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EXCLUSIVE: Advisor, Trustee Due Diligence - The Travails Of Setting Up An SFO

Joe Reilly

12 July 2013

For his regular series of interviews in Family Wealth Report, Joe Reilly interviews Patricia Angus, advisor and consultant to families and family enterprises, about credentialing wealth managers, vetting trustees and families starting their own investment management firms.

Reilly: Is there anything truly new under the family wealth management sun?  

Angus: While there are numerous new product offerings and increased legal structuring for families in the US and around the world, the issues faced by private clients are timeless. Put simply, we are born, we need to take care of ourselves while we are alive, and we leave a legacy behind. The way that the industry has responded to this reality has certainly become more complex, and the ways that families think about these realities are changing as well. I recognized long ago that the most challenging issues were neither financial or technical, and I am encouraged to see the rapid growth in awareness of this reality across the field.

Reilly: Do you think SFOs can make the shift to become an RIA and still maintain the "family feel?" What would you tell a family who is considering taking in outside clients?  

Angus: This is a difficult transition and can only be understood through experience. It might seem that taking on outside clients would relieve some of the challenges of SFOs, but it creates new ones that are hard to predict. I would recommend that a family clarify its motivations, and articulate its expectations, before deciding whether to make the transition. For example, if the family values control and the intimate culture that an SFO provides, they must consider how they will feel when they are subject to the demands of other parties who become clients of their organization. It is important to consider whether and how the current professionals will adapt to an outward-looking firm, which often comes with a more sales oriented-approach, vs the relative purity or objectivity of an SFO. Most importantly, and often overlooked, is whether the family wants to own and govern a financial services firm. It is a complicated business and oversight requires a great deal of time and expertise.

Reilly: Is "how much is enough" a good place to start the discussion about family wealth?

Angus: I don’t believe so. This phrase became popular in the past decade, and I often found myself questioning the question itself. Assuming that “how much is enough” refers to inquiries by parents who are trying to determine what to leave their children/grandchildren, I believe the better question is “have I done enough?” That is, as a parent or grandparent, have you come to terms with what your assets mean to you? Have you considered the impact you are currently having and would like to have with your resources? Have you helped your heirs gain the skills they will need, which often require a strategic mindset at an early age. I also recommend that families consider “what do financial assets mean to us?” In the end, there is no such thing as “enough.” We don’t ask “have I given enough love?” Time is better spent in developing the values, character, and skills of one’s heirs. They can’t be quantified.

Reilly: There has been a great increase in wealth in the world, and a parallel expansion of the wealth management industry. How should a family even begin to explore this specialization and find an advisor?  

Angus: Before looking for an advisor, it is essential to determine what kind of advice one seeks. What are your goals, and your own strengths and weaknesses. We are all better at one part of the process than another. By starting with oneself, it is easier to know how to assess firms and individual professionals. After that, it helps to learn about the industry and what alternatives might be available. I often help clients learn about the landscape before we venture together to find professionals to meet their needs.

Reilly: Do you think there should be a more formal credentialing process for ultra high net worth advisors?  

Angus: This is a difficult question. The issues are so complex and inter-related, I’m not sure that a single credential could suffice. At this point, I believe that it is essential to have a solid start in a professional discipline – law, accounting, psychology, finance – before becoming a generalist. The training and experience that one gains early in a career cannot be substituted with a newly created “credential.” After that, it is important for the professional to pursue a path of lifelong learning that complements and rounds out the skills and knowledge of the “profession of origin.”

Reilly: What qualities do you look for in vetting a family trustee? 

Angus: This is a broad question, and I would need to know more about the specific trust, and family, before answering. That having been said, I find that it is helpful to find a mix of qualities that suits the particular situation. Any trustee must be able and inclined to act as a fiduciary – that is, be able to put another’s interest ahead of his/her own. Ideally, a trustee, or group of co-trustees, must possess a certain set of qualities – objectivity, emotional intelligence, honesty, administrative abilities .  Financial acumen and attention to detail cannot be overlooked. Often, this cannot be found in a single person or institution. So, co-trustees might work best.

Reilly: Is it more important to build a family dynasty or simply pass along your values to your children and hope for the best?  

Angus: I’m not sure this is an either/or proposition and also wonder whether we have a single definition of “dynasty.” I also am not sure that one can intentionally “create” a dynasty, even if that term is defined as financial assets that last many generations, as it usually interpreted to mean. Passing along values is something that all parents and grandparents do, whether they realize it or not. I find it more interesting to think about the here and now. What kind of human beings are you developing? Will they have the capacity to live and learn and contribute to the world? Often the families known as “dynasties” create disparate levels of health among family members, and that is unfortunate. We tend to look primarily at the successful business, philanthropic, or political members of the family. What about the rest of the family? How are they doing? We have reached a point where people are so focused on multiple generations far into the future that I fear that we are overlooking the current generation. Just as it is with any important endeavor, it is the process that matters, and the end result will follow. Focus on living your values, and working collaboratively with all generations, and you are more likely to have a sustainable family into the future.