A Different Kind of Board: Bret Magpiong Explains the Phenomenon of Family Boards of Advisors
Published in the ACC Docket by Carly O'Halloran Alameda and Olga Mack.
When most people think about boards, they usually consider boards of directors for public or private companies, or non-profit boards. But there are other types of boards that rarely come to mind. Bret Magpiong, Chief Practice Officer and Principal at Aspiriant — a company focused on wealth management for high net worth families — shared his insights about one type of board that rarely makes headlines or even surfaces in a discussion about boards: the boards of advisors for high net worth families. Although some boards of directors may serve a company run by a wealthy family, this type of board serves the family itself.
Magpiong, who has more than 20 years of experience helping to manage the wealth of high net worth families, provides a variety of investment and business advice to his clients. One aspect of his work is providing “multi-family office” services to his clients, which involves a fully outsourced family office experience to manage and run a family’s finances, including everything from portfolio management and legacy planning to tax return preparation and bill payment. He works closely with the boards of advisors for many families, and he used his insight to explain some of the similarities and differences with this rare breed of board.
Creating a board of advisors
Unlike boards of directors of public companies, boards of advisors for a family are completely optional for the family. Although non-family member management teams are becoming increasingly common for these families, boards of advisors are also gaining in popularity. “High net worth families are more and more choosing to organize a board of advisors because of the value the board adds to both the family and the management team,” Magpiong explains. Unlike corporate boards, the structure of a family’s board is entirely unregulated. The composition of the board is at the discretion of the family, as are the details of how the board functions. Although many of these boards meet quarterly, there is no requirement as to when or whether to meet at all. The board is not subject to government regulation, nor do the members have the same legal or fiduciary duties that attach to the board of directors of a company. The membership of the board is often private and confidential — another reason these boards are not well known.
Once the board is in place, however, the board of advisors has a focus on overseeing the actions of the management team on behalf of the family members. This is very similar to how a corporate board of directors oversees management on behalf of the company’s shareholders. “Board members bring their substantive knowledge and also an understanding of the family to their jobs to aid and facilitate the communications between the family and the management team,” Magpiong says. “These boards have compelling senses of duty to the families they serve.”
The value added by a board of advisors
High net worth families are not required to compose, organize, and seek guidance from a board of advisors regarding their personal wealth, but they frequently do. The high number of families opting to form boards of advisors illustrates the value a good board offers its stakeholders. Similar to a corporate board of directors, the board of advisors brings together a group of people with diverse areas of expertise and backgrounds to oversee management, facilitate internal discussions, and help guide decisions. The board members are generally not part of the day-to-day management for a family, but they remain apprised of the important events and decision points and can offer independent thinking and guidance to help bridge the family’s goals and expectations with the management team’s execution.
Although a board of advisors seeks to bring some level of independent thought to the table, they do not have the same level of independence as an outside director on a corporate board may have, who otherwise has no ties to the company. The members of these family boards of advisors are usually selected due to a long-standing working or personal relationship with, and intimate understanding of, the families they serve. “This additional level of connection enhances the advisors’ ability to ask questions and suggest ideas that are consistent with the often very personal and unique dynamics of the family,” Magpiong elaborates.
The necessary skill set for the board members
The skills required to be a great advisor have many overlaps with those needed to be a great director. Advisory board members often bring with them a particular area of substantive knowledge. They are often lawyers, accountants, or business professionals, and they bring with them deep knowledge of tax law, estate planning, finances, and investments. They can speak the business and legal language of the family’s management team.
Magpiong points out that one of the most important skills for an advisor is universal, not tied to any particular profession. “Emotional intelligence is key. The board member has to have the ability to carefully navigate and communicate in challenging and complex situations,” he says. In high net worth families, the relationships of the stakeholders can be particularly fraught with intense emotion. A good advisory board member must be able to recognize those challenges and dynamics, and work with the decision makers as well as others within the family. “It is often more complex than one would think to understand who is the decision maker in a family,” Magpiong adds. “It is not always the breadwinner of the family, but often also involves the spouse and even the children. For that reason, an additional trait of a good advisory board member is deep familiarity with the family, their history, and their values and goals.” Therefore, every family board of advisors is unique — they must be not only professional experts, but experts on the families they serve.
Staying focused on the goals
Any board’s primary function is to help the stakeholders achieve their goals. Unlike companies, however, where maximizing profits is often the top priority, families can have different types of goals that the board of advisors must understand and embrace. For example, “in many high net worth families, the goal isn’t to maximize profits, but to preserve wealth for future generations or give it away. If a future generation is in control, the heirs often have even more complex feelings about the money,” Magpiong says. “One third-generation client told me that his primary goal was to not lose the money, because if he lost the money it would feel like he was stepping on his grandfather’s grave. Those different feelings drive how a family chooses to invest and handle their wealth.” To be effective, these board members must balance the unemotional aspects of finance with the highly personal and sensitive aspects of family.
The board of advisors not only can help pursue a family’s goals, they can also help the family define a mission and stay focused on obtaining it. “There are a lot of challenges and demands that come with managing significant wealth. It is a nice challenge to have, but it is nevertheless a challenge,” explains Magpiong. “The board of advisors often can help the family stay focused on their larger mission despite the daily tugs in other directions. And at the end of the day, that makes the family feel more satisfied and more successful.”
Serving on a board of advisors
Unfortunately, even if serving on a board of advisors sounds intriguing and desirable, landing a position on this kind of board is even more difficult than the average corporate board. “Families do not try to fill their board of advisors through headhunters or the extended networks of other members. These positions usually present themselves organically to those who have a long standing relationship with the family through other professional or personal endeavors.”
Although it is unlikely that most professionals will end up serving on a family board of advisors, the insights of such a personal board can provide a new appreciation for more typical corporate and non-profit boards of directors. While these more “standard” boards are much less personal and more regulated, the principles of loyalty and duty are universal. Understanding this new breed of board as it rises in popularity is also useful for those who may find themselves, like Magpiong, working closely with a board of advisors. And who knows — perhaps some of us, or our descendants, will be so fortunate as to need a board of advisors’ services.