Five essential steps to enrich your practice

(April 2007) As wealth grows, so does complexity. This is especially true for those who have crossed the threshold from high-net-worth ($1-million or more of investable assets) to ultra-high-net-worth ($10-million or more).

Traditionally, one way for ultra- HNW families to cope with this increasing complexity was to build their own private investment firm — a “family office” — that would manage their financial affairs full time. Of course, with annual costs ranging anywhere from $500,000 to $1-million (and sometimes more), not everyone can afford a family office.

In response to this problem, a number of firms have broadened the definition of a family office, in effect, creating the “multi-family office.” The idea is simple: Instead of serving a single family worth, say, $250-million or more, the multi-family office serves a few dozen, each with a net worth of $10 million.

Whether these practices exist as “boutiques” within a larger firm or as completely independent operators matters little. What matters is that they can deliver the kind of exclusive service and extremely personalized advice that clients are looking for, at a reasonable cost.

Let’s assume that you’re a well established professional who has a good deal of experience working with the wealthy. Let’s also assume that it’s an experience you enjoy, not only because it’s profitable, but because you look forward to the professional challenge that comes from working with wealthy clients.

You’d like to take your practice to the next level, and attract more high-net-worth and ultra-high net worth clients. Are you ready to transform your practice into a multi-family office?

To find out, ask yourself the following questions:

Can I offer a full range of products/services?

In survey after survey, affluent and ultra-affluent individuals report their dissatisfaction with professionals who offer a limited range of products and/or services. If you wish to run a multi-family office, you’ll need to offer “open architecture solutions” — a range of investment products and strategies from across the spectrum, without being tied down to one firm’s proprietary products. And you’ll have to offer more than simply investment advice; the wealthy are looking for more than just stock pickers.

In our practice, we position ourselves as “total” wealth managers, taking care of every aspect of a client’s financial affairs. Rather than simply adding clones of ourselves, we’ve selected team members based on the different skills and expertise they bring to the table.

We’ve also partnered with outside specialists who can complement our team with expert advice in highly specialized situations. In this way, we can be exactly what our clients want us to be.

Am I ready to limit the number of clients I serve?

To work as a multi-family office, you need to provide proactive service — you need to anticipate client needs rather than respond to them. The best way to do that is to limit the number of clients you serve. Not everyone is willing to do this.

Some advisors like the security a large book offers (if any one client leaves, it’s not a catastrophe), while others simply enjoy meeting and working with a number of different people.

But if you want to work as a multi-family office, you don’t really have a choice. To serve them well, you will need to limit your practice to the biggest and the best.

Related articles…

• Prized veteran team splits for boutique

In our practice, we currently serve 45 ultra-HNW individuals, with the intention of “maxing out” at 60 clients. Of course, that number’s not set in stone — it might go up or down depending on the complexity of a given client’s financial affairs. But you get the point.

By setting a limit, we ensure that all clients will continue to receive the level of service that attracted them to our practice in the first place.

Have I taken care of privacy and security concerns?

In our practice, client confidentiality is of the utmost importance to ensure personal information is not jeopardized. Unless you’ve taken appropriate steps to ensure both your business systems and your team can be trusted with highly confidential information, you’ll have a very difficult time convincing any ultra-HNW client to do business with you.

In our practice, we have invested heavily in security (both conventional and electronic) to ensure client data and personal information remains safe at all times. When we bring on new team members, we conduct thorough background checks.

We make it clear that client confidentiality is an absolute duty, and violations of that duty will be dealt with swiftly and severely. We explain these things to clients early in our relationship, even if the client hasn’t expressly brought up the issue. The goal is to never let security be a confidence issue.

Do I have a systemized method of client contact?

Client contact is another perennial concern among HNW and ultra-HNW clients. Without a well organized system of client contact, it’s difficult to provide the “high touch” relationships that these clients demand from a multi-family office.

In our practice, we have a detailed “client service matrix,” that clearly outlines when clients can expect contact from us. For our typical ultra-HNW client, there are upwards of 20 points of contact throughout the year, scheduled at fairly regular intervals. These include face-to-face meetings, phone calls, and a variety of e-mail and postal contacts as well.

We show the client this schedule in our first meeting, in order to demonstrate our commitment to client communication and let them know that we consider keeping in touch to be an important part of our job.

How committed am I to professional development?

Unlike the mass-market practice, where an advisor can reasonably offer the same products and services year in, year out, the multi-family office practice requires a commitment to ongoing learning and professional development.

New products and strategies are being developed on a regular basis to solve complex wealth management problems. The same goes for service systems and technologies that can expand and enhance the service provided to clients. Unless you’re up to date with these, it will be easy for a competitor to take business from you.

The key members of our team typically attend between two to four professional development sessions every year. When appropriate, we support those members who wish to develop their skills or abilities with more formal education or specialized training. Again, we communicate this commitment to clients, in order to let them know that we refuse to rest on our laurels.

Becoming a multi-family office isn’t easy. But in a hyper-competitive marketplace, it remains one of the best ways you can protect existing clients and attract new ones. If you’re interested in serving more HNW and ultra-HNW clients — and you should be — we encourage you to investigate the multi-family office structure. It could be the best thing you’ve ever done for your practice — and for your clients.

This article first appeared in the March 2007 edition of Advisor’s Edge Report.

Thane Stenner, Rod Bower and Rory O’Connor are investment advisors with the T. Stenner Group of CIBC Wood Gundy. The views of the authors do not necessarily reflect those of CIBC World Markets Inc. this article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and Member CIPF. www.thestennergroup.ca.

(04/24/07)