Most exceptionally wealthy families owe their wealth to control of a significant asset, whether business, real estate, an art collection, or an inheritance, rather than savings. What the first generation owns is not a number on a statement but an asset they control, and the personal, emotional, and social returns of controlling it are worth as much if not more than the financial value of the asset.
That is why conventional risk assessment misses the target. Diligence, rebalancing, an estate tax projection, each measures financial risk. If selling the company or breaking up the farm reduces that risk, the model records a gain and never counts what the family loses when control disappears. That risk of the loss of control is what drives sophisticated people to behave irrationally, which then precipitates financial loss. There is in conventional risk assessment a gap between what it measures and what the client measures as success.
An index closes that gap. It scores a family-controlled entity across four areas: resources, governance, learning and innovation, and competitiveness. What sustains family control of a business also sustains control of a collection, a compound, or inherited wealth. An index does not replace judgment; it does what judgment alone cannot: rank exposure before the first meeting, supervise delegated work, and explain performance in terms of control.
To test where an index helps, I put the questions asked of clients to three successful people. Michael Sonnenfeldt is founder and chairman of TIGER 21, the peer network of high-net-worth wealth creators. Doug Johnson chairs its Denver group. Tom Ruggie is founder and CEO of Destiny Family Office, and a wealth creator and collector himself. They disagree about sequence and whether any of this generalizes-but not about what families fight over.
Sonnenfeldt: Governance Sets the Portfolio
Sonnenfeldt frames the founder’s problem as a transition in authority, not assets. For the entrepreneur who ran the company with unfettered authority; the sale ends that era. The family office that ensues slowly transitions from one-person rule toward a family democracy-the founder handing over authority to adult children, often with little idea how to spread it among several decision makers.
Power moves in a predictable order. Philanthropy goes first, the natural on-ramp for passing along values with control. Investment decision-making goes last, because learning to invest well without the founder’s expertise and knowledge is far harder than chairing a foundation.
That sequence carries portfolio consequences, and the problem is governance, not asset allocation. Once several heirs each hold a veto, the office ends up run by its most cautious member. The level of acceptable investment risk ends up well below what the founder would accept. The family trades the compounding that built the fortune for diversification and liquidity.
Sonnenfeldt puts arithmetic behind it. A family business can compound at 21% but a family office investment, he estimates, compounds at roughly 6% after fees and expenses. The results in that, in one generation, one family that took the risk on the business holds 250 times another family that invested in a more risk adverse manner. The comparison is imperfect, but the point survives. His provocative statement is that many families below a billion dollars don’t need a family office at all. A few competent wealth managers can match the return without the overhead; the office earns its keep only if it manages real risk to control of the business and other assets, and it rarely does once the founder steps away.
On ownership architecture he is blunt about timing. Structure and governance predict how long a family office survives far better than returns do, and the questions that break families are knowable in advance: If one heir takes a distribution, does that mean everyone gets and equal distribution? Do family branches control what they own equally? Does unequal ownership carry unequal votes? What duty does a majority shareholder owe to a minority shareholder? Settle these in a family constitution written before the office goes live – draft it mid-crisis and it is too late.
He is realistic about the next generation. The threshold that justifies a family office-near $250 million-makes a founder’s talent unusual; at a billion, nearly unique. The odds a child carries identical talent are slim, and very few entrepreneurs raise entrepreneurs. What the next generation can learn is capital preservation; a seat is earned by genuine competence, not the surname.
Asked what a founder would most likely misread twenty-five years on, he answers liquidity -misjudging which members would want to pull resources out to start a business, buy a home, or take chips off the table. Asked what new family offices should get right first, he doesn’t hedge: governance.
The Chair: Structure Is Not Governance
Johnson, watching many families at once, sees the same failure upstream of everything Sonnenfeldt describes, almost every member puts structure ahead of governance. The structure was built to solve for tax, so wealth gets sorted into buckets organized around tax planning rather than succession. Then the family must live inside a structure never designed for it.
What gets skipped is the only question he thinks matters: for the sake of what? This is where a peer room does work no advisor can, as advisors supply the framework but cannot anticipate every contingency. Johnson personally only has young children, so he has no experience bringing in-laws into the wealth conversation. If he asks but the wealth conversation in the peer room someone will describe exactly the wealth conversation with in-laws will be: spouses treating wealth as theirs and developing their own demands on succession. By using the peer room, he sees that risk before living it.
He also watches risk aversion arrive in real time, almost always after a financial downturn. A beneficiary hears the distribution is smaller or the portfolio trailed an index, then comes the “pillow talk” with a spouse or other significant person asking why the family isn’t in this or that. To quiet the noise, the principal rewrites the investment policy and swings into preservation mode. Everybody loves everything in a rising market; the discipline is only tested when it turns.
On disclosure, his diagnosis is fear. Fear that children will never know the struggle, fear they won’t learn grit, fear that they will assume they’re set and coast. His alternative is to separate purpose from the answer to the question what wealth is for? This purpose he refers to as “family alpha,” and that conversation can happen without a number on the table. Build the education first, and when amounts are revealed, the family is ready. Silence is what wrecks families, ending with an accident dropping a fortune into a child’s lap overnight.
All too often Johnson has seen owners leave ownership rules until it is too late, which he attributes to the aversion of recognizing one’s own mortality. No one wants to contemplate their own death or the death of loved ones. But avoidance of your mortality is where the surprises live. His sharpest line: inheritance is wealth transfer; succession is power transfer, and people confuse the two. The best family CEOs enforce ownership rules rather than make them.
On outsiders in the family office, his rule of thumb is a 60/40 or 70/30 split weighted to family. Outside directors force everyone to raise their game and make the family behave-people stay on the decisions in front of them instead of relitigating old politics. But the family keeps the majority, because nobody knows the family like the family.
Asked which dimension members most overrate themselves he cites governance and learning. Every family believes it is the exception: we love each other so there is no need for formal governance, and we’re all educated so there is no need for learning and innovation. He asks what the conflict-resolution policy is, or how ready the children are to take over tomorrow. A few questions in, the gaps are obvious-and the families getting along beautifully while the founder is living are often the ones that are most at risk of losing control in the next generation.
The Builder: Rewiring, Pools, And the Air Traffic Controller
Ruggie comes at the same terrain but from inside the multi-family office he is building. When a founder arrives in his office after a liquidity event, Ruggie starts with three questions: What is next? Entrepreneurs are here to create, not retire, so the conversation is about retiring but rewiring. What impact does the founder want the wealth to have on the family? And what tax and legal planning is done? A liquidity event creates both opportunities and problems.
Having built wealth himself changes the advice he gives. He tells clients he is his own client. He has lived through the same decisions, not merely observed them. Too many advisors work from theory, citing concepts, rather than lived experiences.
Asked about Sonnenfeldt’s risk-aversion thesis, Ruggie reframes it rather than accepting or rejecting it. Many ultra-successful people took significant risk to build their wealth-often placing the business at risk. After success, Ruggie sees risk as shaped like a barbell: one portion invested conservatively to protect what was built, the other still concentrated in higher-risk ventures. The risk didn’t disappear; it moved – a meaningfully different diagnosis from Sonnenfeldt’s veto-driven drift toward caution.
His treatment of passion assets is unusually structured. Collectibles can play a role, but passion for possession comes first; investment potential is secondary to the genuine enjoyment of owning something. He sorts wealth into three pools: money needed within ten years, invested conservatively; money needed in ten-to-twenty-year is invested in public markets; and money needed in twenty-year-plus pool holding alternatives such as private investments, and collectibles. Many of his own assets, including collectibles, sit in that third pool, some never to be sold- but they remain on the balance sheet and in the plan, a discipline most collectors need but rarely impose.
What gets neglected once a family office grows is, ironically, not investing. Indeed, investing can be the easiest part. What gets neglected is clarity and simplicity. Wealth creates complexity: entities form, real estate is acquired, estate documents and insurance need updating, charitable goals evolve. Details fall through the cracks because successful people are busy. In order to create greater clarity and simplicity the firm’s core role becomes that of an air traffic controller, keeping the moving pieces organized.
On the tradeoff among control, growth, liquidity, and cohesion, he has seen all four go wrong, but control is the most common to fail and the most difficult to manage, since it sits at the center of succession, governance, and leadership transitions. As for which dimension families most misjudge, he won’t generalize as it depends on the generation, the children’s ages and whether the founder is still active.
Where Three Vantage Points Converge
First, control. Sonnenfeldt says a founder most misreads liquidity, but governance is the thing to get right early. Johnson says the fight is over control, one hundred percent. Ruggie says control is the most common and difficult tradeoff. Three people, different incentives and samples, land on the same variable-the one conventional financial risk assessment does not measure.
Second, the binding constraint is timing, not knowledge. Sonnenfeldt: write the constitution before the questions go live. Johnson: If you didn’t start yesterday, start today. Ruggie: ideally the work began before the liquidity event. None describe families that lacked expertise-only families that waited too long and used its expertise too late, and on the wrong problem first.
Third, learning is a resource with measurable returns. Johnson’s in-law example is a specific risk identified years before exposure, at no cost, from someone who had already made the mistake. Ruggie treats innovation as a habit anchored in a refusal to grow complacent. Sonnenfeldt’s version: the next generation’s learnable competence -capital preservation- carries a family when entrepreneurial talent doesn’t repeat.
Why This Argues for an Index Rather Than a Formula
Ruggie’s refusal to generalize is not an objection to measurement-it is the case for it. A formula prescribes the same answer to every family; an index scores a particular family on specific dimensions and shows where it is exposed. His own list of variables describes what the index must weigh, not proof that weighing is impossible.
Johnson supplies the sharpest evidence for why self-assessment can’tstand in for an index. His members sincerely believe they are correct when they overrate themselves precisely on governance and learning. The gaps only surface under structured questioning about conflict resolution, in-law friction, and next-generation readiness. That is what an index does-it asks the questions the family wouldn’t think to ask, in the same order every time.
Sonnenfeldt’s central claim is measurable: structure and governance predict survival better than returns. If true, a family’s exposure lives in variables nobody tracks, while enormous effort goes into tracking the variable that predicts less.
The point of scoring resources, governance, learning and innovation, and competitiveness is not to grade families but to evaluate how a family-controlled entity is likely to fare over time. It lets an advisor supervise delegated work, budget time, promote the behaviors that sustain control and curbthose that erode it, and understand performance rather than infer it. Done before the first meeting, it defines both the problem and a workable first solution.
The families that sustain control across generations are not the ones with the most elegant structures. On the evidence of these conversations, they are the ones who knew, early and specifically, which dimension was weakest-and did the unglamorous work of fixing it while there was still time.
Matthew F. Erskine is Managing Partner of The Erskine Company LLC and Erskine & Erskine LLC in Worcester, Massachusetts, and the author of the Sustainable Control of Family Assets (SCOFA) Index.
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