Family offices beware – banks are on a mission. They’re coming after your business, because they feel they can do a better job and are desperate to improve their margins. Here’s why.
The aftermath of the financial crisis of 2008 wasn’t good for banks, and it was particularly not good for them when it came to the very rich. We all know the story – many of the very rich felt they were ripped off by the banks – sold overly complicated products that promised good returns, but failed to deliver. Not only that, in many cases, investors couldn’t get their money out of these products. And so on, and so on…
Against this background, the single-family office market boomed post the financial crisis. Of course, that was mostly because there were more very rich people being created. But it was also because the very rich felt they could manage their money better than the banks/asset managers. And, anyway, family offices could hire the best from the banks/asset managers to run their family offices.
But things are changing. After a few years of running their own investment affairs, family offices are beginning to wake up to the cost implications of doing so, particularly against the background of very low returns in most asset classes. Many family offices, as Family Capital has reported, piled into direct deals, but often bought them without adequate levels of due diligence. Not only that, they underestimated the cost of due diligence.
Then the banks, looking to improve their image among this juiciest of client segments, better tailored their service offerings to family offices.
Here’s another thing the big banks do – they go after family-office stragglers – peripheral members of the family, and tell them about their great product offerings. Ask any chief investment officer of a family office how many times they’ve had to fend off family members saying to them – “oh, according to XXXbank, they can get a return of XXX on this product, perhaps we should look at it more closely”. It takes a resolute mind to keep on fending off these types of statements from family members.
Also, memories are short in the world of finance – let’s face it, most bankers want them to be very short. But, it’s important not to be too sceptical of what the banks are offering these days. Sometimes they can provide a competitive edge and family offices know this. The big banks have huge balance sheets that give them economies of scale in many areas, which family offices can’t match.
Of course, family offices aren’t going to collapse and die because banks are coming after their business. Like most things in life, different people have different preferences. Some will always feel happier with an investment group they can control, and others might be happy allowing the banks more say. Nevertheless, there’s no doubt the banks are trying their hardest to make sure it’s the later.