Partnering in the context of high net worth & family office investors

Private client services

One of the key investors in the private capital markets sector in Canada is the high net worth and family office investor.

Typically, this investor has created wealth through building or maintaining a family-owned business, and either continues to reap the rewards to the returns or has sold the business and achieved liquidity.

Most of these high net worth individuals and families have key advisors they surround themselves with - an accountant, a tax adviser, a lawyer, an insurance guy and other individual advisers.  For the very rich with an increasing complexity  of options and issues, generally due to the larger amounts of capital involved, they create a professional family office: a collection of professionals who act as a management company and act in the interests of the family with a defined mandate.

As the name suggests, single-family professional offices typically work with one single ultra-high net worth family and manages their affairs alone.  Multi-family professional offices work with a number of families where the cost of creating and running a professional management office does not make financial sense.

Whether the high net worth individual or family office has professionalized or utilizes a diverse group of advisors, these individuals are often viewed as acting as the ‘gatekeepers’.  As an advisor or dealer in the private capital markets sector, in order to develop and maintain a strong channel with this investor group, one generally needs to understand the dynamics of the advisors and determine the right relationship to leverage.  Viewing these relationships as channels to develop and nurture, and not as gatekeepers, will alter the mindset in the approach and lead to more successful interactions.

What becomes key to working with this investor, is to understand that the gatekeepers to the investor are there for a reason.  They have become a trusted adviser to the investor and, thus, what needs to be developed is a partnership with those advisors, and not a strategy and process that circumvents or cuts these individuals out of the discussions.

A true partnership is created when both sides of the relationship are getting value – the inevitable win-win.  This value creation varies by type of advisor to the high net worth or family office investor:

  • Single-family professional office (SFPO) – as this group of advisors is focused on the needs of one family, the value creation with the SFPO is aligned to their ability to create and show value to the family.Outside of pure capital preservation and returns, this group inevitably seeks new ideas and unique value propositions that ensure they are at the forefront of opportunities and issues to the family.These could include:
    • New investment theses;
    • Trends emerging that may impact current investments; and
    • Impending tax and other regulatory changes often as a result of the advisors being out of professional practice their ability to stay at the forefront of their field can be diminished due to the broader role they take on with the family.
  • Multi-family professional office (MFPO) – with this group of advisors focusing on multiple high net worth and families, the MFPO is not only driven by those value creation opportunities outlined above with the SFPO, but, generally, they are also seeking new clients to manage.This means the partnership with the MFPO can be truly cemented with the development of referrals.
  • Ad-hoc advisory group (AHAG) – the AHAG is motivated in a similar manner to the MFPO.As they are often still in professional practice the development of a referral channel creates significant value for the partnership.

The development of these partnerships with the advisors can create significant value for the dealer and advisor in the private capital markets sector.  In establishing a strong partnership with these advisors, the dealer and advisor can inherently break down the barriers that prevent access to the high net worth and family office investor and increase the deal flow opportunities.  While they will never advocate for a deal or opportunity they don’t believe in due to the desire to remain a trusted advisor, when they can better understand the opportunity for the client, they can become a strong supporting partner.

Ensuring that this group is then viewed not as the gatekeepers, but as the trusted advisor, will allow the dealer and advisor to focus on demonstrating the value proposition to a partner who can advocate and provide complementary advice to the high net worth individual and family office.

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