Single-family offices are the premier way for a large and growing percentage of super-rich families (net worth of $500 million or more) as well as those less affluent to optimize their financial worlds and maximize other aspects of their lives. There are a number of ways single-family offices are getting superior results. Here we will consider three approaches that make a meaningful difference.
Generally speaking, wealthy family members do not know what they do not know. They are unaware of the options that are available. Being able to fill in the blanks is a major function of many single-family offices. Single-family office senior executives (only about one in ten are family members) develop a deep understanding of the wealthy families they work for and use these perspectives to proactively introduce possibilities.
According to Robert Daugherty, chairman of Endowment Assurance Corporation and co-author of How to Build a High-Performing Single-Family Office: Guidelines for Family Members and Senior Executives, “Senior executives at high-performing single-family offices are diligently looking for ways to add value as opposed to just waiting for family members to make requests. Because of their insight into the wealthy family’s needs and wants coupled with their extensive knowledge of the private wealth industry, these senior executives are able to regularly identify potential high-impact solutions that make a substantial difference in the lives of family members and bring them to the attention of the wealthy family quickly.”
Negotiating Fees And Working Arrangements
In order to be able to concisely deliver superior results to the families, high-performing single-family offices commonly have to bring in external experts from tax authorities to investment managers. The ability of single-family office senior executives to effectively manage these relationships makes a meaningful difference in the outcomes achieved.
Just about “everything” in the private wealth industry is negotiable. High-performing single-family office senior executives are well aware of their negotiating position and skillfully work with external experts to get the best solutions most cost-effectively.
“Negotiating with external experts is pretty much second nature for these senior executives and less common among others,” says Frank Carone, executive partner at Abrams, Fensterman and co-author of Everyone Wins! How You Can Enhance and Optimize Business Relationships Just Like Ultra-Wealthy Entrepreneurs, “Consider the all too common scenario where sophisticated individuals consistently negotiate with lawyers when it comes to their businesses but simply accept the hourly rates—no questions asked—when it came to doing their estate plans, et al. Based on the research, we find that when many professionals services are ‘personal,’ there is a pronounced tendency to not question the fees or the working arrangements and this can be a serious mistake.”
Trust, But Verify
When relying on external specialists, there is the potential for the advice to be less than exceptional. Substandard advice is certainly possible even when the high-performing single-family office senior executives carefully select the professionals and conduct rigorous due diligence. Technical mistakes do happen. Also, sometimes there is a communications disconnect and the external experts do an excellent job, but the outcome is not as precise as it could be.
According to Angelo Robles, founder and CEO of the Family Office Association and author of Effective Family Office, “We’re seeing a large number of single-family offices engage in regular stress testing. They’re critically looking at the actions they’ve taken to make certain those actions will get the desired results as well as making sure they didn’t miss anything. If there is a problem, stress testing enables them to catch it quickly and make the needed corrections.”
What If You Are Not Very Wealthy
The three ways we discussed how high-performing single-family offices are able to obtain superior results are applicable to most anyone. Having a high-performing single-family office is certainly not a requirement to get great outcomes.
Lesson 1: Make sure you are working with professionals such as lawyers, accountants or wealth managers who really understand you is essential. They also must be proactive, bringing you new possibilities as appropriate. Keep in mind that there are regularly changes occurring whether those changes are in your life or in the tax code. You are best served by professionals who are concerned about your best interests and enterprising.
Lesson 2: You can always negotiate with the professionals you engage. Very often, the key is to ask penetrating questions and being assertive. Astute questioning will give you the information you need to navigate the professional’s business model and show you where you have leverage. We recommend you aim to strike a marginally better deal. Thus, the professionals you engage are well compensated (just not as well as before your negotiations) and they are motivated to do a spectacular job for you.
Lesson 3: The best way to make certain you are getting or will get the outcomes that matter to you, is to periodically stress test your investment portfolio or your financial plans or the services and product of any professionals you have worked with. In coordinating stress tests for the super-rich, most of the time we find that a little refinement might be in order but overall everyone is in good shape. One the other hand, when we do find major mistakes they prove to usually be disastrous.
Bottom line: High-performing single-family offices deliver exceptional value to their wealthy families. If you are not exceptionally wealthy, you can still benefit by following the hard earned lesson of high-performing single-family offices.
For a complimentary PDF copy of The High-Functioning Single-Family Offices: A Primer for Family Members and Senior Management request the book from firstname.lastname@example.org