‘How Does Knowledge Sharing Among Advisors From Different Disciplines Affect the Quality of the Services Provided to the Family Business Client?’, Family Business Review, 26(3), pp. 256–270. Available at: https://doi.org/10.1177/0894486513491978.