Family Office

EXCLUSIVE: Conference Hears About Family Office Structures, Achievements And Governance

Anna Hallissey, Reporter, December 4, 2014

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Culture and specialization is key to a successful family office, a panel of industry leaders told an audience at the latest Family Wealth Report Summit.

Culture and specialization is key to a successful family office, a panel of industry leaders told an audience at the latest Family Wealth Report Summit.

Held at New York’s prestigious Metropolitan Club in conjunction with Columbia Management, the first panel of the summit, entitled Developments In Family Office: Structures, Achievements and Governance, brought together big names in the family office space to discuss matters including the existence of a family office market, client education and the significance of culture.

Chaired by Joseph Reilly, founder of family office association The Mill, the panel featured: Rick Flynn, managing partner, Flynn Family Office; Jamie McLaughlin, founder and chief executive, J H McLaughlin & Co; Rebecca Meyer, managing director of client strategy, Pitcairn; and Chris Zander, chief wealth advisory officer, Evercore Wealth Management.

Kicking the panel off, McLaughlin cautioned that a “family office market” does not yet exist, attributing this to its lack of institutional character and citing the absence of patterns, limited reference group benchmarking, and, due to its opacity, limited visibility among and between firms. He said it was more of a “community” than a “market” and that it was inchoate; that is, at a very early stage of its development.

“There’s an element of the practice of family offices that’s almost the very opposite of institutional,” said Pitcairn’s Meyer. She suggested that a potential reason why there isn't a family office market is because they tend to use quite an individualized approach to business.

Zander of Evercore Wealth Management similarly noted that instead of viewing the family office space as a market, his firm defined its own offerings by how it engages, coordinates and advises a family.

“Every family is so different in what their needs are, who they trust and how they’ve managed their wealth,” he said. “We have to move forward, it’s about connecting with the generational point people in the family and being able to deliver advice to them,” he said.

Flynn attributed the lack of a more defined market to the disparate levels of wealth family offices cater to and instead stressed that firms must focus on their specialties to succeed. He noted that the differences in the servicing requirements between a first and sixth generation high net worth individual can be vast – making it more difficult for a single firm to dominate across all areas.

As well as this, Flynn touched on the disaggregation of the family office space in the wake of the economic crash in 2008 as a factor in the lack of market concentration, observing “a trend toward the customization of a firm’s engagement letter and scope of services.”

Meanwhile, McLaughlin believes the fragmented RIA channel is best positioned to serve the forward demand from families who are looking for an alignment of interests between the firm and client, but that they suffer from weak capital structures, weak brands, weak organic growth and deteriorating cost-income ratios - all which pose challenges. He contrasted the RIA channel with wirehouse brokerages who enjoy national brands and strong organic growth, and who have largely shifted to a comparable fee-based model. 

“RIAs demonize them...and do so at their own our peril,” he said. With many brokerages offering fee-based relationships, McLaughlin singled out Merrill Lynch PBIG in particular for its offering, asserting they have “some of the greatest talent on earth”.  Their challenge is delivering the best thinking of the firm across all clients equally.

On the other hand, Flynn noted that, despite their scale, brokerages do not necessarily fit into the family office market due to how they commoditize asset management services. “The opportunity is in the 'un'-bundling of the services,” he said. “There are very fine firms that have a lot of AuM for a lot of powerful families but we don’t think that most are providing the full range of services that families require.”

McLaughlin said firms shouldn’t fear outsourcing and sorting out what is “core” from what is non-core or “adjacent.”

He continued: “I believe the economic future for all wealth firms will be to stick to their knitting. Do the things you really do well that no-one else can do better than you. Those are the core services, and to systematically define and affirmatively execute on those things that you don’t do as well as someone else, and put those into the hands of partners that you make agreements with, formal or informal, and provide services to clients where you lead the service provision,” he said. “I can assure you that families don’t believe any firm can do everything well. We’re fooling ourselves to think that we can provide everything.”

Zander added that the key to a successful family office is its ability to be nimble and adapt to the oncoming generational shift around the corner.

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