Nancy Marshall at Prime Quadrant: Don't put clients on a pedestal

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After a 25-year career in banking that took her from corporate finance in New York to private wealth in Toronto, Nancy Marshall found her new place in the universe in April 2020, when she joined Prime Quadrant Corp., a Toronto-based family office that serves about 200 families with a total of about $18 billion in assets under consultation.

Before Prime Quadrant, where she is head of family offices services, Marshall had been running her own consultancy. A friend asked her how she could give up that autonomy.

“I really missed the team aspect of working with families,” she says. “I’ve been at Prime Quadrant now for over three years and what I’m delighted about is how we’ve built a phenomenal team that really cares about clients and their colleagues. We’re all pitching in, we’re all giving our best to the families we serve.”

Marshall spent the good part of a morning recently with Canadian Family Offices to talk about Prime Quadrant, wealthy families and why it’s not enough to focus only on returns on investment.

Prime Quadrant has been serving wealthy families for a quarter of a century. How has the firm grown and changed over this period?

One of the major changes happened in the early years, when Prime Quadrant expanded from a single family office – which our founder created to manage his own wealth – to a multi-family office. We started as an investment research and consulting firm, but it soon became very clear that if you’re focusing only on investments, then you’re addressing just a small piece of what families need. There are things within a wealthy family that they care about a lot more that what they made on their investments this year.

We’ve really come to a place where we understand that more than everything else, the human capital and social capital are so interconnected, and at the end of the day, the financial capital is just a means to an end. So the question we’re asking families is: What’s the purpose of the capital? What do you need it to do for you? With many of the families we serve, the answer is rarely along the lines of “I want my capital to get me a 10 per cent return.”

So what kinds of answers do you get to this question of purpose and human or social capital?

When we probe a little deeper we find that people are often concerned with how they can protect their values as a family, and how their kids are going to deal with the wealth they’re growing up with and that’s going to be passed down to them. Everything is interconnected, and they know that if they’re only addressing the investment piece they’re not really building a fulsome plan for wealth continuity.

Not surprisingly, our ancillary services that deal with the human and social side of wealth have been the fastest growing parts of our business. And they haven’t detracted at all from our investment business – they’ve actually enhanced the investment business.

Many of your clients are the original wealth creators. They’re entrepreneurs who are used to running the show. What kind of shift in mindset and working style needs to happen on their side to ensure they can achieve their financial goals within the context of a family office?

There’s a very different mindset between creating wealth and preserving or allocating wealth. I remember one client, from way back when I was at another firm, who had sold his business. He got up every morning to look at his portfolios, then he would call to ask why the values were up one day and down the next. He told me his business never lost value like that. So I asked him if he did a business valuation every single day with his business and if he worried about the value of his company every time they didn’t win a big contract. And he said not really, because he knew that they would get another contract.

I think the difference was that he didn’t feel in control, and it’s that feeling of not being in control that makes new wealth allocators very nervous. They’re not steering the ship anymore. So they need to shift their mindset from being in complete control and just focusing on growth, growth, growth to now having all this capital and allocating it properly to ensure wealth continuity through the next generations.

Our ancillary services that deal with the human and social side of wealth have been the fastest growing parts of our business. They’ve actually enhanced the investment business.

Nancy Marshall

What about the mindset at your end? When you’re dealing with people who are used to steering the ship, what kind of approach do you need to have?

I’ve come out of meetings with families, and an associate who maybe hasn’t been to a lot of meetings with me will say, ‘I can’t believe you asked that question, and I can’t believe they answered it.’

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But sometimes we have to ask some pretty tough questions so we can give the right advice. The challenge for some people in our industry is that over the years we’ve seen a culture shift where we started putting very successful, very wealthy people on a pedestal and looking up to them pretty much as celebrities. And when you think that way, you might also start to question why this person who built a multi-billion-dollar business would want your advice. But great wealth often brings complexities, so good, unbiased advice becomes very important.

We have a lot of uncertainty in the stock market. Are there certain asset classes beyond public equities that are of particular interest today to Prime Quadrant, and by extension to your clients?

Yes, absolutely. For a long time, the typical retail investor was just thinking about public equities and public fixed income. And historically, fixed income and public equities have had a very low correlation. That correlation has changed. What we’ve seen recently is the first really big rising-interest-rate environment in 30 years.

If you think about various asset classes, it’s like there are two axes with them crossing in the middle: there’s high inflation and low inflation and then there’s low economic growth and high economic growth. So if you’re in a high-inflation but low-economic-growth environment, then you want to be in asset classes like real assets – like diversified strategies, where some things zig when everything else is zagging. If you’re in a low-growth, low-inflation mode, you probably want to continue on the cash and fixed income side. But in a high-inflation environment, high-growth environment, you might want to look at things like private credit.

Are there certain assets or investments that clients can access through Prime Quadrant that they wouldn’t be able to access so easily on their own or through another firm?

The very nature of our model is that our investment team is actively looking for managers across all asset classes. We’re seeking out the best of the best in all of the different categories. It’s not just about having a great product in, say, the private credit space. We’re actively looking for those managers who consistently generate alpha over and above the asset class itself.

There are certain funds out there that will never be available through a distribution network, quite frankly, because they are that good and they don’t need the distribution – they actually have people begging to come into their fund. But because we’ve built these relationships up over a number of years, there are a number of managers we deal with that are closed except to certain families or institutions that have invested with them before.

We’re really acting more as a consultant and less and less as an asset manager. Our retainer fee is not based on investable assets.

Nancy Marshall

Because we’re Prime Quadrant, we can also often negotiate lower minimum asset sizes. For instance, we have one private equity fund that is very well known and the minimum of asset size there is $10 million. But for our clients, their minimum investment size is a million.

Are there certain parameters, like a net worth threshold, where a family office becomes necessary for a wealthy family?

It’s so common in the financial services industry to state a minimum account size, and for clients that leads to the question of ‘how much money do I have to have before it makes sense for me to have a family office?’ I’ve also heard people say that it doesn’t make sense to start your own single family office until you have a half a billion in investable assets. Everybody wants to put a number on it.

I would say to you that it all depends on what the family needs. There are some very wealthy families that don’t actually have a family office, but maybe they still have their operating company and there are folks within the operating company who assist them with things that a family office would typically do. In my opinion, there really isn’t a threshold for when you need a family office. It all depends on the scope of your needs and what resources you have available to you.

How can families assess that scope and, if they determine that they need a family office, how do they figure out which family office solution is best?

I think the first thing families need to figure out is what they want a family office to do for them. The problem is a lot of families don’t really understand what they need. So it behooves them to work with a firm that can take the time with them to figure out their pain points and their real needs. I don’t want this to sound like a sales pitch at all, but if you’re a firm that is compensated for gathering assets, then the conversation might just focus on “bring your assets here and we’ll help you figure out what you need.” But then maybe what they have on their bookshelf isn’t actually what the family needs. So it really does behoove a family to work with a firm that will help them figure out their needs and priorities.

Prime Quadrant works on a retainer fee-based model. Why this model, and how does it work?

We’re really acting more as a consultant and less and less as an asset manager. Our retainer fee is not based on investable assets, and it’s not a time-based model, either, although time is a factor. Instead, it’s based on the scope and complexity of the work that the family needs us to do.

A family that has just sold a business and that has $100 million, a holdco and a family trust and is thinking about setting up their own private family foundation is charged a very different fee than a family with investments in seven entities and needs seven separate investment policy statements for their different trusts. Obviously, those two types of mandates are very different, and time is considered, but it’s the scope and complexity that really determine the fee. So it’s quite possible that a client with a $20-million portfolio and a client with a $100-million portfolio could be charged the very same retainer because they have similar goals and objectives.

What do you see as the key challenges and opportunities ahead for Canada’s wealthy families?

I think for the families themselves, a big challenge really is going to be managing the transition to the rising generation. This is multi-generational capital, and that transition is multi-decades long.

I also would say that digitizing and improving processes will be a challenge – or at least an undertaking that families know they have to do – whether that’s internally within their own family offices or with their family office services provider. I know some family offices that are still doing everything on spreadsheets, and that’s not going to fly with the rising generations.

Responses have been lightly edited for clarity and length.

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