14: Beyond the Family Business: The Family Office

Episode Description
Introduction Welcome to Let’s Talk Family Enterprise, a podcast that explores the ideas, concepts and models that best serve Family Enterprise Advisors in supporting their clients.

Description Steve Legler sits down with industry thought leader, consultant and lauded author, Kirby Rosplock to explore the “what” and “why” of Family Offices, as well as the trends in the Family Office space that FEAs can benefit from paying attention to.

Guest bio Kirby Rosplock, Ph.D., is a recognized consultant, researcher, innovator, advisor, author, facilitator and speaker in the family business and family office realms. As the founder of Tamarind Partners, Inc., a research and consultancy practice that works with families, advisors and institutions connected to the family office market, Kirby provides leading-edge insights and knowledge to the family office domain. Working with families of wealth and enterprise, Dr. Rosplock understands the unique nuances and needs of families starting a family office versus those transitioning or unwinding them.

Hey, let’s talk family enterprise explores global ideas, concepts and models that help family enterprise advisors better serve their family clients, brought to you by the family enterprise exchange.

Hello, and welcome to another episode of The let’s talk family and price podcast. My name is Steve Legler. And I’m excited to be your guest host once again. Today we’re going to be talking about family offices, both single family offices and multifamily offices and everything in between. In order to help us demystify this sometimes complex world I’m delighted to welcome our guest Kirby Ross block. Kirby is in the process of updating her 2014 book, The complete family office handbook, which I’ve recommended to many people since it came out. We’ve got a lot of ground to cover today. So let’s say hi to Kirby and kick things off. Hi, Kirby thanks for joining us.

Hi, Steve. Thanks so much for having me.

Kirby. Welcome to the let’s talk family enterprise podcast. Let’s start off by I’ll ask you just to give the listeners a little bit of background of how you are working in the family office space a little bit about your background and who you’re working with. And

great, happy to share the context. I think it’s important with respect to the remarks that I’ll share over the next 30 minutes or so with you. And so my background is well I was lucky enough to be born into an enterprising family so that is great fodder and perspective on the work 139 year family enterprise that wound down in 2015 And so that really set in motion a lot of my perspective as an owner, former board member, inheritor grant or a member of a family foundation. And then I realized that I got bit by the entrepreneur bug, and although I spent a good chunk of my career about 15 years in the financial services, Wealth Management investment management space, I eventually landed on my own and 2014 which is when the complete family office handbook actually released and have really been consulting to all types of enterprising wealthy family Office clients who have provided great insights and wisdom to my own learning but also have helped me see how the space has evolved and shifted so much, even in the last five years.

So you’ve been working with families and helping them to evaluate family offices and or set up their own family offices.

Correct. So our main mandate is to sit on the side of the table with families we do not collect fees on assets under management. We are purely research, advice and consulting. And so we will fill in a lot of different hats depending on what’s missing from helping be a facilitator and expert. advisor to a family as they’re in the setup and startup we often times get called in to help bridge between operators of the family office and owners. They have two very different vantage points and sometimes you need someone who can translate what the owner is thinking to the operator or vice versa. And then we also help with the next gen. Oftentimes where there are gaps in their knowledge and what their expectation should be or even what they’re on ramp to a future role in the enterprise or family office could be.

Okay, so I mentioned a little bit about single family offices. And multifamily offices. And I think most people know the difference and I just want to address a subject here about what is a minimum amount of wealth that somebody needs to have a family needs to have to even think about a single family office because my impression is that in Canada, there aren’t necessarily many of them. And so most of our listeners who are people who did the family enterprise advisor program, most of us most of the time would be dealing with families that are more you know, perhaps clients of multifamily offices.

So that’s a great question and I get asked that all the time. And my responses, you guessed it, it depends. So what one family can stomach to pay to have privacy, complete control, complete oversight, customization of their service offering, reporting, administration, back office personnel has a lot of variation. And so unfortunately, I can’t give you an exact number but I’ll give you a range. It doesn’t make it very economical to try to set up your system autonomously. If you are probably under 100 million. In fact, I would sort of push the number up to 250 million and that has a lot to do whether you are directing the type of assets. So are you more of an operating entity type family with several, you know existing businesses? Or is your wealth being derived from a portfolio of liquid assets assets that are invested in the stock market? bonds, equities, mutual funds municipals. So, does that help Steve?

Yes, it does it in fact, if you’re making me think of that old expression, like if you’ve seen one family office, you’ve seen one family office, because they are all different and they depend on what the family needs. We talked a little before this recording and you wanted to, I think address a little bit of what the landscape looks like. And you mentioned that you’re you’re updating your your book from six years ago. And so my simplest question would be, how has the landscape is changing in terms of what families who are considering a family office? What are they seeing now that they weren’t seeing six years ago?

The greatest differences I’ve observed and I’m looking at it from really two lenses, one who I work with every day, and then to where the research and what is being researched. Right. So what’s happened in the space is great and exciting because we have truly embraced that age of commercialization of the family office. What do I mean by this? I would say that this is the age of the multifamily office. This is more of the age where more families are opened their eyes to what wealth providers, investment managers, financial planners even accounting firms might call themselves a family office or some law firms do as well. So what has happened is there’s a greater abundance of research knowledge information, exposing the family office concept, not just to the billionaire and not just to Bill Gates and Warren Buffett and the Jeff Bezos, but to, you know, a much more democratized arena of clients. So those even with call it 50 million, or even 25 million in assets. May be able to get family office services through a provider who offers multifamily Office services. So this has become a very attractive line of business. For many institutions, who five years ago, didn’t think that they would ever go down this path, but they are now and many more people know that this option exists. And I just want to remind you, Steve, the other huge shift that is happening is this wealth transfer event. So that is real time happening every day as boomers are aging out retiring and sadly passing away. There’s an incredible amount of wealth transitioning from that generation to the next generation. And there’s a mini transition oftentimes between spouses, that’s also happening. So I would say another huge trend is the emphasis and interests around women and wealth.

Interesting. So there’s, you know, when when families are starting to consider a family office, it’s usually around some sort of event, whether it’s a liquidity event of selling a family business, the death of someone or the transition from one generation to the next are. You also mentioned when we were talking earlier about a lot of new money, that’s that’s working its way into this space is that phenomenon we’re going to expect to continue?

Well, there’s definitely considerable new wealth that is happening every day and I would just share that the ideas around what a family office could be from a single family office perspective for some of those newer wealth creators, oftentimes who are earning that wealth earlier in their lifetime. So you know, oftentimes, the founder family office concept wasn’t something that you’ve been contemplated to you were in your 60s 70s or 80s. And we have, you know, families that are coming to us in their 30s and 40s, who have had a significant payout liquidity event. And they’re now thinking what is it that I want to create and do I have the vision and desire to create a structure that will certainly outlive me likely outlive my children and potentially my grandchildren?

I get that I was talking to a client yesterday who’s in his mid 40s. and is considering you know, well, what if I sell my business? What do I do and, and his kids are, you know, in their teens and 20s and so that the difference in what we as advisors are being asked to help our clients with compared to the 65 year old who has a liquidity event and then might want to transition parts of investing to their children. This is more about preparing the rising generation from a much earlier age. And that speaks to one of the questions that that you had so people who are regular listeners to the let’s talk family enterprise podcast might remember in episode number two when Ruth interviewed Tom McCullough for his book wealth of wisdom and curvy wrote a chapter for that book about family offices chapter 48. And in one of the questions for further reflection, she asked, Do you believe your family has the capability and capacity to be a good family office operator? Can we spend a little bit of time on that, like what does it take to operate or for for a person of patriarch, let’s say, even a young patriarch to try to figure out and prepare their offspring to come and be an operator of a family office as opposed to just someone who benefits from the family offices services?

Well, that’s a wonderful question and I’m going to even pull it back one step further to say oftentimes, when there is enough liquidity, or there is a greatest greater enough pool of assets, the family may or may not have had a whole lot of time, right to contemplate what their human capital in the family is to be operators. So as, for example, a family we were in the past. The father was extraordinarily successful, but they were wealthy modestly on paper because it was low basis, closely held stock. Then there was a significant liquidity event and IPO and his children were well into their 20s and early 30s. So hadn’t really ever even conceived or contemplated, should I be preparing my offspring should I be educating them? So sometimes the the timing is sudden, and it doesn’t give anyone a ramp up to prepare. Those who have have experienced multi generational wealth that’s passed on for significant time. And they’re either have an existing structure and figuring out how to perpetuate it. Oftentimes, you can start to cultivate and create a roadmap for those offspring about what’s important to be able to be good or operators, which is different than being good, beneficial owners. Does that make sense, Steve?

Well, no, I just think so. It’s a nice segue, I think, to talking about the kinds of roles that most of our listeners might be confronting. And so when I say most of our listeners, the target audience of this podcast are the people who have taken the family enterprise advisor program here in Canada through FBX and who have the FAA designation, and we come from a whole bunch of different backgrounds and work in different you know, professions of origin. Yet we’ve all gone through this program to kind of learn a more holistic and collaborative way of working together, recognizing that the family should be at the center of things, and that we need to learn to work together as professionals to collaborate for our clients. And so from that perspective, what are some of the things that that we need to know or be aware of when when families might you know be preparing for a liquidity event and ask us so after I have all this liquid, what should I do next? And depending if you’re coming from the accounting world, or the banking world or the financial planning world, the way you might answer them would be different.

So there are lots of things I can add to this conversation. And I think it gets back to trends. And what’s emerging on the commercialization side. That’s really impacting and influencing the adviser and consulting realm. And when you have the desire to package and provide comprehensive family office services, be it reporting aggregated reporting, accounting, document storage or management, governance, risk management. So there are just a whole range Legal Services Tax Preparation, bill pay.

Wide, yes, absolutely

ranges wide. So it starts to bump up into other people’s domain areas. And then the client has to say, well, do I stick with Joe? He’s always done my tax preparation or if I have sort of an interest in migrated to a provider who offers family office services, do I get it through that bundled multifamily office provider? And there are so many clients who will I would say Trump, loyalty and trust have one or two key consigliere Ares, and so they may not want to let go, or they actually may tasks those advisors, be it their accountant, their attorney to do more than necessarily they want to do. And I’ll give a quick example of of a client I know who has this exact situation and they use their accountant and many different capacities. That in some respects accountant says this isn’t the highest and best use of our time. You could be doing this internally without our call it more expensive talent. So it’s really understanding how you manage your mat and know which is your domain expertise, but also what makes sense for the client because it can become extraordinarily expensive. You know, if you have an attorney who built out at 600 an hour, who shouldn’t be your tax preparer, but he’s doing your taxes because you trust him. I’m not saying don’t use that person, but I’m saying you have to look at what the value is the domain expertise and where the fit is. And then in terms of integration and working with advisors, it’s really coming up with an understanding of who does what and when, and what gets communicated at a group level for, you know, opining and updating and who’s involved to make which decisions be an investment finance accounting, because not all parties necessarily will have domain expertise to weigh in, nor should they be there making the decision with the client. So those are just some some experiences that we’ve had and we try to play nice in the sandbox, but we have to just know that this is a much more competitive, commercialized landscape than it was five years ago. And there’s a lot more people interested and being that provider and being that family office expert to these clients.

There’s a lot of families, there’s a lot of wealth, and there’s a lot of work to be done. And there’s consequently a lot of people looking at trying to figure out how to make this a profitable business, profitable business for them. And so I think one of the things we as want to be trusted advisors to families can do is to help offer them some some clarity and some understanding and help them weed through all the different choices they have. But then sometimes we you know, we might get conflicted. If if what we are providing to a client who that pays part of our bills. No longer fits with what is actually best for the family. How do we what do we do when we run into those situations?

Well, I think disclosure of conflicts of interests. That’s obviously what law firms do all the time. But it’s really important when you have multiple providers who potentially could be offering the same service. And so the client really has to understand well do I get this from my accountant or do I get this from my multifamily office or do I get this from, you know, my family business advisor. There are domain areas that are sort of floating in and out we have one for example, a lot of consultants will advise on say family business or family business advisory or family governance, or next gen education. And those areas are now being driven increasingly by larger firms and they want a market share. So the key is for families to actually step back and ask, what is it that is your domain expertise? How much expertise do you have in these additional areas and how do you charge and then to work with sort of the people advisory board boards, family owners? What is it that we really need? I’ll give a quick example of a very large institution I won’t reveal its name, it’s it’s an accounting and the domain and they you know, obviously are doing significant accounting work for an extraordinarily large family in the south east. And the next thing I found out was that the owner said, Oh, you can just do all of the family governance, charter and work but they only have you know, one person and a 1000s and 1000s person, massive global firm. And then when I found out how the contract was structured, I realized that this you know, poor family didn’t really know what they were being sold. And I’m not throwing accounting firms under the bus because it happens and in all different kinds of domains. But I bring it up because it is our job, I think, for those of us who are independent, to help educate and help families be aware that a five year locked in contract is not a typical term. You know, and that was the case of this client. So it was it was helpful for me to inform one of the operators to say, I’m so sorry, I feel terribly bad for you because, you know, there’s going to be fatigue, there’s very rarely do I see consulting mandates that continuing to extend that long they might go on and off over a five year period, but this never should have happened and when you do not achieve milestones this responsibility will come back to you to get the work done that this larger institution may probably have difficulties following through.

Interesting so that was the problem there was in the in the governance aspect of that was being tasked to an accounting firm to take care of the family governance part of things

correct. And so, again, this employee was hired after the fact to actually head up the whole shareholder relations domain and found out that the owner had made this commitment and contract and realized very quickly that this put significant pressure on them. When an if this provider wasn’t able to carry through and it was just it was a huge mandate, relative to the work and manpower that this big institution could put behind. It because they just didn’t have more than one domain expert.

So that’s an example family governance of what some people in the US are doing at the forefront of as this industry, if we can call it that gets democratized. We in Canada, as I mentioned to you offline before, we’re often looking to the US to see what’s going on there to get because things usually kind of come up first that are created there and get copied in Canada after it’s been going on forever. So I don’t imagine it’s ever going to stop. Are there things that you see other than then governance of other areas where people are trying that are areas that that firms are trying to exploit to increase their footprint in the family office space that our members, our listeners might want to start thinking of or maybe realize they’re already thinking of them and know that there’s other people doing it in the US other areas besides governance that family offices are venturing into?

Well, I will bring up a whole virtual family office, which is a term that you ask anyone how to define it, and everybody will give you a slightly different answer. And I think one of the key aspects that has massively changed in five years is technology, AI, and cybersecurity and just information management, data management. And so the family office has been hugely impacted by these chefs. Buyer beware. There’s a ton of great platforms. That will not be here in 24 months. A quick example of a, you know, family office, we were doing some work for on the administration front. And we really liked this provider, the family that created this whole platform was a very large established family office. But then one day, they just got tired of promoting it. So they said we don’t really need to commercialize this, so they just yanked it off the market. And I bring this up because this is an area of administration and efficiencies is one where a lot of institutions are migrating to try to be a one stop shop and create the virtual family office. But don’t confuse you know, portals and document management with a family office because you need to know who owns the data, who has access to the data. When your contract ends. Where does that data all migrate to? Because that’s just another level of service that many providers are trying to enhance their offering with. And the technology is rapidly changing. And I would just share that if you’re not if you don’t have really hands on information to how these tech firms were designed where they set up for retail versus family office versus banking and financial services. Families end up onboarding platforms that they don’t want to pay for and 1224 36 months or they can’t maintain them or they just don’t use them. So that’s just another major shift happening in this space.

Yeah, I guess it you know, it’s really Buyer beware. These families, though, that are making these decisions typically have been very successful. And in some area where that has allowed them to, you know, create the wealth that they have. And now they have a bunch of people offering them different solutions and sometimes have trouble evaluating what’s actually best for them. And everyone who’s coming at them is coming at them with well you should use my thing because and it always sounds great. And then the next day someone else is in front of them and say no, you should come with me and do this because of this. And that all sounds great. And I think something that we can offer them if they trust us is to you know to help sit beside them and help them evaluate the different things because they do have some blind spots and they are liable to you know, jump in with someone that had a great sales pitch because it really sounded good and it made sense. And I guess part of your point was something that sounds like it makes sense today. If you go out 24 months, no longer makes sense.

Correct. I think the reality is it’s not just what it looks and feels like today. You have to ask much more difficult questions that include what was the Genesis story for the platform to be created in the first place? How much capital has been invested? In it to, you know, 2.0 3.0? Who are the other owners of it? Where’s the help desk? I mean, we’ve had, we’ve investigated platforms that we think are fantastic than we realize there’s a call center in the US or in North America with two or three people but you know, 80% of the Help Desk is overseas in you know, Pakistan or India or some other place that really is on a completely different time zone. So I think so much has to be peeled back and one of the things we love to do is have our clients talk to our other clients that might be five years ahead of them on certain issues. So if you don’t want to hear it from our mouths to your ears, please talk to clients who have been exactly where you are, and are moving the needle and making a difference so that you can get an idea is that really what we’re going to look like in five years or no, we could never do a private Trust Company or we would never be able to really manage well a pool of capital, because our family owners really don’t have a vision to be cohesive and stay aligned to a certain mandate investment mandate. So those are the kinds of things I think all go into both the administration and systems discussion but also just into the Do I really need a family office or is the multifamily office optionality more attractive?

I think that’s a great idea that’s in Israel relatively simple. If if if we have a family client who’s considering a move is to just suggests to them, Why don’t you try? Why don’t you ask whoever’s proposing this to you to let you speak to some other families who have been working with them for a while and allow you to ask questions directly to those people because that kind of a testimonial, if they have that kind of historical relationship with someone, that would be the best kind of referral that they could give. And if they can’t give that well, maybe try to figure out why. You know, we were planning to spend 30 minutes I see we’re almost getting to 31 on my clock here. So unfortunately, we’re gonna have to wrap this up soon. I’ve got a couple of final requests of you. Before we wrap up. I’d like to ask you for one book recommendation, hopefully something you’ve read and really helped you somewhere in your career. And then one last piece of advice from advisor to other advisors. So let’s let’s start with a book recommendation.

When the book recommendation is really geared to the audience, I think listening in today, and I am going to make a shout out to a contributing author Barbara Hauser. She’s also the editor of the International Journal. of family office. She has just done her second edition update for the book, family offices, the step handbook for advisors. And one reason I think this is such a great book to have on your shelf is a if you’re dealing with clients on a multitude of family office issues and a number of different jurisdictions potentially, this covers both geography, but it also goes deep into, you know, nuanced content areas. So I think it’s a great book to have as a resource as a go to and Barbara has an all star cast of contributing authors that she included in the book and I was lucky enough to contribute as well. So there’s a lot of good content in that book.

That’s from step the Society of trust and estate. Practitioners, which is an international organization that some of our members are familiar with. And we’ll put a link to that how you can get that book although it’s not a cheap book, but it is a good book. We’ll put a link to that in our show notes. And so now, the piece of advice Kirby please from an from an advisor to advisors who work with families.

So I think one thing we really strive to do every day and our work is to stick to our knitting and do what we do best and to focus on our core competencies. And when we engage with families, understanding who else they work with and where their expertise shines, so that we can come up with a really good process and approach to work effectively not have duplication, not have advisors or providers that may be competing or undermining one another. And so managing your domain expertise, but being very clear and intentional upfront about how to work well and the proverbial sandbox, so that we all when the client wins, the advisor wins. And you know, it’s one of those things that it sounds good, but it’s actually quite a bit of work upfront, to get those goals, expectations and norms established of the rules of the road of engagement. But once it’s done and the client signs off and agrees to it, I think it actually creates an accountability level back to providers and advisors. That really helps the bottom line for clients and that’s what we’re what we’re there for is to do the best by our clients.

That’s fantastic because it fits really well with our audience because in the program, we you know, we do we are forced to work together with a client and one of the first things we need to do is hammer out our own, you know, working agreement of how we’re going to work together and who’s going to do what and how we’re going to deal with things that come up. And so, you know, collaboration is great, and then we need to have a complementary team HERBIE, thanks again so much for joining us and sharing your expertise with our audience. listeners. If you haven’t already subscribed, please do so. Make sure you never miss any of these monthly episodes. This has been the let’s talk family enterprise podcast. Thanks again for joining us. I’m Steve Legler. And we’ll see you next time.

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