Chapter 9 of Running a Family Office Under $100M
Everything in this playbook can be undone by one bad decision.
You can have the right structure, the right team, the right portfolio. Then markets drop 34%, you panic, sell everything at the bottom. Or a friend pitches you on a deal over dinner, you commit £2M without diligence, it goes to zero. Or you meet someone at a conference who seems impressive, restructure your whole approach based on their advice, realise six months later it was wrong for your situation.
I've watched all of these happen. Smart founders. Good infrastructure. Terrible decisions made in moments of emotion, social pressure, or false urgency.
Governance sounds bureaucratic. It's actually the opposite—it's the system that prevents you from making decisions you'll regret.
Why Founders Are Particularly Vulnerable
This isn't about intelligence. Founders are usually sharp. That's part of the problem.
When you built your company, fast decisions were often correct. Conditions changed constantly. You had to act on incomplete information. Waiting too long killed opportunities. The founders who succeeded were the ones who moved quickly, trusted their instincts, and adjusted as they went.
That mode of operating becomes dangerous when applied to wealth management.
Wealth operates on different timescales. The right investment decision might take months to evaluate. The cost of waiting is usually small. The cost of rushing is often enormous. But the muscle memory from operating a startup—decide fast, move fast—doesn't automatically switch off.
There's also the confidence problem. You built something from nothing. You made correct calls that others doubted. Why wouldn't you trust yourself to pick investments, time markets, evaluate deals? The track record says you're good at this.
Except you're not. Not at this. Building a company and managing wealth require different skills. The pattern recognition that made you a good operator doesn't transfer to investment decisions. But it feels like it should, which makes you overconfident in domains where you have no edge.
A founder made £30M from his exit. Within two years he'd lost £8M on concentrated bets in sectors he thought he understood because they were "adjacent" to what he'd built. He was smart. He'd done his homework—or thought he had. He just didn't realise that knowing a market as an operator is different from knowing it as an investor.
The Cost of Bad Decisions: What the Data Shows
The gap between what markets return and what investors actually capture is one of the most documented phenomena in finance.
DALBAR's 2025 Quantitative Analysis of Investor Behavior found that in 2024, the average equity fund investor earned 16.54% while the S&P 500 returned 25.02%. That 8.48 percentage point gap is the fourth-largest since DALBAR began tracking in 1985—and the second-largest in the past decade.
This isn't a one-year anomaly. Over the 20-year period ending December 2024, the average US equity investor earned 9.24% annually compared to the S&P 500's 10.35%. That 1.11% annual difference compounds dramatically: on £1M invested over 20 years, the S&P would have grown to approximately £7.2M while the average investor reached only £5.9M. That's £1.3M left on the table—not from picking bad investments, but from behaviour.
The pattern repeats in the UK. The FTSE 100 returned 9.7% total in 2024 (including dividends), its best performance since 2021. Yet many UK investors underperformed this benchmark for the same behavioural reasons—panic selling during downturns, chasing recent performance, and trading too frequently.
DALBAR's "Guess Right Ratio"—how often investors time their moves correctly—fell to just 25% in 2024. Investors guessed market direction correctly only one quarter of the time.
The Missing Days Problem
The data on market timing is stark. According to JP Morgan research:
- A £10,000 investment in the S&P 500 from January 2005 to December 2024, fully invested, grew to £71,750 (10.4% annualised)
- Missing just the 10 best days reduced that to £32,871 (6.1% annualised)
- Missing the best 30 days cut returns to 2.1% annually—below inflation
- Missing the best 60 days resulted in a negative return of -3.7%
Here's the problem: 78% of the market's best days occur during bear markets or within the first two months of a bull market recovery. Seven of the ten best days over the past 20 years happened when markets were in bear territory.
The best days cluster around the worst days. In March 2020, the second-best day of the year came immediately after the second-worst day. If you sold during the panic, you missed the recovery. And the 2020 COVID crash recovered in just four months—the fastest recovery of any market crash in 150 years.
The Decisions That Go Wrong
Patterns show up repeatedly.
Panic Selling
Markets drop, news is terrifying, every instinct says get out. So you sell. Then markets recover and you've locked in losses and missed the rebound.
March 2020 was a masterclass in this. The S&P 500 lost 34% from peak to trough in just over a month—the fastest drop from a new high in history. The FTSE 100 fell similarly. Many investors sold at or near the bottom. By mid-August 2020, the S&P had recovered to pre-crash highs. By year end, it closed at an all-time high.
Founders who sold at the bottom felt briefly relieved, then watched portfolios recover without them.
The average bear market (20%+ decline) cuts stock prices by 35.8% and lasts about 18 months. Recovery averages just over two years. But the timing is impossible to predict—and the best recovery gains happen immediately after the worst declines.
FOMO Buying
The flip side. Something is running hot—crypto in 2021, AI in 2023—everyone's making money, you feel left behind. So you buy near the top because you can't stand watching others win. It reverses. You're stuck.
DALBAR's research shows withdrawals from equity funds occurred in every quarter of 2024, with the largest outflows during Q3—just before a major rally. Investors repeatedly sold before gains and bought after rallies.
Social Proof Investing
Your founder friends are all in a deal. Must be good—they're smart, they have access. You commit without independent analysis because the social validation feels like due diligence.
Except they all heard about it from the same source, nobody dug deep, and you've just replicated someone else's bet without understanding it.
Urgency Manipulation
"This opportunity closes Friday." "Limited allocation remaining." "You need to decide now."
Real opportunities rarely come with hard deadlines designed to prevent you from thinking. But the pressure works. You commit because saying "I need more time" feels like weakness.
Relationship Investing
Your college roommate is raising a fund. Your cousin has a startup. Your former employee wants angel money. Saying no damages the relationship. So you say yes to deals you'd never consider from strangers.
Some work out. Many don't.
Investment Policy Statement
The simplest tool is also the most effective: write down your strategy before you need to make decisions.
An Investment Policy Statement (IPS) is a document that captures your investment approach when you're calm and thinking clearly. Target allocation. What you will and won't invest in. How you'll respond to market conditions. What process you'll follow for new opportunities.
Cambridge Associates research on family office governance emphasises that the IPS is "the constitution for investment decisions"—the foundation that all other decisions reference. Without a written IPS, every decision becomes a negotiation rather than following established guidelines.
The value shows up when markets are crashing and your stomach is telling you to sell everything. You don't have to figure out the right response in the moment. You look at the IPS. It says: "In market downturns exceeding 20%, rebalance from bonds into equities rather than selling." That's the answer. You already decided. You just have to follow the decision.
Or a friend pitches you a deal. Instead of evaluating whether you want to do this specific thing, you check the IPS. Does this fit the allocation? Is there room in the satellite portfolio for another illiquid commitment? Does it meet the minimum criteria you set for direct investments? If not, the answer is no. It's not personal. It's just not what you're doing right now.
What an IPS Should Cover
The IPS doesn't need to be complicated. A few pages covering:
Objectives and Strategy: What are you trying to achieve? Capital preservation? Growth? Income? What's the target return, and over what timeframe? What spending or distribution requirements exist?
Risk Tolerance: How much volatility can you accept? What's the maximum drawdown you can stomach without panicking? Be honest—the answer you give when markets are calm is often different from how you'll feel when they're down 30%.
Asset Allocation: Target percentages across major categories—equities, fixed income, alternatives, cash. Include acceptable ranges (e.g., equities 50-70%) that allow for tactical adjustments without triggering alarm.
Rebalancing Rules: What triggers rebalancing? Calendar-based (quarterly, annually) or threshold-based (when allocations drift more than 5% from target)?
Investment Criteria: What types of investments will you consider? What won't you touch? Minimum requirements for illiquid commitments—track record, fund size, terms, concentration limits.
Decision Authority: Who can make which decisions? What thresholds require additional review?
Write it when things are calm. Review it annually—or whenever circumstances significantly change. Follow it when things aren't calm.
What Needs Process
Not every decision needs governance. Buying groceries doesn't require committee approval. But some decisions need more friction than your instinct provides.
Think about thresholds. What amount of money requires you to slow down and follow a process? For most founders in the £10–30M range, somewhere between £250K and £500K is where process should kick in.
Below that threshold, you can make decisions quickly. Individual stock purchases, fund additions, routine rebalancing—just do them if that is one-off but keep in mind that these things can pile up and add to substantial amount quickly.
Above it, you need a process. That might mean:
A Waiting Period
You hear about a deal, you're excited, you want to commit. Instead of committing, you wait 72 hours. If it still seems like a good idea after the excitement fades, it might actually be a good idea. Urgency that can't survive three days probably isn't real.
This simple friction alone would have prevented many of the worst decisions I've seen founders make.
A Written Memo
Before committing, write down why this is a good investment. The thesis, the risks, why it fits your situation. Writing forces clarity. Half the time, the memo reveals that you can't actually articulate why this makes sense.
Cambridge Associates recommends documenting "decision rationale in investment committee memos: why this manager, why now, what alternatives were considered." This creates institutional memory you can learn from.
An Outside Opinion
Talk to your advisor. Or a founder friend who isn't emotionally invested. Someone who will ask uncomfortable questions. "Why this? Why now? What happens if you're wrong?"
Research on family office governance consistently emphasises the value of "independent" or non-family members in investment decisions—people who can synthesise diverse opinions and reduce biased or emotional decision-making.
A Checklist
Have you reviewed the documents? Understood the fee structure? Checked the track record? Talked to other investors? Done the reference checks?
It's amazing how often excitement skips basic steps.
The specific process matters less than having one. Something that interrupts the impulse to just do it.
Review Cadence
You need to look at your situation regularly. Not obsessively—checking your portfolio daily creates anxiety without information. But systematically.
Quarterly Reviews
Quarterly reviews catch drift. Has your allocation moved significantly from target? Are there positions that have grown to become concentration risks? Any capital calls coming up that you need to prepare for? Any investments underperforming in ways that need attention?
This doesn't require a lot of time. Maybe an hour or two with your advisor, or on your own if you're self-managing. The point is catching things before they become problems.
Annual Strategic Reviews
Annual strategic reviews step back further. Is the overall strategy still right? Has your situation changed in ways that require adjustments? Your life circumstances, your risk tolerance, your liquidity needs?
A strategy designed three years ago might not fit today. The 2024 Autumn Budget changes to IHT (pension inclusion from April 2027, reduced BPR/APR from April 2026) might require revisiting estate-related assumptions. Life events—new business ventures, family changes, health issues—might shift priorities.
Family office best practices recommend the annual meeting "serves to review the governance structure, evaluate performance and service to the family, identify any significant developments within the family or the family office, highlight challenges and opportunities, and educate and listen to family members."
Building the Rhythm
Some founders build this into a specific rhythm. Q1 review is strategic—big picture, does this still make sense. Q2–Q4 are tactical—allocation, performance, near-term decisions. Whatever structure works for you, the key is that it actually happens rather than sliding indefinitely.
Documenting Decisions
When you make a significant decision, write down why.
This sounds tedious. It's actually incredibly valuable.
Six months from now, you won't remember why you invested in that fund. Two years from now, you won't remember what you were thinking when you made that allocation change. If it worked out, you'll assume you were smart. If it didn't, you'll assume you were unlucky. Neither is necessarily true, and without documentation you can't tell which.
Capturing the reasoning—the thesis, what you expected, what would make this a mistake—creates accountability. When you review later, you can see whether your thinking was sound or flawed. You learn from decisions instead of just experiencing their outcomes.
This is what institutional investors do. It's what Cambridge Associates calls "institutional memory"—the accumulated wisdom that comes from systematic documentation of decisions and outcomes.
Succession Value
This is also critical for succession. If something happens to you, whoever takes over needs to understand the portfolio. Not just what you own, but why. What was the intent? What were you trying to achieve? Without that context, they're guessing.
As one family office governance expert noted: "Not having an investment policy statement is one reason that only 25% of wealthy families make it to the second generation." The documentation isn't just for you—it's for everyone who comes after.
Keep it simple. A running document, a note in your files, whatever works. Date, decision, reasoning. Takes five minutes. Compounds over time.
Governance for Families
If wealth involves more than just you—spouse, children, family members—governance becomes more complex. Decisions affect people who might not agree.
I won't pretend to have all the answers here because family dynamics are personal. But a few things seem to help:
Clarity About Who Decides What
Some decisions are yours alone. Some require input from spouse. Some involve wider family. Knowing which is which prevents confusion and conflict.
Cambridge Associates identifies this as "authority"—one of the three core building blocks of investment governance alongside people and process. Provisions for authority should be "stipulated by a legal entity or vehicle that is linked to a broader governance and ownership structure."
Regular Communication
Surprises create problems. If family members understand the overall approach, specific decisions are less likely to trigger conflict.
Family office research emphasises "providing transparency into portfolio choices and allowing for honest discussion of successes and failures will help the broader group of family members better understand why the portfolio is behaving in a particular way."
Gradual Involvement of the Next Generation
If you want children to eventually manage family wealth, they need exposure before they inherit. Structured involvement over time builds capability and judgment.
This is what governance experts call "education and training"—helping "the next generation of family decision makers be better prepared to assume leadership positions." When younger family members are included in IPS reviews, it serves as practical financial education and succession planning.
A Process for Disagreement
When you and your spouse disagree about a financial decision, what happens? Having a way to resolve that—not a specific answer, but a process—prevents conflicts from escalating.
Investment committees exist partly for this purpose: to "synthesise diverse opinions and institutionalise the decision-making process, helping to reduce or eliminate biased or emotional decision making."
This gets more important as wealth grows and generations get involved. At £15M, governance might just mean you and your spouse having periodic conversations. At £50M with adult children, it might need more structure. Match the complexity to the situation.
The Goal
Governance isn't about creating bureaucracy. It's about building in enough friction to protect you from the moments when your judgment is compromised—by fear, greed, social pressure, or urgency.
The founder who has an IPS and follows it will underperform the founder with perfect timing. But nobody has perfect timing. DALBAR's data proves this definitively—even professional investors rarely time markets correctly.
The founder with an IPS will dramatically outperform the founder who panics, chases, and makes emotional decisions. The 8.48% behaviour gap in 2024 alone represents enormous wealth destruction across millions of investors.
Systems beat instincts for wealth management. Not because your instincts are bad, but because the situations that trigger bad decisions—fear during crashes, greed during bubbles—are specifically designed to overwhelm normal judgment.
Build the systems now, while you're thinking clearly. Then follow them when you're not.
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