Family Offices: Last Chance for Private Bankers?

family office, private banking, relationship managers, pay

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They are the even more discreet alternatives to private banks: family offices, which manage the financial affairs of the world's wealthiest clans. The industry's best advisors earn intensely lucrative pay.

Single- and multi-family offices are the domain of the super-rich. The firms typically tend to all aspects of family finance including investing, tax and legal advice, and crunches and compiles data from a myriad of providers into one statement.

The process becomes increasingly complex if several generations of family are involved, in several countries and jurisdictions, with disparate financial goalposts and targets like home ownership or financing a son or daughter's college education.

Fewer, Wealthier Clients

These offices are much leaner operations, and they are agnostic about where they draw actual banking services from. They can manage total assets of anywhere from several hundred million to multiple billions.

For an advisor, the appeal of working in a family office is obvious: instead of several dozen clients in a highly-segmented way, they cater to the needs of a few handpicked clients with a far higher amount of money to invest.

And business potential – particularly in Asia, where family finances have until now typically been handled alongside business ones – is huge.

Prominent Moves

Several notable bankers have made the move, including UBS impact investing specialist Andreas Ernst, who left the Swiss bank earlier this year for Anthos Asset Management. The unit is part of a family office of the same name set up by the wealthy Dutch Brenninkmeijer family, which owns the C&A chain of clothes stores.

Marcel Kreis is another prominent defector: the veteran Swiss banker last year joined the family office of Melbourne’s wealthy Myer family, which made its fortune in department stores. Kreis is also on the board of a new Asian family office, Fusang.

The drawback is that family offices and those devoted to several families (MFOs) don’t have an instantly recognizable brand name like UBS, Citigroup, or HSBC. They have bland names like Bedrock, Sandaire, Stamford or Waypoint.

Discretion over Brand

To be sure, part of the point of family offices is more discretion than banks, as well as highly personalized service – it isn't necessary or even desirable to have a recognizable brand name, and most families don’t name their family offices after themselves.

But for advisors, the absence of a strong brand presents a conundrum. A good brand name can be a powerful incentive to draw in the wealthy, especially in emerging markets where foreign players may have a leg up; Switzerland’s powerful banking brand is evidence of this.

That effectively means that advisors and other experts who face clients become the brand – they are the reason that wealthy clients will make the move from traditional banks to family offices.

Taking the Leap

Their proposition is an utterly unbiased and unconflicted view of a client’s financial affairs, without pushing any in-house products or trying to encourage trading to generate fees and bolster revenue.

Wealthy clients are increasingly disgruntled with major banks over fees, but getting clients to actually move to a far smaller and virtually unknown multi-family office is still a very tough proposition.

Particularly in uncertain times, clients are hesitant to move their cash, according to experts.

Strong Client Bond

«Many clients like the idea of separating the actual custody of their assets from the investment advisory, but for a client to go as far as relinquishing the investment competence from a global bank brand to a multi-family office is a substantial step,» says Matthias Schulthess, co-founder of executive search boutique SchulthessZimmerman and co-lead of family office recruiting.

Advisors only stand a chance of taking their strongest client relationships with them if they leave an established and solid private bank such as UBS for a smaller, unknown family office, experts say.

This separates the wheat from the chaff of advisors: only about one percent of advisors are knowledgable enough to offer the investment expertise that clients want, and also have a strong enough relationship with clients.

„You Eat What You Kill“

A big advantage of single- and multi-family offices that on pay, the sky is the limit. The most well-connected, productive and skilled advisors can earn several million a year. 

Cynically referred to as «you eat what you kill» among advisors, family offices tend to operate on a system of individual profit-and-loss statements, minus an upfront retainer and a cut for common infrastructure and expenses.

While this is a powerful incentive for private bankers disgruntled with big, bureaucratic organizations, it also represents a major financial gamble.

Working Off a «Draw»

Advisors typically begin with a so-called «draw» from the family office to cover their costs including salary, which they spend several months earning back. Once the draw is worked off, advisors earn a cut as high as 50 percent of whatever fees they bring in, in a model which resembles that of U.S. brokerages.

«There is even less room to hide in this type of structure than in a large organization,» Schulthess says.

In single-family offices, investment and corporate finance expertise can play a more important role than the traditional wealth management skills, depending on the family's profile, he notes.

For private bankers thinking of moving, it is a leap into the financially unknown, with potentially huge rewards for those who master it.

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