Multi-Family Office: A New Paradigm of Trust for Investors (Part 1)

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Multi-Family Office: A new paradigm of Trust for Investors (Part 1)

Following the crisis of 2008 and the market jitters surrounding the massive government bailout of major banks for their risky assets, many wealthy clients and families have started to review the foundation of their working relationship with their banks, wealth managers and advisory firms.  Those market events led to a severe loss of confidence in the financial system overall, and better informed investors have started to voice concerns about how to trust financial institutions.

Companies claiming to offer investment and wealth management services abound. Yet finding the right firm — one you can trust implicitly to steer your assets and set clients or their families on the right path now and for future generations — has never been more difficult.

However, the nature of trust can be difficult to assess and quantify; yet it is the foundation of a well-functioning markets.  Nowhere is this more evident than in the financial services sectors.

While investor’s trust in the financial stock markets is generally good, Financial Services are the least trusted sectors among various industrial sectors according to a recent survey.

Another recent investors survey conducted by the CFA Institute in late 2017 could not agree more.  The global survey found the most important attribute for choosing an advisor was whether he or she would act in the client’s best interest, followed by whether the advisor was referred by a trusted contact  (See Graph below).  Clients consistently rank trust as the biggest differentiator in hiring an investment adviser.

Trust also contributes to whether a client will refer others or expand the relationship with additional mandates. In an industry, where revenues are now driven more by client retention than client acquisition, the value of trust should not be underestimated as a competitive advantage.

Everyone one knows that we need trust to make our society work.  But what is trust, how do we define it, and what are the components of trust? To help us understand, here is the Cambridge definition: “to believe or have confidence that someone is good and honest and will not harm you, or that something is safe and reliable.”

Yet having confidence in a financial professional is perhaps far more complex than a simple definition because it involves a sequence of successful events over time that translate in the perception of value relative to an outcome.

Investor expectations are changing and for most of them, trust is now an essential line of code of conduct when choosing to work with wealth management firms.

 To address those concerns, multi-family offices (MFO) have emerged as genuine providers of trust for clients by building credibility and demonstrating professionalism.

The level of trust is especially important for families running large-scale businesses. An independent advisor, who works closely with the family, will be able to develop a trustful relationship and provide better financial and strategic assistance. Trust is crucial, as advisors often gain deep insight into the family’s business and finances.

In this article, we are going to try to better understand the foundation of investors’ trust and why it is the building block of customer satisfaction and the keystone of the trusteed relationship between wealthy families and independent professional advisors.

Credibility

Among the various factors contributing to trust, credibility is everything for investors. Without credibility, everything you say to investors, partners or even employees can be questioned. Credibility may be one of the most important intangible asset of the financial industry. Credibility factors are relatively straight forward to assess and it includes reputation and credentials.  Reputation is the barometer with which others judge and perceive you and in extension, your company. It can drive a company’s ability to bring new clients, attract partners and hire the best employees. But, there is no credibility without credential. Investors need some assurance that their investment advisory firm is a trustworthy source and that it is professionally accredited to provide the required service successfully.

The oversight of financial regulators is essential, because the one mission statement of regulation is to guide all the interested parties away from undesirable actions and towards the desired ones. It is of paramount importance to know if a financial firm operates with the appropriate regulatory licenses and with the required staff of professionals.  A number of our clients welcome regulation and actively choose to work with us as a MFO for the various regulated entities that we operate as a whole.

It also helps us to enhance our reputation and make dealing with counterparties easier because of the extensive due diligence process.

 Professionalism

When considering hiring an advisor or firm, investors want to deal with reliable professionals that have the right sets of values and competences. Professionalism factors include competency in subject matter knowledge, and values such as putting clients’ interests first, having some empathy while demonstrating a fiduciary mindset.  In essence, someone professional is someone that can demonstrate the quality of being trustworthy and reliable. He or she can act with competent skills and behave in the way you expect, with a commitment to ethical conducts.

Financial firms don’t have fixed assets such as equipment or inventory. They are made of intangible assets: people. And successful firms are more specifically made of highly professional individuals called experts. Why having experts with good credentials and experience is important?  Because it is critical to have a clear understanding of which professional within an organization have the right set of skills to provide the services that bring value to the investors.  In the end, it translates in productivity, operational efficiency and cost saving for the client.

In their survey of 2017, the CFA Institute found that 73% of retail investors believe that professionals with established and qualified licenses helps to increase confidence in a person’s or a firm’s ability to provide valuable services.  Qualifications and career history including education, training, and licenses as well as any special certification are essential when hiring an advisor or a firm.

Conclusion:

Independent MFOs are first of all a group of craftsmen and professional experts that bring value to their members by recruiting and retaining the best-accredited professionals working in the best interest of their clients in total transparency.

Today’s wealthy clients and families have an abundance of choices to manage their affairs, yet when electing a financial institution, it is time to explore the alternatives and to select professionals that have the one value that every family has in common and cherishes; TRUST.

Sep 18, 2018