Hello and welcome, everybody, to the Family Office Podcast. My name is Richard Wilson and I have here with me Peter Moustakerski, and he is the CEO of Family Office Exchange, which, if you're not familiar with, has been around for well over 30 years. And when I first started Family Office Club, I looked around at who was credible, who built up a good reputation, saw what they were doing and said, I respect that. I'm going to have the opposite business model. I won't be anything like Family Office Exchange, but try to do a high-quality job.

And over all these years, we've gotten to know each other as organizations and recently got to connect personally. And Peter is the CEO of the group, so I thought it'd be awesome to have him here on the podcast and see what they've learned as an organization and what he's learned personally leading that. So welcome here, Peter.

Thank you, Richard. It's a pleasure to be here.

Yeah, appreciate you taking the time. So, to get a little bit... before joining Family Office Exchange, I may have had an experience at a large family office at Bridgewater for a well-known billionaire. So, I mean, from just that perspective alone, before I jump into most of the interview about, you know, FOX, what did that really teach you by being in such a well-established single-family office? Because as you know, there's a full spectrum of SFOs out there and I would imagine a multi-billionaire made their money in the financial markets and a scale to that level is a great perspective to come into versus a very unstructured, very small SFO, of course. Yeah.

Thank you for that. Like so many in the space who find themselves in the privileged position of working for and leading a family office of any size, let alone of the kind of prominence and reputation that I had, it is usually a baptism by fire. And that's actually a trait of our so-called industry. There is really no family office curriculum or track that any... Well, I think they're starting to have now family office programs at universities. But, you know, anyone who's in a position to lead in a family office is usually coming from some other either quantitative technical field or through a qualitative relationship and trust experience with the owner and is really having to learn and discover the job of what's it like to lead a family office on the job.

FOX and you and many in the industry are trying to change that and create more pathways for formalized knowledge and preparation and education and training, and research, et cetera. But one of the first things I learned was what's it like to actually work in a family? Because I had no idea. And really anybody who comes in to this situation, unless they're coming from another family office and have had that experience, really doesn't have any idea what they're getting into and has a pretty steep curve. I think beyond that obviously there are two other levels of learnings.

There was the learnings of just what's it like to work with an owner and a family and to help them deploy not just the financial capital of the family, but even more importantly the other forms of capital, the human capital, the social capital, intellectual capital, in some cases the spiritual capital, their values. And so really learning this is again something that the professional tracks that we all grow up or have grown up on don't necessarily prepare you very well. They prepare us pretty well on the technical front. I mean, 90% of my MBA classes were technical, probably one or two were qualitative. And I realized that my career as a professional especially the more senior I get, the ratio should have been the opposite. But, you know, I've learned the rest.

And the third thing was actually pretty unique to this experience was for me to learn and live and practice the principles that Ray Dalio has since written and published extensively about. And at the time, they were the origins of what is out there in the management thinking space. So just that qualitative sort of self-discovery and self-improvement was the other very valuable discovery from this experience.

Got it. Yeah. Awesome. Yeah. But yeah, interesting. I mean, I think the whole interview could just be unpacking what you just said, basically. But you know, I don't want to do that. I want to get into, like, the main topics here. But... one thing that I would emphasize from what you said is that so many universities have private equity programs, but, by some statistics, the family office space is larger than all of private equity and all of venture capital combined. Yet there's maybe 5% of education out there compared to private equity.

Like, to me, that's completely backwards and I think that's going to course reverse in the next three to five years, I hope in some ways. And obviously there's a few of us out there trying to provide that level of education which Family Office Exchange does in part, and that's part of your role there. So if we dive into one thing that we talked about right before we started this interview, segmenting types and varieties of family offices, I thought that was a really interesting comment because I've always said that there's a saying at events. When people get asked something on stage, they're put on the spot. And the way they get out of having any meaningful answer typically is, "Well, if you know one family office, you know one family office, so I can't really tell you." And to me, that's a very unhelpful answer. Right?

I think the better answer is there's like a genus and species of... if you're first gen and made your money in real estate or auto dealerships, you probably act in these ways. And I think that might be what you're hinting at. Before we get started here, can you talk about segments of family offices and why that matters more than how much money they have, perhaps?

Yeah, to emphasize the point you just made, we have a member who says it very well. It's like, you don't want to walk into a doctor's office who tells you, "Well, I've seen one patient." Right? No, I mean, you want them to start from a body of knowledge and comparison and research and relevance that's going to hopefully improve your health or save your life. So it's the same thing in our space. Of course, every family is unique. Of course, every family is highly bespoke and attuned to those unique needs. But like everything else in human and social behavior, there are patterns, there are stages of evolution, and there's ways to learn and replicate knowledge and avoid mistakes and kind of costly, potentially derailing... The industry has tried different approaches.

You know, the whole wealth management industry actually segments itself based on AUM, which, I think we can all agree that's highly unsatisfactory from a standpoint of understanding and serving families. G1, G2, G3 is another way, based on generations. There are some evolutionary and behavioral family dynamics aspects that are informative. But we all know that every next generation wants to feel like, and often does feel like, and ends up being G1. So the rest is just labeling that's often more baggage than helpful.

Sure.

So we've been looking at FOX like, what are the best ways? And we've put together this new framework which we call the family journey, family evolutionary journey. And the concept there is that just like a human's life cycle where you have, you know, childhood, early adulthood, mature adulthood, old age, et cetera, there is a similar archetypical cycle that families generally go through, sometimes over one generation, sometimes over multiple generations, sometimes over a couple of decades, sometimes over many centuries. And the stages of evolution turn out to be recognizable and pretty consistent among even different cultures, geographies, sources of wealth, stages of family, generational advancement, et cetera. And so the framework is that we recognize that one of the most important things that defines a family or a family office that serves the family is what is the glue? Like, what keeps the family together rather than just taking the money and going on their own merry pathways, like, what is the thing that keeps them together? And to simplify a very complex answer to that, we see three kinds of glue. We see the business glue, or what we call the business path. So at this stage of evolution, the family still very much identifies itself tied to a business. When they talk about the family affairs, it is largely about the business, shareholder relationships, governance between the family and the business, etc. Then inevitably at some point, either the business is sold or the family grows beyond the business. There is a fork we see in that, and there are visuals that I'm happy to share.

At that fork, the family usually decides either to just do no business and no other activities, but just manage a financial portfolio. So we call that the financial branch or path of their evolution. And so you have families who are maybe managing either a newly liquid portfolio or a very kind of dynamic privates real estate, or a very diversified, institutionalized, complex, public-plus-privates portfolio for many branches. Inevitably, the most complex, long-lasting families at some point become a purely financial management unit when all the other glue eventually dissipates. It's the financial assets that are left. So that's the financial branch and the third branch is what we call the enterprise branch, where families who intentionally decided beyond the business, beyond the money, they're going to do other things, impact philanthropy, sports, arts, land development, real estate, community development, et cetera.

And that usually comes together from the shared passions and goals of the active family members who decide to stay together as an enterprise and put their capital to some broader use than just financial returns or running a business. And that's where the most sophisticated mature families usually end up.

Got it, got it. Makes sense. So related to that, if a family is wanting to formalize their family office and have extra glue to keep everyone connected, then you would say potentially that part of the answer to that is looking at like a multifaceted, you know, personal passions, philanthropic, doing family events together as well as business and financial. Or does that just need to evolve naturally over time and you can't really force it? I mean, how do you see that playing out, like, in the real world with families that you work with?

Yeah, and I would say with every framework it's like what's common and what's the exception. So no framework is a perfect blueprint for one's life. But I would say the first big learning of this segmentation framework is that both for the family, I would posit for the family office professionals, and even the external advisors serving the families to recognize that where they are on this evolutionary journey, if they're a business family, a financial family, or an enterprise family should be one of the most important drivers into how their family office and actually all the other structures, expert wealth management structures, how they're structured to serve the family.

Often we see families just like jumping into a ready-made structure that's used by a friend or someone just said, we got this product and you should just hop on here on this multifamily office offering or whatever. And the biggest mistake there is that you haven't actually gone through recognizing who you are as a family, where you are, and therefore what do you likely need. There's a second piece there that's not part of the framework, but I highly recommend is to make sure the family and everyone who is going to have a voice in the family, which hopefully is as many people as possible within the family is aligned with that. So we see problems where it's like one strong voice who says it's going to be this way. Everybody else kind of like got to follow.

And inevitably that becomes challenging with time as kind of central power and decision-making dissipates and people sort of rebel against the structure. So the most important thing is to self-assess where you are, understand what likely your needs and expectations of the family office and all the other structures are, and then start building and buying. Because if you start building and buying first, you're going to end up with a lot of expensive mistakes. After that you can go outside the framework and say, all right, that's all good, but we are a family that also cares about sports or also cares about this. And therefore we need those extra structures or we want to have a lot of direct investing because we want to be builder-capitalists and we want to build our own. Okay. If intentionally that has been made as a strategic choice, then that's a good thing to go add to the capabilities of the office or the structure that serves the family. But it has to be an outcome of a conscious, intentional strategy assessment, not just like, oh, I should have this, or somebody told me that I should have this or I should hire that. So I think this is what I would emphasize.

Yeah, interesting. Yeah. I mean, what you have seen from your perspective just correlates so well with what I see a lot of the times like, we have our family values on the wall above our kitchen table. I have it behind my desk here. And like, isn't it bizarre how like some of these families can be worth hundreds of millions or billions of dollars and it's so common sense to have values in your business that you would just put somebody to sleep at a business conference if you said your company should have core values. But so many families will go out and spend a million dollars a year on advisors and not even know what their family's core values are or not share them with anyone or not put them on the wall. And, like, that's the most basic piece of what you just said. Right? It's kind of like, know where you're going, why you're going there, what you care about, what the goals are. But all of that also comes from the values. And anytime you get advice from someone and it's not based on them knowing you well, I feel like you're just playing their game of Monopoly and they're going to get $200 every time you pass go on their game board. Right. It's just not too smart. It's so interesting to see that over and over again with really smart, very wealthy families. They just don't step back and look at it from that perspective, you know.

Yeah, I agree. I think one of the first things I ask or I challenge newly incoming families and prospects who come to FOX is to see if they understand or have thought about their purpose, goals and values. I think it's really important to do that. The challenge and sometimes the trap is that because this gets so much into people's personal lives and family dynamics, it can be, if done the wrong way, could be really uncomfortable and counterproductive. And so the challenge is when either families or their advisors try to kind of take a formulaic, corporate-like approach and try to, like, instill, like, a poster on the wall when maybe that family doesn't work that way. And you just... I think the work has to be done, for sure. But how it's done in a way that the family embraces it rather than rejects it is more of an art than science. And so, yeah, that's a little bit the challenging part of our field is that we are an amalgamation of art and science way more than any other professional discipline because we go so deeply into personal, qualitative, irrational things that, you know, just economics, finance and management don't necessarily govern very successfully.

Yeah, yeah, completely. You know, one thing that I see so often is a conflict between Gen 1 and Gen 2, where Gen 2 is coming up and one or two of the children are heavily involved and then a couple of the other children, one or two or more, are not involved and the disconnect and maybe one child is working very hard and doesn't get any credit for it or gets blamed when things go bad. They feel the burden on their shoulders. Everyone expects the world from them and doesn't realize how much work it takes. And they have stress around this that has come up so many times with families I work with. I don't know if you have any comments on that or anything, just ideas around it or thinking frameworks on it, because I know a lot of families struggle with that.

Well, again, this is an area where "you've seen one, you've seen one" probably governs more strongly than on the technical side of family offices. There's still a lot of great qualitative science and practice in our field that governs these still highly unstructured and often neglected part of the work that families and family offices have to work. But it really starts with, I think, again, at the risk of prescribing something without even having enough information to prescribe, because every case will be slightly different. I think it starts with a couple of things.

A, you have to have someone in the family, whether the leader or another agent of the family, who is committed to this process, is committed to this journey of like, we're going to figure out how we're going to either work together and be functional or just go our merry separate ways and still be functional, but not try to be forced in this common framework if for some reason our relationships or dynamics are not allowing it.

And so once they decide the former to be together and function as a family enterprise unit, not just a family that meets, you know, for Thanksgiving and whatnot, but a family enterprise that does all these other things, then there's a bit more of a recipe of, like, okay, now you've got to figure out the goals, the objectives, the vision, the values, and what's important to everyone. And then you have to do it, I mean, a lot more consensus than voting, usually, to be able to make these things last and work in a family dynamic setting. So there's going to have to be, like, the patience and tolerance for what could feel like a very inefficient and frustrating phase of the process.

But I think if that is done well, the other more technical steps that follow, that's like, okay, now should we have a family office? What kind? Should we outsource to a multifamily office? Should we build it ourselves? If we're building ourselves, which functions and services will that office perform for whom? And like, there's a whole waterfall of decisions and activities and choices of vendors and structural and solution capabilities that they can purchase or build that becomes a little bit more kind of not formulaic, but becomes a little bit more quantitative and business-like. But it's that first phase where the family dynamics dominate. And if that's not approached in a healthy, sustainable way, the rest of it is for naught. The rest of it is almost for sure going to have a short life.

Yeah. You know what I find so challenging on that is that the founder, who's created wealth over 20 to 40 years has 30,000 hours of experience. They've learned how to survive in the jungle of business. They know what fruits to eat and what's poisonous in the jungle, etc. And then the next generation, they have different personalities, different preferences. Okay, we should like respect that and have consensus and find common values or like an approach that is going to work for everyone. But sometimes separating the opinions of the younger generation and a percentage of those opinions are based off of assumptions, guesses, not 30,000 hours of experience. I find that pretty challenging sometimes. And it's like, because sometimes you just want to tell the next generation like, no, that's just a bad idea, like that's going to end poorly.

And sometimes they just have to learn that on their own. And other times it's like very expensive if you let them learn that on their own. So that's a challenge, I find with some of the families we work with, for sure.

And this is no different than anything else that they have done together as a family, whether raising the kids when they are young or preparing them for life in general to the professional stage of their lives. And then those frustrations and both the benefits of having that knowledge and the challenges of transferring that knowledge and the rebellions that inevitably exist within families. I mean, that's why our space is so exciting and so difficult and so unique is because again, you've got this unique smash-up of irrational family emotional behavior with the resources and capabilities of large sophisticated businesses and financial institutions.

And so, you know, I think every family first has to start with how they best have learned that they can achieve those fundamental goals of working with each other, being happy with each other, learning from each other, passing knowledge and other valuable things, whether it's control of businesses or money or other things from one generation to the next. And if they haven't, then they probably should look for help from either experts or peers or any source.

I mean, this is to some extent why your organization and organizations exist, is to help families find the kind of resources that are not necessarily available within their own system or even within their ecosystem of advisors so that sometimes you just have to speak to three other families who've gone through it and maybe sometimes just finding out that you're not alone or your kids finding out they're not alone in their challenges could be a huge unlock. So again, I would go to the having the patience and the commitment to the journey, knowing that it might be difficult depending on the dynamics of the family, sometimes it could be harmonious and easy and sometimes it could be very painful and maybe even impossible in some cases. And so there are ways to navigate any one of these situations.

But I think what it takes is the commitment to that process which can drive better outcomes than if you're just rushing into or just skipping that part of the process. Sure, sure.

Well, I know I might be closing out on available time here for today, but two things real quick in case you want to comment one or both of them. A lot of families come to us and they say something about avoiding the most expensive mistakes people make while setting up a family office. And then also, some realize this the hard way and then it comes up is that the wealth sometimes destroys family relationships and family members end up suing each other or not talking to each other or there's, like, a bitter resentment over an assumption of who's going to inherit what. And I'm sure you've seen every color of that as well. Any comments on avoiding the money, destroying the family or avoiding most expensive mistakes while setting up a family office?

Yeah, I think the answer can be given at different levels. At the most macro level, I go back to that almost recipe that starts with family alignment, strategy, goals and values and then goes into the more technical steps of building things. We call it at FOX, kind of, the family office operating system, which is, like, it starts with your values, beliefs and shared goals and then that gets embodied at every step of the operating layers that you activate. So the first trap is, what we've been talking about the most is if you don't do that first phase, whatever it looks like in your case, because some families may start with a very deep, fractured, conflict-ridden situation, a very traumatic situation that's very painful. But again, if you don't tackle that, it probably won't be the best outcome at the end.

And many start ideally with a much more harmonious... So the first mistake families make, both the harmonious ones and the ones with challenges, is that they don't actually formalize and have the patience to go through that phase of talking about what are we about, why are we doing this, what's the wealth going to be, what is the family office going to be for, what are these trust structures for and what are we trying to achieve with this and who should have what kind of say, not on a technical level, but like if we want some life outcomes, like you want your children to be happy or fulfilled or not spoiled or whatever, you know, build that value system into the following steps of technical solutions. But have a conversation first. I would say we can also answer at a much more operational, technical level.

Obviously if you're down the road building, implementing, running family offices, there are a lot of mistakes to make. There are a lot of solutions that you can, you know, dive in headfirst and spend a lot of money and years implementing and then dismantling. So almost every piece, whether it's around the organization, the choices of services, what's installed, outsourced, technologies, et cetera. Each of them have a potential of you making the wrong decision. And again, this is not to freak people out, but it's like, you know, seek the right input from peers and experts to be able to make this. If I had to offer though, two takeaway areas to watch out for, one is hiring. Hiring is very expensive and sticky, and, you know, the wrong person in the wrong role can set you back, you know, in so many ways.

So I would take hiring of key people very, very seriously at any stage of the build-out and running of the family office. The second one is technology selection and implementation. The wrong platform with the wrong implementer or MSP advisor can burn a lot of money, time and goodwill and even create counterproductive damage to what you're trying to achieve with the family. So those are at least two of those poster-child areas to always pause and say, am I doing the right thing? And maybe do that three times and then go and cut. So measure three times, cut on those things once.

Awesome. Yeah, couldn't agree any more on that. I think like the tech side can be so complex and so customized and still you might have to have side bolt-on things and reconcile things. Hopefully the software in our industry improves. It has, a lot, in the last 19 years, or 30-some years in your case. So it's light-years different than it was a decade ago. But there needs to be more transparency and more consolidated reporting and accounting solutions built out for families. Many families, if people don't know listening, spend a million dollars a year just on their tech. And the implementation fees and the pricing shown to families is often based on their net worth, not complexity. And it's like, oh, the first question from the software company is always, how much assets do you manage?

Oh, here's a price for you based on that, which is super interesting and frustrating for some families we know. Great. Was there anything else that I should have asked you and haven't that you're most excited to share or that you're most passionate about right now, or you think is most helpful to get across during the interview before we finish up for today?

Yeah. Thank you. I mean there's a lot more behind these technical and expert areas we just touched on. So I would encourage people who are listening, especially those who are principals of families or those who are starting out early in the journey, to slow down and talk to as many credible people, find out who are the credible communities, who are the credible experts. There's unfortunately or fortunately, but unfortunately the family office space has become very hot and there's a lot of claims and activity that are often more counterproductive than helpful. So be a discerning buyer, so to speak, of family office communities, advice, and products, but definitely engage and study what's out there and then also what we've been talking about. I cannot emphasize enough how important... I say sometimes that the family office space is an oxymoron, one giant oxymoron: family office.

The two things are actually so incompatible in so many ways and often 80 to 90% of the attention of everyone is spent on the office side of this equation and all the technical solutions and there's really not enough time being spent on the family side of the equation and the two have to work. In fact, the family side has to really guide the office side and so be aware and seek out the advice and best practices and knowledge on the so-called non-financial capitals of your family, the qualitative. I don't like to call them soft. People call them soft topics, but they're actually harder than tax and accounting and I would say spend a lot of time on those to make sure you're understanding everyone who you care about within the family and that you're building something that's going to help the family stay together, stay united, stay engaged, rather than something that's going to be dividing and pushing people together. Sorry, pushing people apart. So I would say those are the, some of the soundbites I would offer and there's a lot more there if we want to go deep into any one topic.

Got it. Yeah, that makes sense. I think almost none of the technical, hard investment side of things really matter if the personal side blows up. Because, one, people would rather have their family, typically, than maximize their net worth. But also, the planning doesn't work if now everyone has to go manage their own money. Now all the software systems and investment plans have to be redone because now the family's not operating as a unit anymore because the soft side was completely ignored and half the family doesn't talk to each other anymore. So I think that's super important. Yeah.

Appreciate, appreciate your time here today and I'm sorry the New York event didn't line up with your already planned travel recently, but hopefully you can check out one of our events in person as our guest and we'll see what other ways we could be keeping in touch and adding value to your community as well. So I appreciate your ideas here today and thoughts and feedback. There's a lot of family offices out there at all different forms of formalization and I would say that, you know, 70-plus percent of the ones I speak to just need a lot of help, not just a little bit of help with formalizing, institutionalizing, getting all the processes, governance and operations set up along with other things. So appreciate everything you do and appreciate you being here with us today.

Thank you, Richard. I applaud the work you're doing in the space and happy to collaborate. We work with hundreds of families around the world, like you do, and I know we have a lot of complimentary work that we do from our respective communities and I'm excited to have this dialogue and to do what we can to help these families flourish and advance their objectives. Because when they do that helps society and the world at large because they are some of the most important, consequential economic, community, philanthropy, and social drivers for the world. So excited to be here, excited to have this opportunity and excited to collaborate in the future.

Awesome. Appreciate it. Thank you.