On the divergence of incentives inside a family office — and how to close it without firing anyone.
The person closest to the principal — the chief investment officer, the head of family-office operations, the trusted lieutenant — is not always working in the principal’s interest. Sometimes they are working in their own. The Number Two is competent. He has a Harvard or Wharton MBA. He came out of investment banking and took a position in the family office because it offered a level of compensation, autonomy, and proximity that no return to Wall Street could match.
An asset in the portfolio begins to underperform. The principal asks. The Number Two answers in a way that protects the principal’s peace of mind — not in a way that would describe the situation accurately. Accurate description would invite scrutiny. Scrutiny would invite outside operators. Outside operators would expose the gap between what has been reported and what is actually happening inside the asset.
This is not corruption. It is the divergence of two jobs that were supposed to be the same job.
The Number Two is doing the job he was hired to do — protecting the principal’s peace of mind. That is a different job from protecting the principal’s asset. In a healthy structure the two overlap and no one has to distinguish them. In an aging structure they diverge, and the divergence is invisible to the principal until it is too late to close. The report becomes the object of management, and the asset becomes the thing the report is about.
The failure mode is structural, not personal. Firing the Number Two brings in a new Number Two, who inherits the same incentive alignment and drifts into the same posture within eighteen months. The problem is not who occupies the role. It is the absence of a layer above the role whose compensation is structurally tied to something other than the Number Two’s report.
The principals who have closed this gap did not close it by firing the Number Two. They closed it by inviting a layer above the Number Two — one whose compensation is structurally tied to the asset’s performance, not the principal’s mood. The Number Two stays. His role narrows. The principal’s peace of mind, for the first time, is grounded in something other than the report from the person whose career depends on it.
AACP is not a fund. We do not raise committed capital from LPs. The principal owns the capital and the decision; we are the operating and capital architect alongside it.
AACP works deal-by-deal, gain-share aligned, with a small number of principals each year. Engagement is by introduction — through a referral or through Aaron Allen & Associates.
Request an introduction