The private wealth industry is strongly tilted to favor providers rather than clients. Part of this is structural. The complexity of client situations and the opaqueness of much of the private wealth industry results in compensation arrangements that do not match the value delivered.
Compounding the problem are professionals who mean well but are not state-of-the-art. At the same time, some providers are predators looking to, through guile and deception, separate the wealthy from their money. To better ensure their financial lives and that their loved ones are getting the most cost-effective solutions, increasingly, the ultra-wealthy are establishing single-family offices.
Single-family offices are expert coordinators of experts. They are best suited to meet, if not exceed, the expectations of ultra-wealthy families. The executives at the single-family offices have an in-depth understanding of family members and can leverage the best specialists in any field. With the proper compensation structure, senior management is well-motivated to do what’s best for the family. The complication holding back some single-family offices is failing to maximize provider relationships.
Most single-family offices can separate the wheat from the chaff regarding providers. Through their professional and personal networks and by getting referrals from trusted experts, they regularly identify the best specialists for their needs. Still, they are failing to get the best outcomes for the family.
Besides sourcing top specialists, they must also ensure the nature of the arrangements with the specialists. Commonly, the ultra-wealthy and their single-family offices are getting solid results but are overpaying for them. The greater cost diminishes the value of the expertise and is the difference between solid and superior results.
Remember, the private wealth industry is opaque in many ways. The pricing of expertise, in particular, is often obtuse, confusing and not tied to the value delivered.
To get superior results, it is usually essential for single-family offices to negotiate with providers on the cost of their expertise. According to Frank Carone, chairman of Oaktree Solutions and co-author of Everyone Wins! How You Can Enhance and Optimize Business Relationships Just Like Ultra-Wealthy Entrepreneurs, “Negotiating compensation in any business environment habitually requires high finesse. The objective is for the single-family office executives and the providers to exit the negotiations confident that the outcomes are in everyone’s best interests. The single-family office gets a good price for services, and the providers are paid well, but likely not as well as they prefer. There are proven, time-tested methodologies that single-family office executives can use to get the desired results and ensure they’re cost-effective.”
More than working with exceptional experts is required. Managing the cost of providers is essential for single-family office executives to get superior results for their families.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
