“In the multi-family office industry most professionals come from what you might call ‘the other side’ – accountancy firms, banks, law firms – where you are trying to push products to clients,” Santiago Ulloa, president of GenSpring International, tells Family Wealth Report. But he thinks the independent advisory world can offer something wholly different for professionals willing to take that leap.

“In the multi-family office industry most professionals come from what you might call ‘the other side’ – accountancy firms, banks, law firms – where you are trying to push products to clients,” Santiago Ulloa, president of GenSpring International, tells Family Wealth Report, but the independent advisory world can offer something wholly different for professionals willing to take that leap.

Ulloa himself is from a private banking background, having previously overseen private banking for Latin America for the Spanish firm BBVA. He set up his own advisory company, TBK, in 2000 which went on to be bought by GenSpring in 2007 and become GenSpring International.

“I was working in the banking business managing clients and I realized clients’ interests weren’t being well served, because we were trying to sell bank products, and then when open architecture came in it became ‘who is paying the biggest referral fee?’” says Ulloa. “Some of us realized we weren’t doing the right thing, so I set up my own business – it doesn’t mean you always get it right, but you always try and do the right thing.”

Just before leaving the diversified financial services industry, Ulloa worked through a time of hubris in the industry – the dotcom bull market that led to the bursting of the tech bubble in 2000. In such times, high-fee carrying notes, for example, which aren’t in the clients’ interests often end up getting pushed. “And this happened again in the recent bull market,” he says.

The end result is clients get burned and the wrongs of the industry come to light, which often prompts people to leave and “go independent”. And this is what happened after the most recent bubble as well as the one before, says Ulloa.

When it comes to independence, the hallmark is only being paid by the client, and not receiving any commission from referrals. Ulloa says that while this is what independence should mean, it’s very common for people in the independent industry to receive kickbacks and he believes that GenSpring is actually in the minority of MFOs that are only paid by the client. Furthermore, he says the situation is even worse in the European wealth management industry.

Draws and pullbacks

Given the lack of clarity between providers – especially with the efforts companies put into protecting their all-important reputation and brand – it is hard for clients to distinguish whether they’re with a truly independent wealth manager. But is independence a really big issue for professionals?

According to Ulloa, it is: “Here you feel totally conflict free which for people who want to be honest with clients is huge. But you can’t go back [once you’ve worked in this environment] so you have to think of the consequences.”

Particularly, there is the issue of compensation: “In the short term you might not make as much money; but over the long term, if you do the job well, you can.”

Another factor of moving over to the MFO world is that advisors can spend far more time on each individual client. At GenSpring, Ulloa says there are around 370 employees serving some 700 clients – an enviable ratio of under 2:1.

According to a PricewaterhouseCoopers report, for firms servicing UHNW clients (counted in the research as $50 million+) the average client-RM ratio is 18:1. However, the same PwC report says that surprisingly the most profitable firms are actually the ones with a client-RM ratio far below this, of 2:1.

Banks, of course, operate with a totally different business model to family offices, but there can be little doubt many are now competing eagerly for the HNW and UHNW private client segments, seen as a good and steady source of revenue in light of the financial crisis. Some are also making efforts to reduce their client-RM ratios as a competitive differentiator. One example is the UK’s Barclays Wealth announcing they were doing so in 2007.

Attracting talent

Within the wider wealth management industry, talent management is frequently cited as a barrier to firms’ growth plans. Particularly hard to find are the professionals with outstanding track records in the banking industry as well as the soft, people skills to manage clients.

“This is expensive and margins are much lower than in the banking industry,” says Ulloa. He adds however that the firm’s large size within its niche, with around $23 billion under advisement, helps it attract talent. It’s also able to offer its employees a conflict-free environment and the freedom to be on the client’s side, he says. And with advisors freed up from sales quotas and new business targets they have the time to take care of old business.

The big banks have vast budgets for family offices to compete with for staff, but Ulloa thinks what firms such as GenSpring can offer is a wholly different role from working in the banking industry: “You get to understand the overall asset picture, and you work with all the different sides – legal, accountancy, investment – and you also are involved in family education and trying to create family protocol.”

For its own part, GenSpring is always on the lookout for top talent: “We’re always hiring, but it is difficult to meet the right people. We’re always open to people with the right values and goals. If there are top professionals who are ready to be paid only by the client then that’s a starting point for a conversation; if they want to be paid by multiple sources then that doesn’t really work for us.”