Philosophy

Real generosity towards the future lies in giving all to the present.” – Albert Camus

I. Introduction

The greatest risk of any wealthy individual’s life is that they never achieve some significant measure of fulfillment while on this planet.

While this result for a very few might be defined as the amount of money or assets they accumulate during their lifetime, for most this is probably measured by less calculable metrics: doing good works in their community, the way posterity will remember their family’s name, sustainability, or legacy.

The greatest risk for any professional advisor (I am referring generally to Certified Public Accountants, attorneys, and Wealth Advisors) in their life is that, assuming they do work with wealthy individuals, families, and Family Offices, they will only contribute to the former occurrence and will never make any measurable contribution to these more hard-to-measure achievements for their wealthy clients (and for that matter, for themselves).

I am a Certified Public Accountant and my business office is physically located within a Multi-Family Office. Here, we primarily serve two ultra-wealthy families, originating from two brothers and their spouses. They had six children who in turn have had 19 children, making us a “third generation” family. We also serve a handful of other non-related wealthy families on a more limited basis, who from time to time co-invest in real estate opportunities with us.

While I am a CPA, I do not prepare income tax returns or financial statements, which are the two services most typically associated with being a CPA.

I do indeed review income tax returns prepared by other CPA’s on our behalf, and sometimes also work in other technical areas, such as income tax controversy representation and estate and gift tax planning, and reviewing legal documents.

But for the most part, I assist my families with matters that might be described as non-technical, which are typically not associated with being a CPA. I have been serving these families for almost 25 years. I call what I do “Family Governance.”

Family Governance means I am available to Family Office employees and owners and members (patriarch, CEO, CFO, etc.), and to family members who are not actively participating in the Family Office’s operations, and to all of the professional advisors that serve the Family Office and all of its individual stakeholders.

My main focus is as the center (I am called “consigliere”) of all of these associated relationships, so that an open and transparent platform exists. Our main goals here are:

  1. Make sure that all of the work that we do is consistent with the families’ value and mission statements.
  2. Provide all stakeholders an easy to access resource, to ask questions, discuss ideas with. Help them find the resources they want, and in essence help any way I can.
  3. Save the valuable time of key personnel in the Family Office, who do not want to ask 10 or 12 different professional advisors the same question, for example.
  4. Look at all of the risks associated with the business decisions we make, from with an “outside view,” so that we do not have bad surprises.

Also, and not associated with my Family Office services, I counsel CPA’s and Wealth Advisors. My focus for Wealth Advisors is to help them to make the CPA’s that they interact with heroes to the CPA’s very best clients. This is a different business model than what most Wealth Advisors use: most try to reach end-users (aka customers or clients) directly and not through CPA’s.

And for CPA’s, I assist them in becoming the Most Trusted Business Advisor to their very best clients. This too is a different business model than that used by most CPA’s. Most CPA’s have a lot of clients, most of which are not of “A” variety but rather are of “B and C” variety, and they focus on doing large volumes of compliance work.

When I present in public, which I do frequently, many CPA’s and Wealth Advisors tell me that they would like to work with Family Offices, for obvious reasons.

I like to point out, in response, that Family Offices exist, at least in part, because the traditional service models used by CPA’s, attorneys and Wealth Advisors rarely offer enough value to wealthy families and individuals. Thus, inadequate value is one reason why wealthy families create their own Family office, and include many of these functions within.

I will, near the end of this discussion, point out some of the important structural attributes that I believe should be in place, should professional advisors desire to serve Family Offices. But before I do that, I want to explore how professional advisors might be able to make a real difference in the lives of wealthy families.

The topics that I will focus on having nothing to do with compliance work, like preparing income tax returns for example. These are: Governance, Risk, Relationships, and Knowledge.

Because after all, almost any college graduate, or for that matter outsourced resource from India or Indonesia, can prepare income tax returns and financial statements, draft living trusts and buy-sell agreements, and allocate an investment portfolio across mutual fund choices.

How did it get so late so soon? Its night before it’s afternoon. December is here before its June. My goodness how the time has flewn. How did it get so late so soon?” – Dr. Seuss

II. GOVERNANCE

Be true to the principles but do not be bound by them.” – Bruce Lee

Many Family Offices, especially Single Family Offices, use informal decision-making, accountability, and communication systems, which I call “natural” governance.

Larger Family Offices, in particular those serving multiple families, will use formal decision-making, accountability, and communication systems, which is many cases rather resemble the type of governance larger businesses utilize.

Differences between these two manners of governance typically include:

  1. Very few decision makers (maybe only one) with natural governance; wider decision-making authority with more formal governance.
  2. Use of Advisory Boards and even more formal Boards of Directors with formal governance; no such use when natural governance exists.
  3. Use of family value and mission statements, and a host of other formalized documentation, where governance is very structured; with natural governance, these things typically exist in the patriarch/matriarch’s head.

My chief complaint, when Family Governance is discussed, is the following theme as it relates to wealthy families:

Conflict is endemic and constant in Family Offices and with wealthy families.

My reply: this is hogwash.

After all, what is the point of Family Governance? Most families actually do a reasonably good job with their governance, be it natural or formal.

What is endemic and constant in Family Offices and wealthy families is actually competition (not conflict). Competition for resources such as money or investment opportunities, for the time of key people in the Family Office, for the now versus the future, and so on.

Any financial professional who wants to serve in a valuable way in the Family office world needs to first understand the culture (“why are we here”) of the wealthy family. Next comes having an understanding of the strategic and dynamic processes that any given family or Family Office applies to what, why, and how they do what they do.

This necessitates that the professional advisor be able to shift her focus away from tactical applications (income tax returns and estate planning documents and asset allocation percentages) to strategic applications (ability to look into the future, risk mitigation, develop meaningful relationships, gain more access to better knowledge).

Absent understanding the wealthy family’s culture and governance structure, a professional advisor is essentially pigeon-holed into only being able to provide the aforementioned very basic services (which is okay if that is all the advisor wants to do). But the risk for the advisor is that these are basically commodity types of services, and thus resource selection is typically driven by (lowest) price.

To be able to successfully offer forward-looking, value added, strategic services, the advisor must be able to ask questions (not merely about financial matters) and listen, be a servant leader, seek alignment with other advisors as well as with family members, and know that you do not have all of the answers (but hopefully you know where and from whom to get them), and be open to change and personal growth and new ideas. In other words, exactly everything they did not teach you in business school or law school!

Hey, how funny, these are many of the key attributes of good family governance, and that lead to avoidance/resolution of potential conflict.

Sustainable development is the pathway to the future we want for all. It offers a framework to generate economic growth, achieve social justice, exercise environmental stewardship and strengthen governance.” – Ban Ki-moon

III. RISK

“And the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom” – Anais Nin

All financial professionals are in the risk business: recognizing risk, measuring risk, mitigating risk, shifting risk.

Even when performing basic functions like preparing income tax returns, drafting living trusts, and deploying asset allocation, risks are being identified and hopefully reduced or eliminated.

But the basic services described above employ what I call a “Balance Sheet” approach. They deal with matters that exist on a continuum of time starting with the present, and then move back into the past, and thus essentially represent history, which is neither dynamic nor changeable.

For a financial advisor to contribute significantly to the betterment of a wealthy individual or family’s life, the advisor’s focus must move away from the past. It instead has to focus on the present, and move into the future. Here is where intangible assets or intellectual capital become important: things like relationships and knowledge being at the top of the list.

Risks abound for wealthy families: risk of poor health, risk of early demise, risk of having no time to pursue their passions, risks posed by competition and government entities and the economy as a whole, risk of losing good reputation, safety and security and cyber-security risks, the risk that the kids will become trust funders, and on and on…

If a financial professional can become adept at merely doing two things that greatly reduce risk for wealthy families and Family Offices, they will be valued highly for as long as they wish to serve.

First, the one thing that most wealthy individuals do not have enough of is: TIME. They certainly have enough money and enough assets and enough challenges. But frequently they do not have enough time to live a fulfilled life, because money and assets and challenges and businesses take up a lot of time for the people who have these things. So, tailor your services so that you are helping wealthy families to have more time, to do whatever they want with, thus reducing the risk that they will live an unfulfilled life.

Second, help wealthy families to have no bad surprises. Develop and gain access to the relationships and knowledge that will allow you to not only solve any problem they have, but actually head problems off before they ever materialize. Get great at relationships and knowledge, and at understanding your role in and contributing to governance, and bad surprises will noticeably lessen.

I had lunch recently with the managing partner of a large and successful CPA firm. I will call him “Fred” to protect the guilty. Fred’s firm has numerous “A” list clients, and tons of “B and C” clients too, so the practice is still very large in terms of total number of clients. Our conversation went like this:

Me: How many hours do you charge per year? (Yes they still bill by the hour…ugh…)

Fred (proudly): only about 800 or 900!

Me: Want kind of chargeable work do you do for only 800 or 900 hours? You must be very specialized!

Fred (again proudly): Yes, I only get involved in chargeable work when our best clients have problems.

Me: So why do your best clients have problems?

This space intentionally left blank

The blank above represents Fred’s non-response, and the look on his face, after my last question. His CPA firm is without a doubt not providing enough value to their very best clients, probably because they are spending so much time focusing on deadlines for all of the “B and C” clients, and thus are at risk for losing their best clients.This type of approach will not get you very far in the Family Office world.

The biggest risk is not taking any risk. In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – Mark Zuckerberg

IV. RELATIONSHIPS

If civilization is to survive, we must cultivate the science of human relationships­-the ability of all people, of all kinds, to live together, the same world at peace.” – Franklin D. Roosevelt

So you think you prepare income tax returns or draft living trusts or re-allocate mutual fund portfolios?

Then you must not have read the last segment: you are in the risk business. But even this is not entirely accurate: you are also in the relationship business. Relationships with your clients, your employees, your clients’ employees and advisors and their employees (not to mention with your family, children and friends).

In the Family Office world, key players like patriarchs and matriarchs and CEO’s and CFO’s do not have time, as previously discussed, and are immersed in multitudes of relationships that drive the values of the family’s assets and businesses and real estate, not to mention probably deluged by people in their communities for civic involvement and charitable participation. People like lenders and investment bankers and co-investors and deal finders. Plus they have relationships with their own immediate family members, plus extended family members too.

They do not have the time to hang around with you. And they have even less time to hang around with other supportive professional advisors, like business valuation experts, cost segregation specialists, workers’ comp and Health care Reform Act specialists, aviation experts, political consultants, 1031 exchange facilitators, and so on.

But you do.

In the past month, I have worked with all of the above categories of professional advisors, all the way to CPA’s, attorneys, and Wealth Advisors. Oh, and a city mayor and two city council members and one expert who knows how to value helicopter flight simulators too. And my interactions with all of these people have saved significant time for certain key people in my family office, as well as reduced all different kinds of potential risks that are always lurking on the horizon.

Envision a family matriarch who has a real important issue to ponder and decision to make. And trust me, she has no time.

Do you think she really wants to call 10 to 12 different people, to ask the same question 10 to 12 different times, and get 10 or 12 different responses (many of which will be centric to the “blinders on” technical specialty of the person being asked), and then process all of these responses, to come up with the best, and perhaps the second best, course of action?

Or do you think she would rather call you?

Accretion is a biological term, where the sum of the individual parts is or greater utility and value than the mere value of each independent part, added together. This is just a fancy name for “leverage.” This type of value creation can come only from relationships: knowing the people who know the answers and who know the people who know the answers. All of whom are working for one common goal: getting the best possible answer and resources to the family that they all serve, together.

Growth demands a temporary surrender of security. It may mean giving up familiar but limiting patterns, safe but unrewarding work, values no longer believed in, and relationships that have lost their meaning.” – John C. Maxwell

V. KNOWLEDGE

Real knowledge is to know the extent of one’s ignorance.” – Confucius

Virtually all CPA’s, attorneys and wealth advisors are real good at doing the technical work associated with their respective professions…like 99.8 % of them. Most believe that if they do great technical work, and almost all do, they will be attractive to potential customers, and hopefully ones that are very wealthy and successful.

Like the notion that conflict is endemic in wealthy families, this too is hogwash…not the great technical work part, but the attractive part.

That a professional advisor is very competent technically is a mere assumptive attribute for any wealthy individual who is contemplating hiring same. Sort of like the assumption that the professional remembers to brush their teeth in the morning. After all, 99.8 % of all professional advisors are technically competent.

And please don’t add, “Yes, but I offer real personal service too.” So says everybody else.

Thus, if you want to define yourself as looking exactly like everybody else in your profession (aka your competition), that is how you do it.

Wealthy families and Family Offices are looking for professional advisors who are DIFFERENT.

Why? Because everybody is really good. Yes, possessing uncommon knowledge might help (being an expert in the Defense Contracting industry or in real estate 1031 exchanges, for example).

But more so, possessing uncommon relationships and relationship skills (being the hub of a vast and vibrant resource network) and possessing the knowledge of the resources that have the knowledge your families need, will set you apart as being different, and as being of great value to wealthy families. Of truly offering value (not just offering a service). Of being able to see into the future (not just the past). Of saving time for someone who has no time.

This requires constantly building and improving your education, resources, relationships, and knowledge. This requires a transparent business model (see governance) and accessibility. This requires a commitment to thought leadership.

I promised I would provide a few tidbits about how to structure a professional practice to position oneself to be able to provide value to wealthy families and Family offices. This is in addition to becoming great at Governance, Risk, Relationships and Knowledge:

  1. Scrap hourly billing and billing based on assets under management (“AUM”). These are pricing techniques that merely capture inputs, not outputs (value). Learn to discuss and tout the value of the benefits that you can create for wealthy families, and be compensated accordingly. Consider using a “menu” or “subscription” format. After all, you are not “a full service CPA firm that takes pride in its personal service.” That is what all of the other CPA’s merely are. No, you are the center of a vast universe of beneficial relationships and uncommon knowledge. Be bold and offer a 100 % customer satisfaction money back guarantee…that will get everyone focused on value!
  2. Do not use a Monday-Friday 8-5 with an hour for lunch business model. Sell unlimited access, use outsourcing and job sharing and the cloud. After all, important things come up 168 hours per week, not just 40, especially now that our economy truly exists in a global setting.
  3. Be a leader in the use of technology to save time and to increase security, so that information transmission is seamless and rapid, thus not ever wasting someone’s time with paper.
  4. Never make a wealthy individual come to your office to meet, unless they vehemently insist on doing so at least three times over. You will learn so much more at their office, their home, their club…and you will be making the development of your relationship easier.
  5. Lastly, develop a powerful story, about your value and how you can make the lives of wealthy individuals and families better. And get real good at telling it…but only after you ask a lot of questions and listen real hard.

True wealth is not merely money and assets, and in fact this may not even be includable on the list. True wealth comes from good health, great relationships, ever-improving knowledge, making significant contributions to one’s community, sustainability, legacy, respect and love…all of the things money cannot buy.

The true sign of intelligence is not knowledge but imagination.” – Albert Einstein

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