By Lisa A. Ditkowsky
More than a decade after Hannah Shaw Grove and Russ Alan Prince began to systematically study family offices and the preferences and peculiarities of the families comprising them, "family office" is now part of the lexicon of the super wealthy. So, naturally, financial service professionals wanting to work with the über rich showed recent interest in a first-of-its-kind "Creating a Multi-Family Office" conference.
Grove and Prince are researchers and experts on the preferences of the wealthy. These two highly sought after private wealth consultants have seen the multifamily office (MFO) industry grow up around them and their brainchild, Private Wealth magazine. It seems fitting that Private Wealth's parent company, Charter Financial Publishing Network, would team up with a leading family office group, Rothstein Kass, to coach other professionals on how to build a family office practice. The conference took place May 23-24 at the Hotel Sofitel in New York City.
Grove, Prince and Richard J. Flynn of the Rothstein Kass Family Office Group in New York City agreed that the children of the super rich almost never stay with the parents' financial advisors. "Working with the parents and trying to bring the kids into the fold afterwards rarely ever works," Prince said. He added that "marketing plans in most environments should be shredded" and that one needs to "create marketing plans per client-that gets you business." All three experts work largely with families involved in liquidity events and with the younger generations (termed "G2 and G3").
Interestingly, the speakers, despite their varied backgrounds, are all focusing on client relations at this point in their careers. For example, Flynn does not practice law but heads up the Rothstein Kass Family Office Group. His associate, Paul Rich, long ago abandoned preparing tax returns and conducting audits to transition into his current role, co-leading the Rothstein Kass Business Consulting Group. "I stay away from the money issues; I'm more interested in the relationship," he said. Keith Bloomfield of the Forbes Family Trust is a lawyer by training, in addition to all his securities and insurance licenses.
Family office clients ideally have a minimum net worth of $20 million, with $10 million liquid and readily investable, up into the hundreds of millions and even billions, according to the speakers. Grove, Price, Flynn and Rich all drove home the point that these super-rich extended families demand a flexible service model. The greater the wealth, the more moving parts there are to the whole financial plan. This drives the need for a advisor to take on key partners-from lawyers, accountants and insurance professionals to high-end healthcare consultants, appraisers and home security companies.
One might ask what all these quarterbacking services, beyond the investment management staples, cost. Grove's studies show MFOs usually charge all-inclusive fees of 1% to 3% of assets.
Communicating With The Super Rich
"If you are underestimating the need for confidentiality, rethink that." Grove said. She consulted with one top-tier client for six months before the client gave her a phone number.
Certain super-wealthy clients do not want online account access and do not want to communicate by e-mail. The takeaway is to learn to customize the multifamily office model on a client-by-client basis. The wealthier the client, the more highly responsive the advisor needs to be. Responding to a client after a day, rather than instantly, could cost you the client. "If high-touch, high-customization is not your mantra, stop now!" Grove said. "Everything you can do in person is better."
Rick Flynn said,"We view ourselves as a MFO, but we view ourselves as a single-family office (SFO) for each client." He later added, "We operate as a COO of their life management issues on a project basis."
"The platform is not the answer," Prince said. "It is you that becomes the key element. You've got to be able to see the possibilities and bring it all together. That becomes the magic here. It comes back to you... I don't care how good you are. The person who has the client relationship wins."
In a world in which face-to-face contact is being replaced by e-mail and social media, it is reassuring to hear the experts insist that nothing replaces building client trust in person.
"Some people fear or question [whether] they have the right professionals," Rich said. "They want someone who really listens and cares and who can care about the business as much as they can." Rich described his role in working with the super rich as that of a facilitator and negotiator.
"One of the most difficult things is access," Flynn said of working with the super rich. He spoke of the overarching needs for confidentiality, competency, continuity of service, caring and listening (as in really hearing and being responsive). "They have to know you as a professional [not as a friend], and they have to like you within the first few minutes."
Flynn reminded all the aspiring MFOs that the work is hard, and it is not possible to run a MFO without being willing to work hard. "You have to be a jack of many trades-not have all the answers-but you need to make them feel that you are the right person for them to be talking to and finding them the right solutions."
"One of the things we've seen this year is we are spending a lot more time with G2 and G3," he said. "You've got to pay attention to G2 and G3 when they're young." His firm has found "there's only 9 percent (of the super rich) that survive with their wealth intact after three generations."
"There are a lot of people today that are really scared," Rich said. "Even though they may be worth $300 million, they do not know what will happen to their grandchildren. There are a lot of people that need more hand holding and more strategic planning about the future, the unknown."
Finding Key Partners
Bloomfield of the Forbes Family Trust, a MFO handling about 14 families, gets its business through referrals gleaned from building trust with best-of-breed partners. "We work with numerous influencers. We get our business through them-mostly accountants, also trust and estate firms."
Flynn agreed that having a network of influencers is important. "The biggest challenge for us is making sure we have the right network to meet our clients' needs," he said. "We are opening another family office in each of our other seven locations, and that's a challenge, to find the right people."
David Ross of the Fraenkel Group at Neuberger Berman said, "There is no common thread or profile" to the clients that own the $1.4 billion his firm manages. They work with celebrities, first-generation wealth and multi-generation families. He sums up running a MFO as "managing wealth and managing peoples' lives."
Grove emphasized that an MFO needs to stand out from the competition. "Set standards for your key business partnerships, and don't compromise. Attracting the right clients and partners will require unique value and thought leadership. You have to be different from everyone else, and you have to offer unique value."
Brett Van Bortel represented the Invesco Consulting Group with a presentation entitled, Rainmaker. "Manage accountants and attorneys with the same intensity as your clients because they are responsible for a lot of your revenue." Ninety percent of clients with $10 million or more in assets get referred to advisors through attorneys and accountants, he said, adding that working with joint clients should be a "joint-venture business" between advisors, attorneys and accountants. "They are working with you for a sleeve of products or services that they don't provide. If they feel the client is moving away from them (if they are not kept in the loop) they will take the client back and shut down future referrals." Van Bortel added that "professionals refer to people they know will never hurt them." He suggested establishing rules of joint client service.
Grove detailed helping one family vet about 12 of the same type of professional before they found a match. This lead me to ask how an MFO can work with just two to five centers of influences if some clients require excessive vetting of each professional. She responded, "Most often the work is done by cross-disciplinary teams. Most MFOs will work really hard to make sure the cultural fit and working styles of the team members and family members work well together and respect each other. There is an indoctrination or on-boarding process." If a family member needs something beyond the core team, they usually go through a member of the cross-disciplinary team to get it. This is in contrast to SFOs, which seek most referrals through their attorneys. She acknowledged that there are many scalability issues involved in creating a MFO, so an advisor starting up a Family Office Group should literally "start with one person that you have fully vetted that you like. Your personal criteria are going to be very similar to your clients."
Healthcare And Security
Dr. Daniel Carlin founded WorldClinic to provide a total-care model to the ultra affluent on a 24/7 basis wherever they may be. "Being alive is the number one asset, and healthcare should be immediate and a continuous care loop-with no phone trees (automated phone menus)," he said. If you are among the super rich and had any doubts about getting an iPhone, just know that Carlin has a certified Apple developer on his staff. He has an iPhone oxygen meter, and an iPhone stethoscope is coming, he said. Of the smart phone, he said, "It's going to decentralize healthcare."
Representatives from ADT Security Services spoke of undergoing a branding change "from monitoring the security of your home to managing your life security." ADT has developed a suite of high-tech services, including an iPhone application to allow customers to interact with all their homes while they are away. ADT wants high-net-worth families to view them as the company that allows them to be in constant contact with their homes wherever they may be.
Estate Planning Advice
Estate planning guru Edward A. Renn of Withers Bergman reminded advisors that 2012 is an important year for the wealthy to consider gifting and taking advantage of the lifetime gift tax exemption of up to $5.12 million per person. "I want you to give away the rocket fuel. I want you to give away the assets that will appreciate rapidly," he said.
Rothstein Kass Principal Alan Kufeld said, "2012-2013 is significant. The game is about looking to mechanisms that will benefit the family unit and to bring income into this year to take advantage of the current tax code." Regarding getting highly appreciating assets out of the estate this year, Renn said, "It's that loaf of Wonder Bread that we are pushing down into a coffee can. We are getting the value out."
Branding And Marketing
Many of the conference attendees have already had success running MFOs and SFOs, but attended the conference to gain insight into how to command recognition and staying power in the MFO space. Donald K. Gross of the Summit Financial Resources Hedge Fund Advisory Group said, "Most of our clients are in the hedge fund and private equity space and accustomed to high-touch, customized solutions in advanced planning and risk management. What happens is they grow significantly in wealth, and sometimes the ability to service the client as the net worth approaches $500 million and above is more difficult because the brand that they are looking for starts to cloud the decision-making process."
Bloomfield said, "It's all a matter of getting the message out, but not getting the message out too much." Regarding the Forbes brand name, Bloomfield said that it has helped to get referrals. There aren't too many names as synonymous with money, so in Bloomfield's case, the branding seems obvious. Flynn said that Rothstein Kass has always done a lot of work in the hedge fund audit space, and that has helped the firm's Family Office Group to gain business with the general partners of hedge funds.
Bloomfield offered up an important point about adaptability of the brand. "Technology is changing rapidly. Client expectations are changing rapidly. That's one of the reasons we're hiring younger and younger people."
Flynn spoke of adapting the Rothstein Kass Family Office business model for clients that do not want to put all their eggs in one basket. "We are now accepting clients in a consulting a la carte methodology. The clients still want control. They are going to keep some sort of infrastructure. They're not going to outsource it all," he said.
One head of a SFO asked Bloomfield about how he converted to a MFO. "We started as a SFO and added onto that. We built platforms, systems and hired talent," Bloomfield answered. "One of our goals at the Forbes Family Office is to keep getting better and better at what we do. It took a couple of years and a lot of consensus building."
"For a family office look, feel and experience, we are still very heavy on the investment advisory side of the business," Ross said. He added, "Many clients come to us come to us with a confused portfolio with the misconception that they're diversified." Grove would insist that this is still the norm as "investments are at the core of every family office-asset management, manager selection, tax efficiency and sourcing exclusive opportunities."
"How you brand, and how it fits has a lot to do with getting wealthy clients," Prince said.
A panel related to branding was entitled, Becoming a Leading Authority. This group featured Jennifer Connelly of Jennifer Connelly Public Relations (JCPR Inc.), Bruce H. Rogers of Forbes Media Insights and Flynn. "Thought leadership is all about creating a brand that positions you as the expert in whatever area you are," Rogers said, "creating a point of view that differentiates you in the marketplace to your clients."
Connelly stressed, "You become a thought leader when others grant you thought leadership." Her years of experience as a successful financial services-oriented public relations firm have proven to her that "PR needs to be focused."
The branding experts offered insights on social media. "Social media is just a distribution platform, but it's useless without something meaningful to say," Rogers said. Flynn agreed, adding, "You've got to have a personal brand. People buy you."
"People are fluid. PR campaigns are fluid. You have to be adaptable to change. Proactive, reactive, offensive, defensive-you have to have all those areas covered before you do PR at all," said Connelly. "Content is critical to PR," she said. "Start with the people who already like you."
Flynn recommended trying to get exposure through newsletters and blogs. He used Rothstein Kass' execution of four white papers a year for the last five years as an example of thought leadership creation.
Lisa A. Ditkowsky, CFP, is the president of Pllush Capital Management Inc. and can be reached at (847) 859-2530. Securities offered through LPL Financial, member FINRA/SIPC.