Understanding the critical role of vetting in family offices

• Purpose, challenges and opportunities around vetting
• Conventional and unconventional assessments, ethical considerations
• Validity mechanisms, trust, and ‘trust wobbles’

In the world of business families and their family offices, vetting helps individuals, different groups, and firms verify credibility and trustworthiness of peers, potential business partners, staff, service providers, and even new family members—potential partners and spouses entering the family of the ultra-wealthy are not spared. These analyses, despite the rigour involved, hold a plethora of moving parts, most of which are qualitative and context dependent, where even if the critical process of vetting is carried out, the result might not be ‘correct’ in the end.

Purpose, challenges and opportunities around vetting

Conducting a thorough background check on an individual or entity before entering into a collaboration or making investment decisions is a meticulous and resource-intensive process. This due diligence endeavour is undertaken with the primary objective of ensuring well-informed and judicious decision-making, albeit at the cost of time and financial resources.

However, worse things can happen if vetting is not carried out, for example, due to a perceived established trust, based on the involvement of a third party whose judgement and recommendation seems solid enough as a guarantee, especially if there is a time constraint on the decision.

Further, the level of transparency and sharing of anyone’s interest points may vary from person to person and company to company, and may also be based on cultural differences, traditions, as well as regulatory environments. Rushed, last minute, and superficial checks that are not well-thought-out may bring inadequate results. Rigour is essential during the verification process in mapping out interest points, and the individual, family, and non-family contextual considerations to be used.

Whilst vetting processes may be accompanied by asymmetric challenges, these also hold a myriad of opportunities to the parties involved, including getting to know the individuals involved, and acquiring nuanced details about circumstances from different perspectives, some of which may spark further collaboration ideas and even innovation.

Choosing the person who does the vetting is a critical decision, as pertinent information could easily be ignored or misinterpreted by even the sharpest of eyes if they do not hold prowess in all the relevant and connected areas. Hence, tailoring the tools and techniques to the scope and aspired extent of the vetting, and any necessary recalibrations of the results, is paramount for these exercises. The actual time and period during which the vetting happens is also relevant, and some vetting purposes require further assessment at a later stage, for instance, when circumstances drastically change.

Conventional and unconventional assessments, ethical considerations

Identifying what’s important to assess, which conventional and unconventional method to use, and how the evaluation will be set out, on what qualitative points, and most importantly, by whom, require an alignment between the individuals who are keen to carry out the vetting. Someone tasked to find something either negative or positive would focus on those details, without offering a balanced view. Biases may result in unnecessary tensions and jeopardise other areas of collaboration, and even cause reputational damage.

Ethical considerations behind vetting exercises include whether to inform the different stakeholders about the vetting, and the extent of this. There is also the question of where to draw the line as some of these attempts may even backfire; stakeholders need to keep in mind the purpose of the exercise, what areas the vetting should cover, and what accuracy and confirmation of facts mean for the process.

It is also a small world in this field. In all likelihood, the vetting will be known to most, if not all parties involved sooner or later. Then we have to consider who gets to decide what to do with the acquired information and with whom to share it, especially sensitive data.

Another important ethical consideration is when to include unconventional vetting practices, such as uncovering different sides and personal characters of any potential entrants, how they handle themselves in different settings, what their associates and friends are like, and so on. Anything beyond vetting businesses and investment credentials take time and money.

Another interesting facet of vetting, which is less elaborate and rather basic, is when many UHNWIs gather in different settings. On these occasions, the hosts of these gatherings are responsible for the vetting. However, they are mostly relying on the information they receive from the wealthy attendees, usually prior to the event, and would have to make their own judgement of these observations accordingly.

The specific questions asked and how they are used for each attendee are kept confidential by the hosts and organisers. Consequently, trust is a crucial prerequisite before any involvement is considered. Given the sensitivity of topics such as wealth levels, diverse activities, and the roles individuals may assume, the process of vetting also carries inherent risks. Ultimately, the decision regarding the composition of the guests rests with the hosts and organisers, who ideally would choose to prioritise integrity and transparency in disclosing each participant’s identity.

Validity mechanisms, trust, and ‘trust wobbles’

The wide array of potentially false assumptions and subconscious biases involved in vetting processes makes the cost even higher on multiple levels. Who determines who is worthy of trust, in what areas, and under which personal and business hats, when does trust begin to ‘wobble’, and when is it gone? How long should ‘credibility’ last, what outcomes can be expected in an ideal scenario, and should there be an expiry date on the findings?

In the complex space of business families and family offices, vetting plays a vital role. It’s a multifaceted process demanding meticulous attention to detail, ethics, and trust. Precise vetting is key for informed choices. Challenges aside, it fosters insight and collaboration. Responsibility for vetting lies with those valuing integrity and transparency.