While all of these services may make an MFO think, "I am not the Yellow Pages," these are add-on, value-added services for which the successful MFOs are getting well compensated. Ms. Grove's studies have proven, "Almost all firms have moved to a flat fee for everything." She reports flat fees of 1-1.5 percent (not more than 2 percent) of total assets, in addition to any basis points charged for investment management. The writing is on the wealth management office walls that there are lines of advisory firms waiting to take the extra 100-200 basis points for offering the more personal services. Hence, an era of change is beginning in the Family Office space.
Currently, SFOs that take note of decaying structures and strengthen their fundamentals will be more poised to endure and move in the direction of the MFO if they so choose. For both the SFO looking to become an MFO and the MFOs desiring expansion, higher touch client relationships are in demand. Anyone who has taken a sales course knows that 90 percent of sales is good listening skills; after all, communication is all about listening. For those who really listen, care and record important details, scalability will seem easier. Other firms will have to hire Customer Relationship Managers to befriend their clients for them. However, befriending clients does not mean becoming friends with clients. The cardinal rule of not mixing business and friendship still applies. When clients ask, "How are you?" they do not really want to know that you just put your dog to sleep, are getting over a bad cold, and that your mother just had a hip replacement. However, you better take note and care if these are situations affecting them.
Ms. Grove remarks that great asset management is "core to what people want, but there is the sense among lay people that if you have been in the business a long time, you must be doing something right," and so "clients search for other qualities." She still notes, "There is always opportunity for truly great asset managers," and "Most companies don't have as robust a due diligence process for choosing asset managers as they should have." Perhaps the Family Offices affiliates with the largest RIAs have an advantage with access to compliance and legal departments. For firms that do not have robust compliance solutions in place, the outsourcing of compliance and selection of asset managers may become necessary to staying competitive.
So for all the advisory firms out there who have "built it" by nurturing a wellspring of services, how do you ensure "they will come"? Research conducted by Ms. Grove and Mr. Price reveals that 54.2 percent of the affluent choose their Advisors based on Centers of Influence (COIs). Signing off on correspondence asking your wealthiest clients to refer you their best friends is passive and vague. While it is true that you are not going to get the business if you do not ask, asking for referrals is a whole different ballgame. Throughout my eight years in the Financial Planning business, I have noticed that the more money people have, the less likely they are to flaunt it or talk about their wealth. Four years living in West Los Angeles taught me that some families with the most material things are living the furthest beyond their means. People with real wealth tend to be private about their money. Most will not praise their Financial Advisors to friends over dinner. There is a sense among the affluent and ultra-affluent that it is gauche to talk about financials. Older investors tend to be secretive about money to begin with, and no one wants to have to pre-qualify their friends' wealth levels.
For firms insistent upon seeking client referrals, Ms. Grove advises, "The more specific the request is, it is easier for them to respond positively." Think of it as a scavenger hunt; if a person knows exactly what he or she is looking for, it makes it easier to find. Statistics prove that business development hours are better spent cultivating COIs. "The economic downturn triples competition from other advisors trying to get business from CPAs, lawyers, etc," adds Ms. Grove. She says it is essential to engage uniquely with Centers of Influence and differentiate one's offerings. "Professional referral relationships should be few, deep and managed," she instructs. Ms. Grove advises firms that COIs want to know that you can be a resource for them. Using lawyer and CPAs as an example, her research proves that they look for personal integrity above all else. The COIs want to know that you understand their role relative to yours first and foremost.
If a lawyer refers an advisory firm to one of his best clients, the lawyer wants to know that the advisory firm will respect the existing relationship with his clients, keep him informed and not overstep any boundaries. Every COIs worst nightmare is the Advisory firm who poaches clients and brings in a competing COI. For this reason, Ms. Grove recommends limiting strategic partners to five or fewer. There generally should not be more than one CPA, Estate Planning Attorney, etc. "Firms must continually add value to become the essential partner," and "must brainstorm and execute with strategic partners," Ms. Grove says. "In a strategic partnership, the Center of Influence is your client," she emphasizes.
For all the Advisory firms standing in the outfield with open mitts, now is the time to start drafting your own team of players to expand your offerings and refer you business. Just because you build it, does not mean the clients will come. It takes smart strategy, and to heed the advice of Ms. Grove, based on more than a decade of sound research, is to slant the game in favor of the successful Multi-Family Office practice.
Lisa A. Ditkowsky is a Certified Financial Planner (CFP).