The Family Office Exchange (FOX) and Harris myCFO have released results of a study, “How Wealth Owners Measure Value: Evaluating the Performance of Your Wealth Advisor or Family Office.” The report outlines in 48 pages the background, techniques and strategic thinking that would enable advisors to conduct a yearly “Conversation about Value” and how important this is to the families, as “wealth owners,” as well as to the family office itself and the family’s advisors.
The study included interviews and discussions with more than 100 participants, including FOX members and “thought leaders” in the investment industry.
The process outlined in the report is not trivial, but the rewards can make it worth the time and thought that is required. The result is a strategic plan with the kind of depth and value that a wealth owner should embrace taking the time to provide detailed input for.
A Blueprint for the ‘Wealth Owner’ and Advisors
The results of the “conversation” become a blueprint for clarifying the family’s goals and expectations and carrying out the family’s wishes. But in addition, the study outlines the “process” for family leaders and their advisors. The findings describe a cycle in which the family’s “mission” and “values” are articulated. Then a planning process, with its “clear goals and expectations” leads to a value assessment, with client and staff “satisfaction surveys,” “report card metrics,” and “board evaluation and feedback.” Any action that’s needed is taken and then the process begins again.
Rather than rely on “corporate metrics,” families cite “broad-based goals and expectations,” that are both concrete and intangible,” and run the gamut from “wealth preservation or accumulation,” –easier to document—to “peace of mind,” something that is much harder for a wealth advisor to quantify in a metric.
Seven types of a family’s “expectations” are gathered, including: “family legacy and leadership, responsible ownership and governance, management and control of family financial affairs, operations and cost control, knowledgeable staff and clear communication, sustainability of wealth, and risk management.”
The report also outlines accountability in a three-tiered stack of responsibilities for “wealth owners,” “family office or wealth advisors,” and those “shared with outside advisors.”
Much More Than ‘Investment Performance’
“Evaluation of an advisor’s performance against investment benchmarks is objective and relatively easy for wealth owners,” Sara Hamilton (left), founder and CEO, FOX, said in the release on Tuesday. “However, there are many factors beyond investment performance that have a great impact on the overall level of satisfaction with the advisor. Until now, these non-investment-related factors had never been cataloged; nor has there been a serious attempt to identify metrics to evaluate delivery against these factors.”
While many of the “50 core expectations that wealth owners consider when evaluating their advisor relationships,” revolve around tangible goals, says the report, such as asset management and wealth preservation, and are easier to demonstrate or document in reporting and other concrete ways, perhaps most interesting—and challenging—are the family expectations that encompass the intangibles, such as helping families avoid “making bad decisions.” It’s vitally important—yet where’s the metric for that?
“Understanding what characterizes each client’s definition of exceptional service experience is critical to helping our team successfully deliver on that promise,” Joe Calabrese (right), president, Harris myCFO stated in the announcement. “The framework identified by the study provides us with a tool that will enhance our ability to better serve our client, and measure our success in meeting their needs.”
The report concludes with a discussion of how difficult it sometimes is to “engage” family members in the conversations that are needed to make this process work. FOX notes that it has found that “just 30% of participants have taken the time to document their long-term goals and objectives in a strategic plan for the family or the office.” But that sounds like a huge opportunity for those who serve—or would like to serve—the other 70% of families. It means that there is a great deal of upside in terms of bringing family office clients into this process.
As wealth advisors and family office advisors demonstrate how valuable this is to family office “wealth owners,” it may make the process easier—and the benefits all around surely make the effort worthwhile—for the family, the wealth managers and for the outside advisors.