Families can face a deluge of competing challenges when managing their wealth which is why successful families rely on an 'expert generalist' to safeguard their interests. Linda C. Mack and Michael Zeuner outline why the role of a family office “quarterback” is vital to families, what to look for in an ideal candidate, and where to look.
Ultra-high net worth (UHNW) families often, despite their good fortune and abundance of resources, struggle with a myriad of challenges associated with wealth management. From the complexity of investing, to working with multiple providers (banks, asset managers, accountants, lawyers, insurance agents, etc.), to the complications of estate and tax planning, families often find that overseeing and managing their wealth can be a real burden.
Layer on top of that the reality of how difficult it is to:
- Understand and follow all of their different investments
- Decipher all of the monthly performance statements each one looking different and presenting different information
- Determine performance at the individual investment and overall portfolio levels
- Manage and assess risk
Underlying all the challenges of day to day management, there are other, larger obstacles: figuring out whether it is all working in harmony towards a clear and common goal; feeling empowered and in control; understanding the impact of wealth on the family; and preparing the next generation to be effective owners. It leaves little room to enjoy life, and can often become unraveled, leaving the family feeling overwhelmed and distraught.
After decades of working with wealthy families around the world, we have observed that families struggle less and accomplish more when they have support. And while each family is unique, a common factor seems to be that each has, in a way that works for them, solved for what we call the “missing link.” The missing link is finding a person to act as a quarterback for the family's financial life. Not a quarterback in addition to another role, but rather a quarterback who does just that, exclusively and explicitly, 100% of the time.
Defining the role of quarterback
The leader, or “quarterback”, of a family office is the unequivocal pivot point. The successful accomplishment of the family's long-term goals and objectives is inextricably linked to this individual's performance and ability to serve effectively as the family's trusted adviser, ideally over a long period of time. The depth and breadth of knowledge, experience, leadership and advisory skills required for this role in the family office is so unique as to have coined the term “expert generalist” to describe it. Although “expert” and “generalist” seem to contradict one another, they quite accurately describe the macro and micro and peripheral points of view necessary to play the quarterback role leading the family office.
An individual most suited for this position must have a broad knowledge across the full “horizontal” spectrum of wealth-management disciplines, including finance/accounting, investments, tax and estate planning, trust administration, philanthropy and other disciplines. The depth of this knowledge will depend on the specific needs of each family and the stage of evolution of the family office (for example, the scope needed for a G5 family office serving multiple generations and a large number of family clients will be different than the scope needed for a G1 start up family office for a wealth creator). Further in-depth specialization in specific core “vertical” areas (accounting/finance/tax, etc.) and other specialties will depend on each family's unique needs and objectives. Vertical specialization is influenced by a myriad of circumstances including the family's specific needs, the family office staffing configuration and the specific services that are outsourced versus insourced.
The family office expert generalist also serves as the “quarterback” for the family, their advisers and their providers (external and internal) to ensure that all services are coordinated in accordance with the family's long-term objectives and that their best interests are being consistently met. This family office leader has a strong peripheral vision to continuously anticipate how one decision might affect another. Being resourceful is critical because they need to know how to prioritize when the unexpected (frequently) happens, and which questions to ask or what resources to tap into to get the right information to make the best decision.
Aside from all these qualifications, the most critical aspect to the relationship between the quarterback and the family he or she serves is the culture fit. No amount of education, experience or acumen can make up for it, and it is the ultimate “x” factor.
The challenge for a family is finding individuals that meet all these criteria. There is a very limited supply of professionals who meet these qualifications and fit well in the family office culture – they are very difficult to find. Families who attract and retain the right candidate in this role have arguably the best-in-class family offices and are positioned to most successfully meet their long-term goals and objectives.
Without a leader
Now that we've defined the quarterback role and its importance, let's describe what we've seen when there is no quarterback role in place. This also applies to when the family relies on someone playing a different (albeit important) role in their wealth management to act as quarterback in addition to their primary role. The latter can happen when a family relies on one of their private bankers or in house chief investment officer (CIO) to be a quarterback. The private banker may certainly serve as the quarterback for the family within the institution they work by coordinating all of the specialists required to serve the family. But the private banker certainly can't serve as the quarterback across all of the family's providers given the limitations in their scope and field of vision. If the family has an internal CIO who is also asked to play the quarterback role, while they can and should certainly be the quarterback across the family's investment portfolio ensuring that everything is aligned with the goals and risks of the family, he cannot serve as quarterback across all of the other noninvestment activities required to manage the wealth.
- In these instances when there is no quarterback in place, or when the wrong person is playing the quarterback role, we have seen some significant challenges, including:
- Multiple investment portfolios that overlap in risk and return objectives
- Higher cost investment solutions being utilised when lower cost solutions are available and preferable
- Lack of integration between the family's investment portfolio and their tax and legal structure resulting in higher or unnecessary costs
- Investment in inappropriate share classes that either cost more in fees or taxes when other more effective options exist
- Lack of an aggregated picture of their entire wealth and how it's deployed
- Feeling uncertain and uncomfortable with the amount of control and insight the family has over it's portfolio
- Feeling out of control of their wealth
- Other family members not feeling engaged and empowered in the decision making of the family
All of these are situations can be mitigated through the use of a family office leader, or quarterback.
There are several options available - all viable- for families to fill the quarterback role:
- Identify a family member
- Hire someone to work for them exclusively
- Hire a firm that specializes in wealth advisory services
- Use a combination of the three
Let's look at each option.
Designating a family member
The family office quarterback must be ready, willing and able to address any family need, from the profound to the mundane. This requires not only a service mentality, but also a deep understanding of the family's goals and objectives along with the implied confidence of being a trusted adviser. If “fitting into the family culture” is indeed the most important criterion, then why look further than the family to fill this role?
There are several reasons this may or may not be the best option. One of the more startling conclusions from the Global Family Office Report 2014 is that the degree of a family's involvement can result in underperformance. If a family member were to have the requisite skills, experience and qualifications of the quarterback described above, would they have the ability to commit full time to running the family office? Would they find “serving” the family to be at odds with familial ties? In addition, family members may not be the most objective in the face of familial conflict. A leader must confront difficult situations and be able to make decisions, unemotionally. Finally, what would happen if this person is not performing to expectations? It might be uncomfortable to hold a family member accountable.
One of the biggest mistakes a family can make is choosing a family member based primarily upon their being trustworthy, without objectively assessing their qualifications and experience to meet the defined position requirements and performance expectations. This is not to say it cannot work. If the family member meets all the criteria and has demonstrated his or her keen interest and dedication to the role, they would be uniquely qualified to contribute on behalf of the family's best interest. In this case, the burden of communication falls to the family to clarify their goals and objectives and the metrics by which this individual's performance will be measured.
The advantage of hiring a professional from outside the family is that you are investing in their singular, objective focus on you and no one else. As an employee, they are beholden to the family. There is no conflict of interest. An outside professional is not emotionally involved. Their inherent objectivity makes them a very valuable partner to the family. All their attention, talent and skills are dedicated toward achieving the family's goals, objectives and protection.
Hiring the right individual for this position is critical for success. A well-organized and structured approach is needed to successfully identify and recruit the right candidate(s) as they are truly “needles in haystacks.” There is a very limited supply of professionals who possess the standards of excellence in all the qualifications necessary to be a family office president or CEO. There are far fewer who will also be the right “culture fit” for the family. There are no short cuts to locating them. Relying on a personal network for referrals can be potentially disastrous as it severely limits the universe of potential prospective candidates. Identifying and recruiting viable candidates is extremely important and it is just the beginning. The candidate assessment phase is another critical piece of the equation. Once the quarterback is hired, the success of the onboarding/integration process combined with the proper compensation plan, career advancement and other retaining strategies can make the difference between a series of false starts, and hiring a leader who stays with the family for the long term.
Simply put, successfully identifying, recruiting and retaining the individual for this critical role depends on thoughtful preparation and diligent commitment to the process. Pursuing someone who is trustworthy, but lacking the requisite skills, experience and competencies to perform the job, can be a costly mistake.
Hiring a wealth advisory firm
This option can be tricky. One of the primary functions of the quarterback is to decrease the noise created by the financial media. If a family decides to hire a firm to play this role, it is critical that they are able to view things objectively rather than from the firm's perspective. It can certainly be cost effective to hire a firm that serves more than one family to serve as quarterback, but it may take some effort to find one that can truly fulfill the function without embedded conflicts or misalignment of interest.
The label typically put on firms that can play quarterback roles is “family office” but not all family offices are set up to play this role. Many are asset managers focused on managing the investments of the family for a fee (typically a % of assets under management). Asset management-focused family offices may certainly be more aligned with the family than a traditional wealth manager such as a private bank, with far fewer conflicts of interest, but the fact remains that their business is managing assets not advising and coordinating across the family's wealth affairs.
Typically a family office firm that is better suited to play the quarterback role may describe themselves as a wealth manager or wealth adviser, as opposed to investment manager or investment adviser. Another aspect to look for is how they charge for services: if it's a flat retainer fee, they are likely better aligned to advise than if they are receiving a percentage of assets under management which will focus them almost exclusively on the investments.
Also look for signs of misalignment between playing the broader advisory role and having a nonfamily agenda such as conflicts of interest, which will be disclosed in their ADV a publicly available document they must file with the SEC. These conflicts might include being affiliated with financial services firms whose products they may be incentivized to sell or refer, or receiving administrative or other fees from asset managers they are recommending for their clients' portfolios.
Ideal attributes for a family office quarterback
To help families begin the search for the expert generalist to fill this role as the quarterback for the family office, we have created a list of ideal attributes often associated with these often difficult to find individuals.
I. PERSONAL CONNECTION: cultural fit with the family members themselves
II. ALIGNED: an individual with the ability to provide unbiased advice without self-interest or other ulterior motives such as compensation.
III. KNOWLEDGEABLE: across the full “horizontal” spectrum of wealth-management disciplines, blended with the in-depth specialization in specific core “vertical” areas (accounting/finance/tax, etc.)
IV. RESOURCEFUL: with the ability/knowledge to solve for unexpected challenges, and where to find the appropriate resources/information to make critical decisions
V. INTUITIVE: ability to understand and mitigate family dynamics and resolve conflict to facilitate critical decision-making
VI. STRATEGIC: with the ability to think proactively before a critical need arises and the ability to develop leadership within the family
VII. COMMUNICATIVE: with the ability to lead an organisation towards a cohesive mission and purpose
In summary, our experience has shown us that families who feel more in control of their wealth and confident in their decision making have someone (or some firm) acting as a quarterback. Whether a family member fills that role, they hire someone to fill that role, or they hire a firm to fill the role, the key is that whoever is hired to be the quarterback must be aligned completely with the interests of serving the family with no other agenda. When a family does not have someone acting as quarterback on their behalf, the financial and non-financial consequences can be quite damaging, both in the immediate and long-term future.
CASE STUDY: The Smith Family
Many families we have worked with over the years have not formally considered the role of the 'expert generalist'. Most in fact assume that - given the collection of advisers and/or family office professionals that they have hired, everything is operating smoothly and efficiently. What follows is a snapshot, based on an actual experience a with client family, of the “before and after” an expert generalist is hired or engaged.
Meet the “Smith Family”:
The Smith family* is comprised of three generations: the original wealth creators (“John and Marsha”); their children (3 + spouses); their grandchildren (5). They are engaged in on-going wealth creation through operating companies and the active involvement of both G1 and G2. Their wealth consisted of a combination of operating companies, investment portfolios and personal assets. Their wealth management ecosystem was complicated, with many service providers including: the financial function residing in the family's operating company, to help the family with financial administration (reporting, cash flow management, tax reporting, etc.); relationships with 3-4 private banks and brokerage firms, investments in multiple hedge funds and private equity funds sourced through friends and family; an accountant; and multiple attorneys. Complicated to say the least!
Prior to an expert generalist being hired
The primary focus of all wealth management discussions is around the investment portfolio and investment performance – which the principal feels has been “ok.” John drives the majority of the decision-making and oversight of investment manager and private banking relationships. Marsha and their children are not engaged in wealth management for the family, and are generally comfortable with delegation of all wealth oversight and decision-making to the patriarch of the family. He spends the majority of his time running the family's operating company, with one day per quarter (typically a weekend) dedicated to the family's wealth management.
Why did the family engage an expert generalist?
Among the family members, there was a growing sense of unease that John was making all decisions and managing all oversight of the family's wealth, with little engagement of the rest of the family. With a recent health scare, Marsha and her family knew it was time to find another solution to help with the oversight of the family's wealth. In addition, the family was expecting a liquidity event occurring in the operating company that would significantly increase the family's wealth. They began to realise that the rigour and discipline with which family has been running their operating company has not been applied to their personal wealth enterprise – nothing was yet broken, but they all had the sense that it could be enhanced.
What happened next?
Once the family realised they needed someone to fill the “quarterback” role, they began the exhaustive search for the expert generalist to fill the role. Once hiring this individual, they immediately realised tangible differences. Immediately, they formalised a detailed financial plan taking into account all aspects of the family's financial life and objectives. For the first time, they created an exhaustive overview of the family's current financial situation, all the providers they currently use and how it all relates to where they want to go in the future.
Soon, the financial plan became the driving force behind the execution of all management activities, including a single asset allocation that integrates and drives the activities of the wealth management providers. The family also created a formal governance process including quarterly meetings in which extended members of the family can engage in setting strategy and oversight of the family's wealth management activities. They were also able to focus on tax and wealth transfer strategy. In addition, they created a financial learning program, with an emphasis on increasing financial literacy for Marsha and their children, where they “learned by doing.”
There were myriad results. There was better coordination between the family's providers with no overlap in services provided to family, and lower overall costs of wealth management as the expert generalist both rationalised the providers and services needed, and then enhanced the relationships and fees for each in the family's best interests.
*The Smith Family's identity has been anonymized to protect their privacy.
Linda C. Mack is the founder and president of Mack International, a boutique firm that specialises in providing retained executive search and strategic human capital consulting services to family office, wealth management and investment industry clients on a national and international basis.
Michael Zeuner has been serving wealthy families for more than two decades. As one of three managing partners of WE Family Offices, he oversees the firm's US business strategy.