Family Office Relationships

Family Offices have similar goals as other investors, but with unusual challenges.  Meeting those challenges is critical to investment advisor success.

Family Offices, according to publicly available information, typically invest about 25-30% of their liquid wealth (e.g., non-business value wealth) into public stock market positions.  But selecting an investment strategy for this entire piece of the wealth pie, and choosing managers for the underlying positions to execute the strategy, is just as hard, if not harder, for Family Offices.

First, with larger wealth comes larger responsibility.  There is an assumption in many families that this wealth will be preserved and built for both current family members and those to come. Generational wealth.  As a result, the stress of “preserving financial independence” is added to by the stress of “stewarding this legacy for the future.” That’s a lot to put on the shoulders of anyone. Building trust, and showing empathy, matter greatly; wealthy people are still people.

Second, Family Offices have no shortage of potential advice.  They are perhaps the most sought after investors in the world:  investment advisors, big banks—everyone who sells financial services wants to profit from them. (I claim to be no different; I’m just pointing this out.) Their time is precious; it can’t be given to everyone. Wasting it on something an advisor or fund manager is passionate about but that isn’t truly unique or well-suited to them is a bad look.

Third, Family Offices have responsibility not only for the stock market portion of wealth; they also must produce adequate income for the family to continue to live its lifestyle, as well as choose other alternative vehicles for wealth building—such as individual private equity deals.  Often leaders of families have extraordinary business skills—it’s what got them to where they are.  But not always, and second or third generation wealth may have less confidence in some of these choices than founders.  This challenge can be where newly wealthy clients—and particularly those who came to their wealth from another world (e.g., entertainment, sports)—really struggle, and sometimes strike out.  Respecting this dynamic is important to building trust and confidence.

Fourth, the most persuasive “pitchers” may not be the most capable in their fields—or the most ethical.  Building trust is a long-term process, and once damaged is hard to repair.  

There’s more, but you get the point.  With added wealth comes added pressure.  Advisors need to have the skills to navigate these challenges with the clients, all while building trust—something that may be appreciated more than skill, or investment returns.  

You’ll notice the word “trust” keeps coming up in my thoughts; there’s a reason for it. 

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