As growth remains slack in developed markets but forges ahead in other places around the world, Rothstein Kass is planning growth by acting as an “outpost” family office, for single family offices worldwide that are looking for a partner in the US to help with their families’ affairs there.
The essential concept is that there is a single-family office - in China or Israel, for example - which is looking for someone to handle a number of projects in the US for the owner family, explains Richard Flynn, head of the family office group at Rothstein Kass.
It seems fatuous to say the world has become a more complex place recently, but certainly the world economic order is much less defined. For many decades, the developed markets have offered political safety along with positive growth rates. Recessionary years, or years of very low growth, have been sporadic, but many think these days we are at an inflexion point in relative economic power, with the West deleveraging and likely to suffer a prolonged period of low growth. But with many countries that are booming economically still not offering the political safety desirable for storing a large volume of assets, and also with less safety in some countries which were for a long time considered gold-plated, the idea of geographic diversification has taken hold.
Flynn believes this is part of the reason the firm has seen an uptick in requests from foreign families looking to outsource services to a provider in the US. As well as his work with families at Rothstein Kass, Flynn is also engaged in research and attends conferences with peers, and although this is anecdotal he does believe there’s some evidence that more families are looking for these services. The author Russ Prince, whom Flynn works with regularly, has also found from his research that there are wealthy families around looking to invest in North America in asset classes such as real estate and infrastructure, and looking for an outpost family office to handle that.
Flynn says at the moment Rothstein Kass only works with a handful of families like this, “from places such as Switzerland and Singapore,” but there are also a few deals in the works - such as a large one in China which will involve a number of different families - that could see this business expand. He’s hesitant to call it a trend yet, but says “it’s a top priority” for Rothstein Kass. He is refreshingly modest about the firm’s approach though, and admits it hasn’t won every pitch and that each pitch takes a lot of work as each family is looking for completely different services.
Growing this business
As part of Rothstein Kass’ drive to promote this business area it will also be looking to educate the industry and position itself as a thought leader on how multi-family offices can meet foreign single-family office’s needs in the US. “What we hope to do is educate single-family offices and their service providers, so that they know clients can be serviced in this way by MFOs,” explains Flynn. “It’s a new opportunity for MFOs to step up and let SFOs all over the world know” they can work with them in this way.
So far Flynn says Rothstein Kass has come by such business through networks in the US that extend to client-families abroad. Clients have been acquired “through networking with some gatekeepers – such as lawyers for inbound estate planning – and based on the tax strength of our business,” says Flynn, adding that this is a big bonus when it comes to this clientele. Rothstein Kass’ family office practice, which works with around 80 client families, grew out of an accountancy and professional services firm. For international clients one of the key differentiators is tax expertise because there are always tax matters involved with cross-border business, says Flynn, who brings along one of the firm’s tax partners to the first meeting.
Families are often looking for lifestyle and “soft services” in the US, as it’s a top venue for them to send children to study and to own overseas properties that need managing. Essentially they want to be able to integrate certain family members and ownership interests in the US without any hassle. “It’s quite lifestyle oriented,” says Flynn, adding that this is especially true for families from Asia-Pacific.
To meet these needs “you have to have access to talented people who can work with these families,” says Flynn. They’re also looking for good banking relationships and “project management” services and are “going to throw a number of things at you.” Multi-generational families are also likely to have members studying, travelling or even living in various locations in the US but aren’t going to want to deal with multiple outpost family offices, so you need to be able to provide this regional coverage.
Rothstein Kass does not provide money management services but Flynn does not view this as a barrier to this kind of business as these families already have sophisticated international money managers in place. In outpost situations, his firm is not looking to get in on these relationships and provide full integrated wealth management, but rather take up the niche requirements that are difficult for a single-family office to access internationally.
The hard part is cultivating relationships with single-family offices, which are notoriously private entities – as you would expect. For a start, says Flynn, there has to be a philosophical alignment between the SFO and MFO if they are to work together successfully. But even then he does not play down how hard it is to grow that relationship. “I don’t think you can ‘convince’ them to trust you; it has to be referential,” he says. It takes a lot of time and you also have to develop a trusted brand and reputation, and travelling to the home country and meeting with key decision-makers is important, he adds.
“It comes back to the ‘Three Cs’: confidentiality, continuity and competency. It’s not something you’re going to advertise and get business for,” says Flynn. Because of these difficulties of entering the market he does not think it would be the right fit for a start-up company, for example.
However, there a number of positive factors balancing these challenges, says Flynn. Number one is that he believes there is momentum in this idea at the moment. “There’s need among families for these services that’s propelling them to look into it, even if their SFO may not want to relinquish any control over services.” Also, outsourcing is a cheaper option for single-family offices than setting up a full outpost office abroad, he points out, and this can also be very costly if it is not done properly.
The compensation model
The compensation model for these kinds of relationships is “still in development,” says Flynn. The relationship requires a level of trust and prices sometimes have to be revisited depending on the level of engagement that’s been required. High net worth families “are looking for quality, time and price. They’re always looking at price but they’re looking mostly for quality and timeliness,” he says.
He doesn’t think the model would work for a family who were only concerned about price as it’s inherently highly service-oriented, which is why the firm has its sights set on long-term relationships with these families. “We don’t like to do transactional; we might to this occasionally but we look for ongoing relationships,” adds Flynn.