How to Build a Family Office Environment

Ira: It’s all new money from existing clients and referrals. Clients need to understand that we are creating a family office environment, and for us to grow organically, we need them to use us exclusively for their financial needs. This does not mean clients cannot have other advisors at other firms. But it does mean we have to be aware of those assets, and in most cases, be in control of those assets

For example, we have many clients who use a commercial bank for their day-to-day operations. We are aware of that and help monitor it on a daily, weekly and monthly basis. I do not want to be in the commercial banking business, but it is essential for clients to know our team works in coordination with the clients’ entire team of advisors, assets and financial activities on their behalf.

You have to be aggressively asking your clients about their assets so that you are aware of everything going on in that family’s financial world. In other words, the key to this is not spending a lot of time trying to get new accounts. The benefit to the UHNW family is that we know everything that is occurring and are always alert for investments that should not be made. We recommend a family office client consult with me before they approve another investment decision. Many times the client doesn’t take the time to communicate. The result is usually painful! We work very hard to help preserve a family’s assets for generations to come.

Bill: How do you do this?

Ira: Let’s say you give a client a great rate on an asset-based loan. He’s borrowing $5 million or $10 million. You gave him Libor plus 75 basis points on a loan, which is 90 bps all in. I might say, “Hey, Mr. Client, we appreciate your loan business, and we’re giving you a tremendous rate. Are there any other assets that you have at other firms that are getting a low rate of return or maybe some cash sitting on the sidelines that you want to put to work? Or maybe it’s a good time to evaluate the rate of return on your assets at other firms. Why don’t you send me all your statements so I can evaluate what you’re doing at other places?” The answer is usually YES.

Bill: What are some of the other services your ultra-high-net-worth clients want?

Ira: Speed is one that I have encountered. Our goal is to provide timely service, so when a client calls up and wants to wire money, we’re there for them to wire money in, wire money out. Clients routinely provide positive feedback on our steadfast commitment to service.

Access to fixed income product is another service UHNW clients typically seek. If an ultra-high-net-worth client wants a certain product and it’s deemed suitable, you should make sure that you can get that product to that client.

An example would be preferred securities.

In my experience with UHNW clients, you have to be knowledgeable of the fixed income market. In my opinion, UHNW clients do not look to grow their money. They already have a lot of money. The typical client seeks moderate growth, dividends and interest income. And if you can bring them a tax benefit, it’s usually met favorably.

The clients like preferred securities because in some cases they are likely receiving above-market coupons on their money with a tax benefit. The client needs to be prepared to own the security for the long term and they have to understand credit and interest rate risk.

A potential pitfall to consider is trying to predict where interest rates are going. You need to open your mind to the client’s needs and objectives, it’s an old school thought. The UHNW client usually wants to preserve their principal and get a reasonable rate of return on their money. You have to give them access to the products that they want. I have seen advisors trying to predict the market and trading every day and missing the big picture. Our team commitment is: if the client needs something that we can possibly deliver, do it.