Prized ‘quarterback’ role tough to fill at wealth advisory firms

Article content

Gatekeeper, quarterback, trusted advisor, loans officer, real estate advisor. The “personal CFO,” or chief financial officer, for wealthy families may wear many hats.

And that key position can be tough to fill, say recruiters and advisory experts. Unlike an operating company CFO, these individuals need to be a personal extension of the family they work for.

“Technical fit is important, but cultural fit is huge,” says Andrew Mushore, who specializes in recruitment for single and multi-family offices as the engagement manager, executive search and interim management, for B. Riley Farber Inc. in Toronto.

Family members should be involved in the recruitment process for this long-term trusted position, he says. “They are going to pick up on character traits and nuances that the family might consider important.”

The exact skillset needed depends on the context of the family office and what the family wants that office to do, says Mushore. Is the office just getting started, or is it established? Is it principally administrative, or does it handle investment, cash flows and liquidity?

Accountancy skills are important, but other abilities may also be needed. The CFO role is sometimes combined with a CIO (or chief investment officer) function, for instance.

Recruiters often see high-net-worth families with an operating business install their business’s CFO into the family office, Mushore says. But the failure rate, he says, is “fairly high.”

“It doesn’t always translate that if you’re a great CFO at the operating company you’re going to be well-suited at the family office,” he says.

The personal CFO’s responsibilities will have a long time horizon, for instance. This person should stay in the position for as long as possible, Mushore says.

Banks aren’t a good source of potential candidates, either, he says, because they are big and have bureaucracies, so the small-team environment found in most family offices wouldn’t necessarily be a good fit. He would more likely consider people from private equity firms, other family offices, the family offices at accounting firms, and private investment counsels.

In Canada someone with experience in real estate, for instance with a real estate investment trust, could be useful, he adds.

Organizations need to offer good compensation and incentives to find and retain good fits, recruiters say.

Jamie Herman, partner at the Toronto accounting firm Fruitman Kates LLP, says compensation packages for a CFO position with an ultra-high-net-worth family vary depending on the scope of the role.

A member of one of Canada’s wealthiest families was recently offering $250,000 to $300,000 with a 100-per-cent cash bonus potential, says Herman. Compensation for CFOs can go up to $500,000 and beyond, he says.

Herman estimated there are probably about 50 skilled personal CFOs operating in the UNHW space in Canada.

Herman worked for a family for three years in their family office and says it can be a fun job. He got an opportunity to ride in his boss’s racecar, for instance.

It is significantly different from an operating-company CFO position. “You’re looking at several different assets, real estate, venture, private equity, and you’re looking at the revenue from those investments and whether those investments are giving you the right return. So it’s looking at things from the passive side rather than the active side,” says Herman.

Handling the purchase of an airplane or yacht doesn’t come up on the business side, he says.

Instead, the CFO-as-gatekeeper might be the point of contact for those seeking to pitch investment opportunities to the family. In this case, he or she might need to steer the family away from investments that would be a mistake, Herman says.

“You have to discern as a gatekeeper whether [an investment pitch] is going to go to the family and whether it’s a good opportunity. It requires stronger investment and financial experience than a typical CFO has. … You have to understand how different investments work and whether they work.”

Herman says in his role as CFO he once sought out a professional to do due diligence on a particular investment pitch. Based on the results, Herman recommended against the investment, saying it would have been a costly mistake.

Families with a net worth above $250 million are the most likely to need the services of a personal CFO, suggests Herman. He also sees it as a role integral to single-family offices, not necessarily multi-family offices.

But Mushore says large multi-family offices may have a CFO assigned to a specific client, affording a dedicated liaison with the multi-family team.

The “CFO” term is sometimes used by advisory firms to describe a type of boutique planning and coordination service, rather than a single person dedicated to ultra-high-net-worth clients.

Mushore says that can muddy the waters for recruiters who are seeking a personal CFO. Recruiters may have to do some extra screening to ensure a candidate is able to operate in a family-office environment, he says.

Algar Virtue in Calgary brands itself as a family CFO. Vice-president Rob Koski says his firm’s clients don’t have the breadth of wealth, more than $100 or $200 million, that requires a family office.

Instead, the company’s small team acts as a quarterback with a planning and financial advisory role, he says. “Our objective is to apply business discipline to the management of personal wealth.”

Algar Virtue doesn’t offer tax or legal advice or sell investment or insurance products, which sets it apart from some other advisory firms, says Koski. “We’re solely focused on planning. We don’t deal directly with investment management.” The team members have Certified Financial Planner qualifications.

It takes a year to 18 months to become comfortable with a client family and develop a financial plan, says Koski. The firm works with the complete family, he says, offering financial literacy advice to younger generations.

The CFO concept at this level also performs a gatekeeper function in terms of offering a framework of conservative and growth investments for clients.

“If you’re a business owner you have lots of opportunities from your sphere of influence other people won’t have access to,” says Koski. In Calgary those opportunities, perhaps pitched at the local country club, can include investments in limited partnerships in oil and gas companies, a potentially risky proposition.

He says when he spots zeros coming up on the balance sheet he asks the client what those investments were for. “You’ve got enough risk in your business, why would you take on more?”

More from Canadian Family Offices:

• Four family-office executives and what they’re investing in today
• Elke Rubach aims at younger, early-stage-wealth segment of family office market
• Outsourcing vs. insourcing: Which experts do family offices need on staff?

Please visit here to see information about our standards of journalistic excellence.