The Mistakes That Quietly Erode Family Office Wealth, and How to Avoid Them
- Apr 14
- 5 min read
Updated: Apr 29
What does it really mean to build wealth that lasts? For most UHNW (ultra-high-net-worth) families, the answer involves far more than picking the right investments. It requires navigating family dynamics, selecting the right advisors, structuring the right entities, and asking hard questions that most people in the industry would rather avoid.
In the Family Office Association video podcast, Steve Lockshin shared his unfiltered perspective on the structural failures he sees repeat themselves across family offices, and the principles that actually work.
The Magnifying Glass Effect: What Wealth Really Does to Families
Steve opened with a story that stopped the conversation cold. A client, a man with hundreds of millions of dollars, asked him for help minimizing his taxes so that his brother would "come out on the losing end." It is a question that reveals something important about what wealth actually does to families.
"Money is a magnifying glass. If things are going well in the family, it makes them bigger. But if there are fissures, it exposes those fissures and too often becomes a dividing line in a family." – Steve Lockshin
His experience watching multi-generational families, including G4 and G5 branches where one family member held $300,000 and another held $300 million at the same generational level, illustrates how quickly outcomes diverge and how easily wealth becomes the measuring stick for family worth. The implications for family offices are significant: technical sophistication alone cannot substitute for deliberate planning around family dynamics.
The Most Repeated Mistake in Family Office Setup
When asked what he sees family offices get wrong most often, Steve did not hesitate. The biggest mistake is hiring the wrong people to seed the office, almost always because the founding family is not yet willing to spend what proper infrastructure actually costs.
This creates what he called a predictable failure pattern: the hired leader, compensated below the level required to attract genuine expertise, then hires people who do not threaten their position. The result is a weak foundation built on inexperience concealed by authority. Families often cannot tell the difference until the damage is done.
A Smarter Phasing Strategy
His recommended alternative is pragmatic: start with a well-resourced multifamily office (MFO) structure before building in-house capacity. Use that time to learn what the family actually needs, identify where genuine expertise exists internally, and then bring only those functions in-house where a real advantage exists.
He uses a useful analogy. Most families buy the equivalent of a turboprop aircraft when they actually need a Gulfstream part of the time. The MFO model functions more like a fractional jet program: access to the full range of capabilities, sized appropriately for each mission, without the overhead of owning what you only need occasionally.
The After-Tax Performance Gap Nobody Talks About
One insight that stands out from the podcast: almost nobody in the family office world evaluates investment performance on an after-tax basis. Most reporting shows gross-of-fee returns, some shows net-of-fee, but almost none captures the real after-tax impact. Steve argues that tax-loss harvesting alone, a strategy he considers close to free money, is underutilized by roughly 80% of eligible investors. That gap represents a meaningful edge left on the table.
Private Trust Companies: A Tool for Families at $100M and Above
Steve runs private trust companies for client families and makes a clear case that they are underutilized, particularly as costs have come down. He identifies three reasons to consider one: protecting individual trustees from personal liability, preserving and documenting decision-making process across generations, and maintaining privacy.
The process argument is the most compelling. A private trust company, structured around formal committees with documented minutes, creates a living record of how the family approaches investment decisions, charitable priorities, and distributions. When the wealth creator is no longer able to provide direction, that institutional memory becomes the operational guide rather than a collection of ambiguous legal documents.
Steve now places the threshold for considering a private trust company at approximately $100 million, down from the $250 million he cited years ago, as infrastructure costs have decreased.
The Advisor Conflict Problem Most Families Cannot See
Perhaps the sharpest section of the conversation concerned advisor incentives. Steve argues that the AUM-based fee model creates conflicts of interest that most wealthy families fail to notice because the costs are never written as a single check.
A straightforward example from the podcast: when a family should pay off a $10 million mortgage because the math favors it, an AUM-compensated advisor at a major bank has every financial incentive to recommend a financing package that keeps assets under management, generates lending fees, and ties the client to the institution. The advice that serves the advisor is not the same as the advice that serves the client, and the structure makes that misalignment nearly invisible.
He recommends a fixed-fee compensation with a defined scope of services, which eliminates the incentive to grow assets at all costs and aligns the advisor's interests with genuine client outcomes.
AI and the Future of Family Office Advisory
Steve sees AI reshaping how families hold advisors accountable. The technology can analyze any report, proposal, or pitch email, flag missing information, and produce a full fee and tax breakdown. For families, that means a clearer picture of what they are actually paying and whether the advice they are receiving holds up under scrutiny. Advisors who rely on relationships over analytical rigor will find it increasingly difficult to sustain.
Mission Statements That Actually Mean Something
Family mission statements are a staple of family office conversation, but Steve argues that most are too vague to be useful. Statements built around generalized aspirations, wanting the family to thrive, to be unified, to give back, offer no guidance when actual decisions need to be made.
A more useful mission statement is specific about the wealth creator's philosophy, what the trust is intended to do and not do, and what values should guide trustee decisions when the creator is no longer available to provide direction. It should be accessible to a non-lawyer, actionable by a committee, and direct enough to give real guidance across a range of situations.
The Trait That Matters Most
When asked for one piece of advice every family office should implement, Steve returned to where he started: humility. Not the performative kind, but the genuine willingness to know what you do not know, to seek expertise from people who have spent careers solving the exact problems you are facing, and to resist the temptation to treat family office leadership as an extension of the entrepreneurial success that generated the wealth.
The families that protect and grow wealth across generations tend to have this in common: they are intellectually honest about the limits of their own knowledge, and they build structures that compensate for those limits.
Watch the Full Conversation with Steve Lockshin
About Steve Lockshin
Steve Lockshin is the founder and principal of AdvicePeriod, a Registered Investment Advisor serving affluent families, and the creator of Vanilla, a tech-driven estate planning platform for advisors and attorneys. With nearly 40 years in wealth advisory, he is renowned for his expertise in estate planning and modern wealth management, and authored "Get Wise to Your Advisor." Steve has earned the #1 ranking in Barron's national and California listings and was named WealthManagement.com's Thought Leader of the Year in 2019.