“There is hardly anything in this world that someone cannot make worse and sell a little cheaper, and the people who are guided only by price are the rightful prey of such machinations” (John Ruskin).
Service providers such as family offices and asset managers charge customers for their services. It is like many services that there is still a need for discussion on measurability. This is a phenomenon with which public service providers (schools, social work, etc.) are also intensively concerned in society. If, for example, one considers the starting point of private customer care and private banking as the nucleus of many business models in wealth management and wealth controlling, the “soft” relationship component compared to performance – apparently a hard factor – often seems to take a back seat in the discussion. It is often ignored that a large part of the actual portfolio management performance is hardly or with great effort made visible – a classic problem of the private banking field, in contrast to regular mutual funds, which very often show a satisfactory degree of transparency. If performance is a “hygiene factor” – which topics are still worth discussing here?
“Cheating” Family Office and Asset Management?
Similar to the term fund boutiques, the term family office is currently being discussed in the media and among experts. The clear winner of the sovereignty of interpretation has not yet been determined: research and teaching, media, and the industry itself are in a search phase.
Single Family Office and Multi-Family Office: demarcation, definition, etc. – the process is underway. Perhaps one interpretation will prevail, perhaps different interpretations can “coexist”. The discussion of deception in the family office area often fails to take hold because concepts are still in the educational process. Asset managers can be seen as pure service providers for wealth management, with active involvement in portfolio management, possibly with their products (“fund boutiques”).
If one puts aside the pure fixation on asset management for families and HNWIs, one can see some similarities in certain service packages. Representatives of the pure “doctrine” discuss intensively here – where exactly is the demarcation between “noble asset managers” and classic family offices? At this point, a “fuzzy” view should be deliberately presented, aware of the shortcomings of the discussion approach. Service providers, most of whom want to differentiate themselves from one another, are deliberately considered comparable in parts of their service packages – with largely different target group orientations. For clients or prospects of family offices and asset management companies, transparency about the services offered seems to be a suitable factor (of many!) for the selection of the service provider:
*Family offices and asset managers – do I want to focus on consulting and controlling?
*Family office and asset manager – is the active management of my assets important to me?
*Family office and asset manager – who offers services that can be clearly distinguished from each other?
Consulting and Controlling
It is a clear positioning to say that you exclusively advise the customer, make suggestions, and at the end of the process, the customer decides on the type and scope of the investment. If the customer can understand these decision papers professionally, he has received what is suitable for him as a service. The clarity in the presentation of services appears to be the top priority. Examples of ambiguity can be found, for example, in parts of classic asset management consulting: If the consultant “actively” manages a multi-manager mandate – what exactly is the “active” part of his service? In rule-based rebalancing, which is fixed in writing beforehand? Against the background of the price discussion mentioned at the beginning, this point seems comprehensible. Pricing for consulting and controlling is usually deliberately different from the pricing for active asset management. It is interesting to note, for example, that auditors, tax advisors, lawyers, and management consultants also keep a very close eye on potential barriers to market entry in the family office sector and position themselves accordingly.
Active asset management
Passive management, “Smart Beta”, active portfolio management – all services that are the subject of lively discussion among experts. Does my service provider offer active management in asset management? Can I measure this activity quantitatively? Does the manager participate in success? Is he allowed to use his products? These issues are discussed intensively by family offices as well as by asset managers and of course also on the client-side. Is there a conflict between advice and active portfolio management? One of the key points in the discussion is the fact that the ideal relationship manager (family office or asset manager) does not always have to be the optimal portfolio manager. Is the client, including the institutional (example: foundations), aware of this?
As mentioned at the beginning – both provider categories have distinct strengths in the areas of confidence-building, relationship management, long-term thinking: Can it not be the case that in certain cases the client is with the “wrong” family office or asset manager in certain areas due to these “soft” factors? In certain cases, this is probably the case. Here it is often forgotten that one is in the service sector. If “mediocre” performance services seem sufficient to the client (or “mediocre” professional skills, know-how, networking of service providers, etc.), then this convenience factor is accepted as added value in the case of doubt, and the search costs for the “ideal” portfolio managers, who also change temporarily, may appear too high. All in the interest of the customer – if he is aware of this fact.
Demarcability of services
To come back to the term “cheating package”: Science and experts are currently working intensively on definition criteria for Single Family Offices and Multi-Family Offices in distinction to service providers in the field of independent asset managers. The area of Group-related family offices is deliberately left out of the discussion. In its function as a central service provider for certain families, the family office cannot, of course, be equated with the pure function of an asset manager in terms of the breadth of its remit. The existence of the Association of Independent Asset Managers Germany (Verband unabhängiger Vermögensverwalter Deutschland e.V., VuV) shows that service providers can bundle their “power of definition”. Perhaps similar communicative structures will emerge in the family office sector in the future?
Outlook: Family offices, asset managers, foundations, and investment companies
Independence, competence, reliability: If you consider these building blocks to be decisive for a long-term satisfactory business relationship, you can also build a bridge to the classic asset management industry. Investment companies such as Universal-Investment, Ampega, Hansainvest, and many other companies must be “measured” against these criteria as specialized service providers. Price competition is very intense in the area of fund administration, for example. As in the area of family offices and asset managers, “soft” factors such as know-how, network, and relationships often come to the fore when making decisions. After the Beauty Contest, many houses have moved towards similar price structures. If prices appear similar, the added value is underlined by additional factors.
Foundations, which are assumed to have similar structures in the “investment thinking” (long-term approach) as family offices or entrepreneurial families, are currently dealing with the above-mentioned issues and building up competence. Among other things, to find the right service provider for themselves. At present, many affiliated service providers still play a strong role in the support of foundations: banks are often on board at the beginning of the foundation process. And there are good banks, undisputedly. In the future, providers will gain market share that credibly conveys to clients, both private and institutional: Customer and provider interests are in harmony. Bank advertising is gradually moving in this direction. Family offices and independent asset managers have already consciously positioned themselves in this direction in the past. Simplified one can say: Everything the customer understands, which offers an increase in value with the neutral support of fortune affairs should also be paid, because: Cheap can also be expensive!