Family Office Due Diligence: A Practical Guide for Multifamily Offices
Due diligence gives a family office a clear view of an adviser, manager, bank, fund, or operating partner before capital or sensitive information changes hands. The work is a disciplined review of people, ownership, regulation, fees, conflicts, controls, performance reporting, and fit. This guide explains how we can organize that review, which records matter, and how to turn findings into a decision that can be monitored after the engagement begins.
Start with a written mandate
Good diligence starts before the first data room request. Write down what the family office needs to decide, who will use the result, and what level of risk is acceptable. A review of a registered investment adviser differs from a review of a private fund, a trust company, a real estate operator, or a technology vendor.
Define the proposed relationship. Will the provider manage a portfolio, select other advisers, provide financial planning, administer assets, lend money, source deals, or support reporting? Record the expected account size, jurisdictions, investment horizon, liquidity needs, reporting requirements, and decision rights. These details make later answers easier to compare.
Set a decision rule. For example, the family office may require verified ownership, a clear explanation of regulatory history, independent custody, documented cybersecurity controls, and fees that can be reconciled to invoices. A single unresolved issue may require a pause, extra controls, or a decision not to proceed.
Assign a review owner and a second reviewer. The owner manages requests and the evidence log. The second reviewer challenges assumptions and checks whether a favorable presentation is supported by primary records. Keep a dated record of every request, response, document, and open item.
Verify identity, registration, and authority
Begin with the legal entity that will sign the agreement and the entity that will receive fees. Obtain the exact legal name, former names, registration numbers, principal office, ownership chart, and names of control persons. Compare those details with official registers and the proposed contract.
For a US investment adviser, review the firm's Form ADV on the SEC's Investment Adviser Public Disclosure system. Form ADV reports business activities, ownership, client types, assets under management, fees, disciplinary information, and other required disclosures. Record the filing date and verify material facts against newer records when available. The SEC explains that investors can use IAPD to research advisers and review filings and regulatory documents. Use the filing date shown in the record, because facts can change after a filing is submitted.
Registration is only one part of the review. Confirm whether the entity is registered, exempt, or operating under another regulatory regime. Check the relevant regulator in each jurisdiction where the provider serves the family, holds assets, markets a fund, or performs a regulated activity. Ask which entity employs the investment professionals and which entity carries professional indemnity or errors and omissions coverage.
Use public enforcement records as a starting point, then ask the firm for a written explanation of any event, settlement, arbitration, investigation, or material complaint. A disclosure does not answer every question by itself. The useful follow-up is what happened, who was affected, what changed, and how the firm tests the corrective action.
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Use Form ADV data as a screening tool
Form ADV can help us compare a firm's reported scale, services, client categories, ownership, fees, and disclosures. Review the filing date and the definitions used in the filing before comparing firms. Reported assets under management and service categories are useful for building a shortlist and identifying questions, but they do not predict results or prove that a firm is suitable for a particular family.
Review whether the firm reports portfolio management, selection of other advisers, financial planning, institutional portfolio management, pooled vehicle management, or other services relevant to the proposed relationship. Note whether the firm serves high net worth individuals, pooled vehicles, charities, institutions, or other client categories. A firm can report more than one service or fee type, so the categories should not be treated as mutually exclusive.
Use Form ADV as a screening record, then verify the actual team, mandate, fees, conflicts, references, and controls through primary documents. The filing does not replace document review or an assessment of the professionals assigned to the family.
Examine the people and ownership
A family office is hiring a team, not a logo. Request biographies for the people who will make decisions, manage risk, handle reporting, and communicate with the family. Confirm tenure, role, authority, professional qualifications, and the amount of time each person will devote to the relationship.
Map ownership from the contracting entity to the ultimate owners. Ask about recent or planned ownership changes, outside businesses, revenue-sharing arrangements, carried interest, and related-party transactions. A change in control can affect staffing, incentives, fee sharing, and the firm's ability to serve the family.
Review succession. Identify who can approve trades or payments if the lead professional is unavailable. Ask whether client relationships depend on one individual. Request the transition plan for retirement, departure, incapacity, or a sale of the business. A practical plan names decision makers, communication steps, access rights, and the records that must be transferred.
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Reconcile services, fees, and conflicts
Read the proposed agreement beside the firm's Form ADV brochure, fee schedule, and marketing materials. Confirm exactly what the base fee covers, how assets are valued, which account types are included, and whether the fee is billed in advance or arrears. Identify minimums, tier breaks, termination charges, transaction costs, custody charges, fund expenses, foreign exchange costs, and third party expenses.
If the firm charges a performance fee, ask for the calculation period, high water mark, hurdle, crystallization date, treatment of withdrawals, and treatment of illiquid assets. If it receives compensation from a product provider, ask how that payment affects recommendations. Require a written description of referral fees, revenue sharing, brokerage arrangements, soft dollar practices, and affiliated products.
Conflicts should be connected to controls. For each material conflict, record who benefits, when it can arise, how it is disclosed, and what review or approval limits the risk. Compare the written policy with actual account statements and invoices during the reference process. A clear fee schedule is useful only when the family office can reproduce the calculation.
Review investment process and evidence
Ask the provider to explain the process in a form that can be tested. Who sets the mandate? Who approves an investment? What research is required? How are liquidity, concentration, leverage, valuation, and counterparty exposure reviewed? How are exceptions documented?
Request a sample investment memorandum, risk report, committee record, valuation policy, and client reporting package with confidential information removed. For a private fund or direct investment, review the offering memorandum, limited partnership agreement, audited financial statements, capital call history, distribution history, valuation reports, and side letter terms where applicable.
Treat performance data carefully. Ask whether returns are gross or net, time weighted or money weighted, realized or unrealized, and whether they include cash, fees, expenses, and inactive accounts. Request the calculation policy and a reconciliation to a custodian, administrator, or audited statement. A headline return without a defined period and method cannot support a fair comparison.
For real assets, verify the source of valuations, debt terms, insurance, environmental reports, occupancy records, major contracts, and capital expenditure assumptions. For liquid portfolios, review trade execution, best execution reviews, liquidity controls, and error correction. Match the review to the proposed mandate.
Test custody, cash, and operational controls
Identify the custodian, administrator, prime broker, bank, and payment providers. Confirm which party holds assets, which party calculates values, and which party sends statements. The SEC's custody rule addresses adviser custody of client funds or securities and includes requirements related to qualified custodians and account statements. The exact application depends on the arrangement, so the family office should review the provider's disclosures and contract with counsel when needed.
Separate investment approval from payment release. Require dual authorization for wires, callback procedures using trusted contact details, payment limits, and an exception log. Review how new bank instructions are verified and how dormant accounts are monitored. Ask whether the firm has experienced a fraud, misdirected payment, or reconciliation break, and request the remediation record.
Request the SOC 1 or SOC 2 report for the relevant period, along with the scope, period covered, exceptions, and management responses. Review access controls, multifactor authentication, encryption, backups, incident response, vendor oversight, and recovery testing. Confirm how the firm reports a breach and how quickly the family office receives notice.
Check legal, tax, and reporting coordination
The provider should state what it does and does not provide. Investment management, bookkeeping, tax preparation, legal advice, estate planning, and bill payment can involve different entities and professional duties. Obtain the names of outside counsel, accountants, administrators, and other specialists who will be involved.
Ask how information is shared across those parties, who owns the work product, and who is responsible for deadlines. Confirm whether the family office will receive complete transaction records, capital account statements, tax reporting packages, and supporting schedules. For international families, document the jurisdictions involved, data transfer process, local reporting responsibilities, and the providers' escalation contacts.
This review is educational and operational. It does not replace advice from qualified legal, tax, accounting, or investment professionals who understand the family's facts.
Speak with references and former clients
Use references to test the written story. Ask for current and former clients with a similar mandate, complexity, and service model. Request permission to ask about onboarding, reporting accuracy, response times, fee changes, staff turnover, difficult markets, and the handling of mistakes.
Ask open questions first. Then test specific claims from the proposal. Did the named professionals do the work? Were reports delivered when promised? Were conflicts explained before a transaction? How did the provider handle a loss, valuation dispute, cyber event, or personnel change?
Former clients can reveal termination reasons, but protect confidentiality. Record facts that can be verified and separate an opinion from an observed event. One reference is not enough for a material relationship. Use several references and compare their answers with documents.
Write the decision and monitor the relationship
End diligence with a written decision memo. Summarize the mandate, evidence reviewed, strengths, open items, conflicts, fee calculation, operational dependencies, and conditions for approval. List each representation that must appear in the contract or side letter. Assign an owner and due date for every open item.
Build monitoring into the relationship. Set a calendar for Form ADV updates, audited statements, SOC reports, insurance renewals, valuation reviews, fee reconciliations, and key person changes. Review actual invoices against the agreed schedule. Reconfirm bank instructions through an independent channel. Track service levels and unresolved incidents.
Use trigger events for an interim review. Examples include a change in control, departure of a key professional, material regulatory disclosure, cyber incident, new affiliated product, repeated reporting errors, missed capital call, or a change in custody. A provider can remain suitable while its risk profile changes. Regular review keeps the original decision connected to current facts.
Key takeaways
- Define the mandate, decision rule, evidence list, and review owners before requesting documents.
- Verify the legal entity, regulatory status, Form ADV, ownership, control persons, and disciplinary disclosures.
- Reconcile services, fees, conflicts, performance reports, custody, and payment controls to primary records.
- Test the provider's claims with sample work, references, independent statements, and written explanations of exceptions.
- Record conditions in the contract and monitor ownership, staff, fees, reporting, custody, cybersecurity, and regulatory changes.
FAQs
What is the first document a family office should request?
Request the legal entity details, proposed agreement, current Form ADV and brochure when applicable, fee schedule, ownership chart, service description, and a list of the people assigned to the relationship. Those records establish the scope for the rest of the review.
Does a high reported AUM figure prove that an adviser is a good fit?
No. AUM is a scale measure reported under the firm's filing framework. It does not show service quality, liquidity, risk, performance, staffing, or fit for a particular family. Use it to frame questions, then verify the mandate and evidence.
How often should due diligence be repeated?
Perform a full review before engagement and set periodic reviews based on the relationship's complexity and risk. Trigger an interim review after ownership or key person changes, regulatory events, cyber incidents, custody changes, material fee changes, or repeated control failures.