Should the principals of family offices be better trained?


Here’s an interesting idea. Should the family members behind a family office be trained in the world of finance and investing so to understand these issues better?

If you’re Warren Buffett, or even David Rubenstein, the co-founder of The Carlye Group who recently set up a family office, perhaps not. But if you’ve got scant knowledge of the world of investing and the intricacies of high finance then maybe some training wouldn’t be such a bad idea. And even if you do have a vast knowledge of finance, what about other members of your family, and particularly the next generation?

Financial training becomes crucial so that the current and next generations of entrepreneurial families have the knowledge to deal with their complex finances

Peter Brock, the former head of EY’s family office services group in Europe, believes families need to understand better the world of investing and finance more than ever, especially from an independent perspective. And perhaps they even need an independent advisor/trainer to help guide them through these issues.

“Not every entrepreneur is also a seasoned private banker,” he says. “And in these uncertain times, holistic wealth management is certainly not an easy task if you aim to transfer your wealth securely to the next generation.”

He adds: “Financial training becomes crucial so that the current and next generations of entrepreneurial families have the knowledge to deal with their complex finances. This will help them to formulate clearer demands vis-à-vis the financial services industry and before choosing investment products, and/or setting up a family office.”

Brock believes most financial institutions and their advisors are conflicted and don’t offer truly independent advice. “With huge requirements for many financial institutions and asset managers to grow their assets under management following tougher regulatory requirements, the advice they give is very often far from independent.”

But aren’t those employed to do these things at a family office independent? Not necessarily, says Brock. “Surely a family office investment/finance expert is employed to do exactly that – to be independent. But in many family offices I know that doesn’t always happen. Quite often there are principal-agency conflicts, and family office managers do not always do the right thing for the family.”

Even if an agency-principal conflict isn’t an issue, an investment manager working for the family office might not be knowledgeable in all asset classes, and/or all aspects of finance,” says Brock. “This is a critical point. And in this case, an external sparring partner can often provide an invaluable sense check on the advice internal managers are giving.”

Brock reckons that high-quality training and advice from independent, non-conflicted individuals, separated from the family office and not working for a financial company would be worthwhile for many wealth owners.

“The vast majority of wealth owners have not spent much or any time in the financial services industry, so they are not aware what things like strategic asset allocation or holistic wealth management mean,” he says.

“Only if you and your family know what you want, if you are clear of your needs and demands, only then can you better manage your family office and gain a better understanding of the financial things that matter for a family office.”

Given these individuals aren’t working for a financial institution, or your family office, who are these independent advisors? Are they some special financial consigliere?

Watch this space…

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