Is an integrated model key to serving family offices?

No: Michael Blake, CEO Wealth Management Asia, UBP 

The investment advisory needs of the modern family office reflect families’ diverse objectives as they preserve and grow wealth across generations; from private equity to business financing, from consolidated performance reporting to family governance and, of course, planning for a smooth succession.

While the idea of an integrated investment banking and wealth management model that can meet all of these needs in a ‘one stop shop’ is alluring, many financial services firms fall short of delivering the exacting standards demanded by family offices across all investment domains and all geographies.  

Chief among these challenges is that wealth management and investment banking are fundamentally different in structure and rarely turn out to be a marriage made in heaven. Services are provided by different teams which often operate according to different cultures, incentive structures and leadership.

In addition, big and integrated is no longer necessarily beautiful. The global financial crisis showed how a liquidity crunch in one part of an integrated bank can quickly spread to another. Prudential regulation has evolved in response, but the pages of the FT provide more recent reminders that integrated investment banking business models carry contagion risk.

On the other hand, pure players offer an alternative way for family offices to access the very best in advice and expertise, anchored by three principles.

The first is open architecture. Pure play advisers combine in-house investment expertise with full access to investment solutions from leading external providers. A rigorous and impartial selection process provides family offices with best-in-class product options and valuable insights into the full range of investment solutions available.

The second is specialisation. Focusing exclusively on wealth and asset management for private and institutional clients, as UBP does, is an added value for families and their family offices because it favours the development of deep expertise in relevant topics – such as tailored portfolio construction, alternatives and asset structuring – to complement the investment expertise family offices have developed in-house. 

Thirdly, combining long-term thinking with fast execution is key. Family Offices plan across multiple generations and yet rightly expect institutional speed of execution. The flat hierarchy of many pure-play firms enables quick decision-taking, and the family-ownership or partner-led model encourages development of long-term relationships. 

Family offices have unique needs and, in my experience, choose their advisers based on specialist expertise rather than convenience. The job of a family office adviser is to understand those needs and advise accordingly. It is not to cross sell. 

Financial firms of all shapes and sizes support family offices, but a pure play provides the stable foundations necessary to play an effective long-term advisory role for families and their family office leadership teams.

Yes: John Younger  Head of Client & Business Development, RBC Wealth Management

Many ultra high net worth (UHNW) clients and their families tend to have sophisticated, multi-jurisdictional wealth and business structures which often means their needs cannot fully be met by traditional wealth management services due to the breadth, complexity and size of these requirements. 

In servicing these families, it is imperative to align their personal needs with their institutional-like needs. For such clients, we believe it is advantageous for a wealth manager to have a global investment bank within its structure, rather than as a third party. 

A client may have a core holding in a business and personal exposure to a currency which would benefit from a hedging programme to mitigate risk.  Most independent wealth managers would not have the ability to execute such a programme due to size and complexity constraints, but a wealth manager aligned to an investment bank would be able to offer an in-house hedging programme suited to their personal needs. 

Similarly, an individual who owns a significant position in a single stock (perhaps through ownership of a private company in an IPO) may prefer to take leverage from the position rather than sell. Should the position be in excess of £50m ($69m) for example, the balance sheet of an investment bank would be required to supply the leverage.  

We are seeing many wealthy cross-border families splitting their time (and/or business) between multiple jurisdictions. While the concept of a global footprint may be glamorous, it is certainly complex. Each jurisdiction has its own rules, regulations and customs that may cause frustration or challenges, particularly when clients are considering investment risk/return, tax residency, cross-border wealth transfer and estate planning and business needs that operate across international borders. A wealth manager aligned to an investment bank should be able to take a coordinated approach to their personal, family and institutional needs across the globe.  

For example, an individual moving from the US to the UK may discuss with their wealth manager the merits of taking leverage against a property purchase from an inheritance tax mitigation perspective. That same individual may also benefit from institutional advice on expanding their footprint of investors in their business beyond the US to the UK and Europe. A coordinated wealth manager and investment bank is best positioned to achieve this.

For the wealth manager/investment bank, the key to working effectively across business units is coordination and treatment of the client as a bank relationship and not just a client of an individual.  

When investment bankers guide a client through an IPO, for example, they should be looking to optimise both the corporate and personal outcomes for the owners and management teams involved. By the same token, the wealth manager should consider every element of a client’s needs, and he or she should be skilled enough to identify the optimal place within the broader bank to serve those needs.  

In many ways, Covid-19 has contributed to the move toward a truly effective integrated model. At RBC, our integrated model has gained strong momentum in recent years, and the pandemic and a virtual office environment has meant that the collaboration between teams is as close as it has ever been.