View all newsletters
Have the short, sharp Spear's newsletter delivered to your inbox each week

View to a Skill

By Spear's

Rupert Phelps ponders the perfect characteristics for those intending to work in a family office. Gun skills may come in handy…

Fundamental for a family is whom they admit to their inner circle. In fact, this can mean nothing less than whom they allow to become part of their wider family. Such was the understanding of this issue in the medieval period that the word ‘family’ or ‘affinity’ was used by magnates and smaller proprietors alike to include households and retainers who where not of their blood. In a similar way, the single family office (SFO, which is the remit of this article) can be the family writ large.

In modern times Seward Prosser Mellon remarked on his father, Lieutenant General Richard King Mellon: ‘Dad’s two greatest assets were choosing people and foresight.’ These are gifts which one would hope to find in a soldier, and the art of delegation to suitable people is arguably the most useful of all abilities for those in positions of authority and substance.

Today there is very little understanding of the actual nature of family offices (FO) in the financial market generally, and the headhunting profession specifically. This means that it is even harder for families to find the right people to advise them and manage their affairs. The character and nature of family advisors is the fundamental issue and dwarfs later considerations of the ‘portable alpha’ variety. Get the wrong advisor, even with stellar skills, and significant trouble is in the incubator.

On 8 October 2009, the Financial Times carried a medium-sized advertisement seeking a ‘Head of Private Family Office for International Family’. Clearly the principals’ name was not given, but the contact email suffix of ‘Aubrey House’ made this instantly recognisable to some and relatively simple to trace. Oliver Stanley, a rarity in being a head-hunter who genuinely comprehends this sector, sometimes asks clients who suggest placing advertisements how often they have responded to such a medium themselves.

Perhaps someone reading this might want to point out that the current trend for moving to transparency, accessibility and rigorous due-diligence makes it necessary to advertise. Government departments and public companies are one thing, but the world of SFOs is potentially very different. Flat structures, transparency and inclusive work environments may not only be absent, but actively derided.

There are three essential stages to the process of finding suitable senior advisors: attract, recruit and retain. The first is actually a necessary basis for the second and the last often the most challenging of all. The fundamental truth is that the hiring FO is buying, and the best people are likely to need persuading to leave their current roles. They are not likely to see, let alone respond to, advertisements.

The U.S. Trust/Campden Research North American Family Office Survey 2009 found that 62 per cent of FOs said that finding the right people for their office was ‘very difficult’ or ‘difficult’. It stated that the ‘most critical issue’ facing FOs (43 per cent) was hiring and retaining staff. One particular area of skills shortfall identified was that of financial analysts. The survey also endorsed the evident fact that by far the two most significant routes (63 per cent) to finding staff were ‘word of mouth’ and existing professional relationships. Head-hunters came third at 44 per cent.

Content from our partners
Why investors should consider investing in nature
HSBC Global Private Banking: Revisiting your wealth plan as uncertainty abounds
Proposed non-dom changes put HNW global mobility in the spotlight

As well as the oft mentioned work/life balance and flexibility that may be attractive in an SFO position there also need to be more tangible elements to retain staff. Co-investment is an important current theme in the FO sector. It is generally used to indicate an SFO admitting congenial families to partner on particular deals rather than as a fellow ‘full member’ of the office. But it is also a potentially effective tool to forge a long-lasting and well-connected relationship with senior staffers. This can be challenging to structure and implement, but it is very effective in giving life to the principle of senior staff having a stake in the concern they manage.

There is a plethora of articles to guide the reader through the standard distinctions between single- and multi-client models in the FO sector, but the living truth can be more prosaic and less easily defined. There are FOs, such as Capital Generation Partners, that serve more than one bloodline, but are still much more single than multi-client in character. One could call it a Co-operative Single FO, surely a term that would confuse a multitude. Each private office is a human entity, at once evolving and organic, personal and emotional. ‘Chemistry, not physics’ is one description. Within this unfolding environment the FO should represent a centre of stability and influence and so requires leaders who will live these ideas as well as thrive within it.

The work is sometimes highly confidential in nature, and likely to include information and experiences that would never be encountered in other financial environments. FO staff may personally witness family members arguing at home or have to address detailed staff grievances. Children may seek to use them as a lever against parents or just preoccupy undue amounts of time on trivial matters.

One head of an SFO in London remarked with a wry smile that anyone who objected to shooting would be unlikely to get on well in his office. One imagines that such a person might at least have been rather lonely in the winter months. The point is that there must be a sharing of culture and values between the advisor and the advised. The head of an SFO who leaves his desk and heads home at the end of the day, has only ‘left the office’ in a locational sense. The family are likely to regard them as ‘on call’ at any time.

Just as much banking M&A activity fails to add value through a mismatch of cultures, so it is in the FO sector. Family members and FO staff do not have to be too similar, and perhaps should not be, but there must be some alignment of interests and beliefs. One might express this as a willingness to feel part of something where the actual duties might range from the prestige of meeting world figures with a family member to being the proverbial bag-carrier. To continue the military theme of General Mellon, former equerries and aides-de-camp know all about this.

A wish-list of underlying personal characteristics that may be required in senior SFO staff is dizzying. The cynically minded might suggest that the chances are slim of finding someone who combines the shrewdness and foresight of the Grand Vizier at the Sublime Porte with the manners of a Johnsonian dancing master.

Optimum traits might include being: discreet, sensitive, thick-skinned, loyal, committed, understanding, ambassadorial, diplomatic and well-rounded in mind. These are sometime called the ‘soft’ skills but as Professor Randel S. Carlock has remarked, they are often actually the hardest; hardest also in the sense of finding them.

The Head of an FO represents one of the most desired and sought people in finance, namely the buy-side decision maker of a rich family. Such people need to be rigorous and perceptive since they will be approached and courted by a multitude of sell-side salespeople, intent on a close.

One very gritty board member of a large asset management firm introduced this writer to ‘my family office relationships guy’ who was a slick and smiling junior with a dubious sounding double-barrelled name and slightly pointy shoes. There is a phalanx of such salespeople and senior staff of FOs will need to exercise judgment and discernment as to how they deal with them. The point is that it is unusual for the actual investment manager and those who ‘bang the drum’ in the firm to be the same people. Most advisors and owner-managers of SFOs will naturally want to deal with the actual decision-maker or ‘trigger-puller’ where they place their capital. Considerable confusion and potential trouble can be engendered by salespeople who augment their role by suggestions of investment responsibility, or wider vision that their quarterly sales targets.

In considering the key competences required by FO staffers one should remember that in broad terms there are three types: family member, service side and investments side. Wherever a FO staffer has come from though, they should ideally have a number of talents which are rarely found together.

I would begin with another medieval concept (albeit with a classical origin): ‘Know thyself.’ This is axiomatic to integrity. Allied to this is a capacity to know others and the FO must retain the personal touch. The ‘others’ also must include the rich and being comfortable with them. It should also be noted that there is much less of a distinction between client facing and back office in the world of SFOs; all employees are likely to interact with family members.

Personal characteristics are actually more important than professional skills as the former are the bedrock of the latter. Similarly choosing the right close advisors should come before choosing the right individual managers of capital. Actual abilities required will also be very dependent on the role senior staff are actually expected to fill. Oliver Stanley delineates this in terms of CIO/COO. Lack of clearly defined roles can lead to a mismatch of expectations and retention problems. Clearly a CEO or COO will be more of generalist, whilst the accomplishments required in a CIO of a private investment business are rather more obvious and universal.

There is also the question of scale if a family is considering the expense of a full time quality CIO as well as ‘head’. The Merrill Lynch/Campden Research European SFO Survey 2009 described the average cost of running an SFO in Europe as about 60 basis points (bps) of assets under management (87 bps sub €250m and 41bps over €1bn, excluding set up costs and investment performance fees). For the smallest SFOs, €2.12m (for above at 87 bps) is not a substantial amount of money to run an office. These basic economics must loom large in the thinking of families who are considering their options as to the infrastructure they put in place to advise them and manage their assets.

It is also important to consider some talents that are not generally needed but which less knowing people might assume. For example presentational polish of the modern marketing and development nature are much less important in an SFO than being able to explain financial matters to a family that might comprise all manners of ages, intellects, knowledge and curiosity (army officers such as General Mellon, are familiar with this range).

Anyone who has run an SFO also knows that in being the buy-side, the reality is that one will be invited to receive presentations, rather than give them. Knowledge of the capital markets will probably be important to a degree but rarely to the level of a senior investment banker, and lateral hires from this source can be very challenging indeed. Lastly, the family lawyer or accountant may have morphed into de facto controller or even asset allocator of an entity that is in effect an SFO, but it is quite possible that they may not have right skills.

So is it possible to families to find advisors who meet the core criteria discussed? The FO sector has certainly spawned some very long professional relationships. Stuart Corbyn joined the Cadogan Estate in 1986 and left 22 years later in 2008. In that time period the Estate’s assets rose from a valuation of £250m (with a rental income of £4m) to £3bn (with rental income of around £80m). One of the longest unbroken careers must surely be Richard Fitzalan Howard, Chairman of Asset Management at Fleming Family & Partners. He joined Robert Fleming Holdings in 1975 from Corpus Christi College, Oxford.

I have said professional relationships, but of course it doesn’t take as long as two or three decades with one family for the connection to blur into the personal and social. This fundamental distinction from listed entities (without significant family presence) was alluded to by Paul Mellon, who referred to his office as a ‘sounding board for his affairs’. His uncle, General Mellon, in a similar context had used the phrase ‘brain trust’.

The SFO sector in London is actually richly endowed with a wide array of talented and decent senior advisors. These men and women often have finer minds, are better read and more broadly educated than many others in more mainstream finance. It is one of the elements of ‘family office world’ that is so appealing and intriguing.

Many are well-rounded people amongst whose pastimes one can number magicians, authors, artists, sailors, orchid-collectors, chainsaw experts and classicists. It is clearly possible for the broader opportunities and frankly slightly unpredictable kaleidoscope of life within the FO world to attract able people of aptitude and expertise.

Here one’s working hours and resting moments may become intertwined by an indistinguishable series of indefinable stages over the passing years. The best advice is to ensure that an advisor only enagages to serve a family of whom they are happy to become a part.

Rupert Phelps is director in the Family Office Services International group of BNY Mellon

Select and enter your email address The short, sharp email newsletter from Spear’s
  • Business owner/co-owner
  • CEO
  • COO
  • CFO
  • CTO
  • Chairperson
  • Non-Exec Director
  • Other C-Suite
  • Managing Director
  • President/Partner
  • Senior Executive/SVP or Corporate VP or equivalent
  • Director or equivalent
  • Group or Senior Manager
  • Head of Department/Function
  • Manager
  • Non-manager
  • Retired
  • Other
Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
Thank you

Thanks for subscribing.

Websites in our network