In recent years, multi-family offices (MFO) and single-family offices (SFO) have become vastly more popular — which means that staffing these organizations is becoming an increasingly difficult and expensive problem to solve.
Essentially, these family offices are competing for the highly qualified, trustworthy professionals that generally work in more traditional financial institutions, asset management, brokerage/custodial work or accounting and legal practice. Generally, MFOs have an advantage over SFOs in this regard, given their commercial nature.
As a growing subset of the wealth management industry, MFOs can do more to entice the best and most profit-making employees. In particular, MFOs need to offer and advertise better opportunities for employee advancement, as well as the potential upsides of equity participation in a growing business.
Another differentiator from SFOs is the average employee skillset; successful MFOs generally grow by word of mouth, and therefore their partners tend to be strong investment and business development generalists. This profile describes a very broad cross-section of investment professionals in similar roles at more traditional wealth management and private banking environments. Their backgrounds have often sharply focused on revenue generation above all else, and they often appreciate employers that give them a chance to excel in quantifiable ways.
As a contrast, an SFO serves a family, potentially for multiple generations. This means that the focus is always on the sole interests of the principals. Potential employees who have a highly competent but introverted nature can appreciate SFOs for the relative absence of pressure to grow a client roster. This trait tends to attract individuals from major private or government-sponsored pension plans, and can work greatly to the advantage of SFOs in recruitment.
In general, SFOs need to lean into the advantages inherent in a more personal employment situation. This means emphasizing the more permanent and meaningful relationships that can spring up with a more static group of managers and executives, as well as the extra employment security that comes with those relationships.
That said, such professionals are in high demand, and compensation needs to be competitive with offerings from larger employers. This is where SFOs need to be creative; the size of the payroll has a direct impact on the family office’s total expense ratio.
In the absence of equity and dividends from a growing business, more progressive SFOs will incentivize their key players with carried-interest schemes, phantom portfolio participation and/or co-investment opportunities. Any recruitment makes it clear that employees will be rewarded for any value they add — but this depends entirely on the investment objectives of the family office. If the focus is very conservative and focused on capital preservation, the potential scope of such capital rewards will drive less interest than in a more growth-minded, entrepreneurial family office.
Still, compensation is only one factor driving recruitment success. Another, just as important, is a strong, positive corporate culture. It requires thoughtful leadership to foster an environment where employees will naturally want to perform above and beyond all day, every day.
This is true at both MFOs and SFOs, and even SFOs can’t rely on a cozier family environment to incentivize this important aspect of team psychology. Employees need to know that their work is recognized and that both their peers and their managers respect the effort they put in. If they go the extra mile, they need to know that this is appreciated and rewarded in the long term.
You don’t need to be an HR professional to recognize that your team makeup is vital to the success of your family office, and indeed to that of any business. Attracting the right individuals is always a challenge; fully engaged, trustworthy, intelligent employees are the foundation for client satisfaction and success at any organization. But, in my opinion, it is even more critical in a high-touch service environment like a family office.
From the very beginning of my career in the asset management business, I was told that the firm’s most important assets are the ones that take the elevator to the office each and every day. Therefore, I’ve always known that it’s in the firm’s best interests to foster an environment conducive to full engagement of our employees’ hearts and minds.
It is not incidental to success. It is absolutely vital.
PortfolioHiWay (PHW) is a Canadian wealth management technology firm created to seamlessly connect investors, advisors and third-party managers. PHW’s goal is to simplify investing by offering an improved client experience at every level. Through proprietary technology, PortfolioHiWay helps clients streamline processes, enhance scalability and reduce operational risks while expanding their investment universe and lowering overall costs. PHW does this by combining innovative technology and enhanced service offerings to automate many day-to-day aspects of running a business so that advisors can focus on their clients – at any wealth level.
This content was supplied by PBY Capital Limited, a distributor registered as an exempt market dealer with securities regulatory authorities, servicing family offices and their professionals. For more information, visit: https://www.pbycapital.com .
PBY Capital is a member and content provider of this publication. The opinions and information provided in this article are solely those of the writer and are not to be construed as personal, legal, accounting, taxation, or investment advice, or as an endorsement of any entity.