Hannah Shaw Grove, executive editor of Private Wealth, speaks
with GenSpring's chief executive officer, Maria Elena Lagomasino, and
members of her senior team about what it takes to meet the sweeping
needs of significant wealth.
Hannah Grove: Some family offices have been around for generations, but GenSpring is relatively young. What are its origins?
Maria Elena (Mel) Lagomasino, Chief Executive Officer: A
few important things occurred in the mid-1980s that shaped the
opportunity for an organization like GenSpring. First off, the number
of investment options had expanded dramatically and smart investors
wanted access to a broader choice than what they could get through
typical financial firms. Next, we began to see real momentum around the
work of Jay Hughes [an attorney and counselor to dynastic families and
the author of Family Wealth: Keeping It In the Family].
Suddenly academics were focused on the issues of multi-generational
wealth, and advocacy groups like the Institute for Private Investors
and the Family Office Exchange (FOX) were established.
Around
that time, Hap Perry had just had a series of liquidity events and was
trying to find the right solution for his family. In the course of his
meetings with financial providers, he realized that most firms wanted
to sell him individual products, not a single solution made up of the
best capabilities. Hap said everybody wanted to talk to him about the
next quarter and he was interested in talking about the next
generation. Ultimately, Hap decided that the company he
was looking
for didn't exist-one that wasn't just about managing finances, but one
that would take the risk, gather the best practices from across the
industry, and work closely with a family to reach its overarching
goals. Being a natural entrepreneur, he founded Asset Management
Advisors (AMA).
HSG: The firm was originally called AMA, but you've recently adopted a new name. What's the rationale behind this decision?
Mel: It
was clear to us that the strategy was right and the business model was
hugely successful, but the name was confusing. People tend to think of
asset management in a more limited way than Hap intended. We wanted to
position ourselves for the future with a name that really reflects who
we are and what we do.
HSG: Was GenSpring initially established as a multifamily office?
Mel: Yes,
Hap and Ellen always felt a lot of learning came from other families
and that structure would be key to long-term success. But, more
specifically, it was established as a comprehensive multifamily office.
Hap noticed that family offices started by professionals were usually
over weighted toward the founder's area of expertise, whether it was
investments or accounting or law. He wanted a firm that could address
the total needs of a family with investment management, planning and
reporting, wealth governance, philanthropy, estate planning, teaching
the next generation of leaders, and so forth. When a wealthy family
starts a firm there's a greater likelihood that it will be structured
to address the family's total needs.
HSG: What makes a family office different from other private wealth services firms?
Mel: The single differentiator of a family office is that the only agenda and the only bias that matters is the family's.
HSG: A
lot of firms and advisors are trying to emulate family offices by
broadening their platform of services and allowing for more
customization. Is this possible?
Mel: There's
still a lot of confusion. A lot of firms and advisors have hijacked the
term, but the business model isn't really there. When professionals are
compensated based on the products their clients buy, when money manager
selection is biased toward proprietary products or revenue sharing
arrangements, when soft dollars and preferential trading relationships
are involved, then you don't have a family office. A family office is
comprised of professionals only working on behalf of the family and
only compensated by the family.
HSG: So, in effect, a wealthy client might be at odds with other types of providers?
Michael Zeuner, Chief Strategy and Client Experience Officer:
At its core, the business model of a family office is to buy for
families. The business model of traditional financial services
companies is to sell to families. We're on the same side of the table
with families, it's a completely different perspective. And this family
aligned perspective leads you to provide a much broader set of
activities and make more balanced decisions.
HSG: How do you preserve that alignment of goals?
Mel: Our
12 local offices are intentionally small, with a limited number of
clients and professionals at each. When a client walks in everybody
knows who they are, and they can walk into the kitchen and pour
themselves a cup of coffee. We want the environment and the
interactions to be intimate, like a family. It's a daily reminder that
we all have the same purpose.
Andrew Mehalko, Chief Investment Officer: Just
as importantly, we have a single wealth advisory fee that covers all
the deliverables for a family. We don't have proprietary products or
relationships with external providers that generate any additional
revenues. We are completely free and unconstrained to invest the
capital of a family to the best of our ability without any influence
from marketing or sales.
HSG: How do you coordinate service and execution for each family?
Mel: A
team of two talented professionals support each family from one of our
local offices-one is the family's investment officer and one is the
family's wealth advisor. They work closely with the family to create a
plan that integrates the investments and all of the planning pieces.
HSG: How pivotal are these service teams?
Mel: They
are essential, and by assigning each of them a family responsibility
and a technical or functional responsibility we make sure that they are
plugged in to the broader organization and involved in all the
innovations and best practices of other families. Our families demand
high-touch service so teams handle no more than 15 families.
David Bokman, Chief Wealth Advisory Officer: The
family wealth advisor and the family investment officer are on the
ground every day working with each other and the family. It makes it
easier to achieve the integration that is critical to success. Having a
great investment plan and a great estate plan aren't enough if the two
plans and the two professionals responsible for those plans don't work
well together.
Michael: The
combination of centralized expertise and seasoned resources in the
field allow us to leverage intellectual capital across families and
capture economies of scale. We have the advantage of having been
founded by a family for multiple families. This has been our business
model from day one.
HSG: Can you discuss the centralized resources available to your regional service teams?
David: My
group, the family wealth advisory practice, is comprised of the
planning specialists who deal with things like philanthropy, tax and
estate planning issues, and insurance. Their job is to stay up to date
on regulations and trends, and be available on an as-needed basis to
inform and consult with the family wealth advisors and their families
on specific situations.
Steve Barimo, Chief Innovation Officer: All
the non-financial aspects of wealth are handled through my group, the
Innovation & Learning Center (ILC). We focus on helping families
with governance issues, things like building and determining a formal
governance system, drafting governance policies, conflict resolution
policies, meeting policies. We also work with family members to
identify and talk about individual and shared values, craft and execute
family mission statements, and implement best practices such as
documenting a family's background and history and developing other
kinds of supporting practices for the family.
HSG: What role does the Innovation & Learning Center play in helping GenSpring's families learn from one another?
Steve: Well,
the ILC was created specifically to leverage the best practices and to
promote learning between families taking the same journey. The work my
team does with families gets shared with other families and also gets
reapplied through research, individual mentoring with family members,
participation in family meetings, and our learning programs. The range
of topics span the basics-financial education and investing, budgeting,
giving, premarital agreements-to less concrete subjects, the emotional
issues of wealth, preparing the next generation for a life with wealth.
The questions, the feedback, the solutions from these efforts with one
family can all be valuable to other families.
We also have three
structured events each year. Our annual family symposium, a highly
interactive three-day speaker- and workshop-based program where our
families are able to come together to discuss the variety of challenges
and issues they are facing with their wealth. We also have separate
retreats for women and men to address the gender-specific issues and
roles related to wealth. Essentially, GenSpring is an incredibly
powerful learning community that's threaded together by common
circumstances.
HSG: How have the gender-specific issues facing affluent men and women changed in recent years?
Mel: Women
are becoming more interested in finances. There's been an acceleration
of women thinking about the impact that finances have on them, their
families, their giving, their communities. Women are realizing that
money is something they need to be smart about.
Steve: In
the past, female family members would learn about their wealth when
they became the inheritor, or the successor and decision maker.
Increasingly, women are the wealth creators and that introduces a new
dynamic. We also find that most men wish their spouse and children
would get involved and take some ownership of their joint wealth. Men
tend to have the ownership perspective, but many women still need to
transition from being a beneficiary to being an owner.
HSG: How much involvement does a family have in crafting their investment policy and portfolio?
Andrew: A
significant amount because everything is fully customized. We don't
have model portfolios. Each family member is interviewed extensively
about their risk and return objectives, their expectations, and their
experiences, both good and bad. All of that is taken into account as we
allocate their capital to best meet their objectives.
The genesis
of GenSpring was to have the professionals and families on the same
side of the table, and from an investment perspective that makes a
world of difference. About 80% of our total assets are fully
discretionary, and it works because the families are involved and we
invest as their proxies.
HSG: What kind of structure do you need to support absolute customization?
Andrew: The
local offices are responsible for managing each client's portfolio on a
custom basis and they are supported by a centralized team of investment
professionals. There's a group dedicated to sector research, asset
allocation, manager sourcing, due diligence and monitoring. The other
professionals are focused on investment strategies ranging from cash to
private equity, with everything from hedging to long-only equity and
fixed income in between. We conduct around 400 site visits with
managers each year, not including the managers that visit us in our New
York or Florida offices. We also visit Asia and Europe each three to
four times a year. In total between the centralized resources and the
professionals in each office we have a total of 40 professionals
devoted to finding investment solutions for GenSpring families.
HSG: What makes your investment approach different from what most private banks and trust companies offer?
Andrew: Well,
first of all, we have a really unbelievable set of competencies and
skills lined up against our families. We use that talent to determine
what each manager's edge is and then find a way to leverage that skill
differently than what he or she is selling to the marketplace. Our
process of building portfolios considers macro risk, the performance
drivers in the capital markets, and opportunity cost. We coordinate
everything with other groups, like tax and estate planning or family
governance, to deliver an integrated solution. We find this lets us
manage a family's risk better and deliver a premium to them over a full
investment cycle.
HSG: What are the top concerns of wealthy families today?
Mel: Sustainability.
It's very similar to the dilemma facing natural resources. How do you
make sure something continues to grow even as it is used? Ensuring that
it doesn't get damaged or depleted, but protected and nurtured while
having a beneficial impact. Our families want to make sure that their
capital can be used by family members, and at the same time have it
grow so it will be there for future generations. It's not one or the
other, both have equal importance.
HSG: How does this impact your operating philosophy?
Mel: John
Maynard Keynes said that a challenge for wealthy families is not wealth
accumulation but how they use their wealth to live wisely, agreeably
and well. That was the spirit behind GenSpring and is still the nucleus
of our mission. Helping the financial capital grow is the basis, but if
the capital can't be used to help the family then the process is
incomplete.
HSG: Do international families have different concerns?
Mel: There
are definitely some differences with non-U.S. families. There is much
greater concern about security risks to their families and privacy
issues. Frequently, an international family will have their capital
deployed in a more global way. The operating company, still their
primary wealth engine, might be in one country while more passive
assets will be invested in public or private markets all around the
world. Add tax issues to the equation and these are usually more
complex scenarios than what we see with strictly American families.
HSG: What's happening in your business from an international perspective?
Michael: In
August of this year we joined forces with a multifamily office based in
Miami that currently serves our global families. Moving forward, we'll
focus on the exchange of practices, experiences and knowledge between
international and domestic families with an eye toward enriching
everyone's perspective.
HSG: Hollywood
would have us believe that wealthy families are continually at odds
with one another. How does GenSpring help its families come to terms
with the issues that impact the management of their wealth?
Steve: We
get right in the middle. Some families are just looking for information
on what other families do and we leverage our community of families to
put them in touch with one another. But others have critical issues
with communication and multigenerational planning. We have a number of
trained facilitators to lead family meetings and facilitate discussions
across a wide range of topics.
HSG: What family dynamics are the most difficult to resolve?
Mel: Dynamics
vary from one family to the next, but one constant we've found is the
need to help families develop or adopt the appropriate leadership and
decision-making skills. Leadership needs to come from within the
family. It's a core part of success, and it's our goal to help our
clients become more effective leaders.
HSG: At any given time how many different generations of a family are you working with?
Mel: Usually
three generations, that's the line of sight-grandparents, parents and
children. Sometimes the oldest generation is the one responsible for
the wealth generation, in other cases the living family members are the
fourth or fifth generation of a family.
HSG: What benefit do you extract from multigenerational relationships?
Steve:
The distinct perspectives and lessons from each generation provide
crucial insights that can be represented in a family's philosophy or
mission. The opportunity to help multiple generations connect around
their shared history and values and proactively communicate about the
thorny issues of family wealth can be very constructive.
HSG: How do you identify and facilitate the different priorities between generations?
Steve:
We've compiled the 25 best practices of multigenerational families,
touching everything from roles and responsibilities, to financial
objectives and common values, to their philanthropic agenda. We used
them to create a Web-based exercise called "wealth priorities." Every
family member is asked the same three questions about each practice-
one, is it important? Two, are they practicing it today? And three,
what has the impact of that practice (or its absence) been on the
family? Their answers help illuminate the differences in thought
processes and priorities between generations and provide a starting
point for discussions.
We also find that tailoring activities
to specific age groups can be effective. Children 12 years old and
younger engage and learn differently than young adults in their
twenties and thirties, for instance. For example, we've recently
designed a new activity to facilitate intergenerational communication
by having young family members interview a panel of their grandparents
and great aunts and uncles. This type of communication creates
wonderful possibilities.
HSG: GenSpring clearly has myriad capabilities for the wealthy family. How do you summarize your role for a prospective client?
Mel:
A family is an organization that needs a leader and needs a team. Part
of our agenda is to help them feel comfortable becoming leaders,
regardless of gender or age, and help them with team building
activities. We can provide the infrastructure to support all the
financial and planning related issues, and arm a family with the
skills, the practices, the planning, whatever is needed to help build
cohesion and make leadership easier.
Michael:
We help families frame the decisions in front of them, inform the
decisions with best practices, and fully understand the implications of
each decision. Ultimately the family has the final call, but we bring
all our resources to bear so they can make decisions as confidently as
possible.
HSG: How do families find GenSpring?
Mel:
Many different ways, but always through a trusted source. We get
referrals from financial services companies when a family has outgrown
them, and from the private client and trusts and estates attorneys that
our families rely on for legal services. We also get new families from
our current clients. Sometimes a family might be going through a
transition or a particular crisis and will be referred to us by a
facilitator or counselor.
Michael:
Recently we've had discussions with single-family offices that are
reevaluating their structure. Maybe the family office was built for the
patriarch and is no longer appropriate for the second or third
generation, so much has changed that the office's activities aren't
aligned with the family's goals anymore. Other times the family may be
going through a transition event that needs to be accommodated, and
sometimes it's simply a desire to minimize the complications,
difficulties, or expense associated with running a single-family
office. In one case, we assumed the operations of a family's dedicated
office. By incorporating it into our existing structure there's an
almost immediate and reciprocal benefit.
HSG: What are the broader implications for single-family offices?
Michael:
FOX has done some interesting research with single- family offices that
revealed a sizeable gap between a family's priorities and the efforts
of the family office executives. The families were really worried about
their human capital, multigenerational sustainability, family dynamics,
family governance, and their offices were focused more on the control
and accounting issues and day-to-day oversight. Addressing this
disconnect and understanding the alternatives to the single-family
structure holds increasing appeal for a lot of families.
HSG: Are you tracking any major market trends that have the ability to impact family offices and their clients?
Mel:
2008 is an election year, so there's a fairly good chance that the tax
and estate planning rules will change. That can have a pervasive effect
on our client base, so we'll stay on top of the situation and help our
families understand the consequences, if any, for their plans and their
investments.
Andrew: All
the market volatility is driving a psychological shift among investors
to think more about downside protection. Suddenly risk management is a
lot more attractive and clients want to get inside their portfolios and
really understand the risks they are taking. If the uncertainty
continues through the end of the year, it will just magnify the issue.
HSG: What is the most unique thing about GenSpring?
Mel:
The truly comprehensive and unconflicted nature of what we do,
underpinned by the philosophy that the people in the family are just as
important as the assets. It's an environment that gives families the
transparency and clarity they need to make the right choices, whatever
those might be.
Come On In, The Water's Fine!
As
Michael Zeuner indicated, it's not uncommon for the needs and
priorities of a family to change over time (see page 62), and, as a
result, seek other options for the management of their wealth. One such
family, the Wymans, faced a similar dilemma.
"My father created
this as a single family office," says Ralph Wyman, 82, patriarch of a
sixth generation family office that he assumed responsibility for in
1960. "In 1985, we became a registered investment advisor and took on
three or
four other families. We never planned to be big, they were
just relationships that made sense at the time and we ran that way for
another decade or so."
At a family council meeting in the mid-1990s the subject of Ralph's successor
was
raised and it was clear there would be no easy solution. For many of
the younger Wymans, transitioning Ralph's responsibility to another
relative was an overwhelming concept. "It was the first time I realized
that we might not do this anymore," admits Wyman. "I've been running
this for so long, most of them only knew me. No one was willing to step
up and take charge."
The Wymans turned to the Family Office
Exchange for some guidance. "The process took a year and a half to two
years. Sarah [Hamilton, founder and CEO of Family Office Exchange]
helped us understand what was important to each family member and what
wasn't. We needed a plan that reflected what my family wanted."
As
the family began to evaluate firms that could take over their
operations, GenSpring surfaced quickly as a possibility-and there was
the added bonus
of some past history together. "We brought them in on a private equity investment in 1994, so we knew them."
In
2002, Wyman's family office became the first to integrate its entire
operations and staff of 18 into the existing GenSpring organization.
"It probably took about six months to complete everything on the
administrative side, but from my perspective the transition was
seamless," declares Wyman. Not everything was status quo, however. The
merger created some opportunities that simply don't exist for a
single-family office structure. "GenSpring does a good job training the
younger generation, helping them learn what they need to know. At our
family meeting last year there was a special emphasis on philanthropy,
this year it was hedge funds. It's about getting everyone involved in
the planning."
And what of the chance to learn from other
families? "There are certainly opportunities to mix and mingle," says
Wyman, citing the recent family symposium in Philadelphia. "My wife and
daughter went to one of the women's retreats, I think my niece has been
to all of them. They came back energized about the interchange and the
possibilities."
"The merger also created new opportunities for
some of our employees. Our CFO chose to become a family wealth advisor
and one of our bookkeepers is now a family service coordinator. They
still use their knowledge and experience with us, but work with other
families too." Wyman's former family office is now GenSpring's local
family office in Greenwich, Conn., and the home to several more family
relationships.
Moving from a dedicated environment to a bigger
pond with bigger fish might be a disheartening experience for some. Not
so, says Wyman. "Am I comfortable?
I wouldn't be here if I weren't.
They look after our affairs in such a way that we can do our thing and
not have to worry about it. Part of the deal was that GenSpring would
take over everything and they have done it, and done it very well."
Wyman's
words of advice to other families with similar circumstances? "Come on
in, the water's fine," Wyman says with a laugh. "I'm very enthusiastic
about the merger and the way the company has evolved. They are great
people and good leaders. They recognize that culture is all important
to a family and its employees-that's a stroke of genius."
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