A standingfunction.
Advice tends to arrive when somebody asks for it. An office runs continuously, whether or not anyone has called, and it raises the questions a family has not thought to ask.
The policy.
Before anything is bought or sold the office writes down what the capital is for, over what period it is to be held, which assets are permitted and which are not, and what should happen if markets fall by a quarter. The family agrees it while conditions are calm, and it is revisited once a year.
Most of the serious errors we have watched from a distance were made by people who had never written any of this down, and who therefore established their tolerance for loss in the middle of a decline rather than in advance of one.
The policy covers the whole of the wealth rather than the portion sitting at any one bank: the discretionary mandates, the direct holdings, the property, the private positions and the operating company.
The record.
The family receives one statement of everything it owns, updated monthly and available whenever it is wanted. Each fund is broken down to its underlying holdings, so that a position appearing in four different mandates is counted once rather than four times. Accounts in different banks, countries and currencies are brought into the same view.
The office also works out what the whole arrangement costs to hold, expressed in money rather than percentages and traced to whoever takes it. That includes the charges nobody invoices for: the spread on currency conversion, custody and platform fees, the difference between a clean share class and a retail one, and the margin built into a structured note before it is sold.
Reconciliation is continuous. Trustees, auditors and individual family members receive their own reports drawn from that same record, so there is never more than one version of the numbers.
The managers.
Every manager is measured after all charges against the return an index fund would have produced over the same period, and over long enough for the comparison to mean anything. That evidence decides whether they are kept, together with a judgement about whether the return came from the skill the manager claims to have. Three good years is not much evidence, and one bad year is not much either.
A good deal of the money sits in the arrangements around a manager rather than in the manager: which share class the family actually holds, what was agreed when the mandate was signed, and whether the fee can be renegotiated now that the mandate is larger. The office attends to all of that. It also conducts the appointments and the removals itself, so that a family need not have an awkward conversation with somebody it has known for twenty years.
The office chairs an investment committee four times a year. An agenda and a paper go out in advance, a decision is taken in the meeting, and a minute follows. Where members disagree, the disagreement is recorded against their names.
The record belongs to the family and is open to it at any time, including the decisions that went badly and the reasoning offered for them when they were taken. There is little to be learned from a decision nobody can reconstruct a year later.
The office promises no returns. It promises a written reason for every decision, including the ones that turn out badly.
The whole estate.
A family that owns a contracting business and holds a portfolio weighted towards regional property is exposed twice to the same cycle. This rarely appears anywhere, because the portfolio adviser was not engaged to look at the company and the company's advisers were not engaged to look at the portfolio.
The office looks at both, and forms a view on the concentration already sitting inside the business before it forms one on the portfolio. The first is usually the larger of the two and is almost never measured.
If a sale or a partial exit is in prospect, the work begins before the proceeds arrive: what the money is for, what it may hold in its first year, and how quickly it ought to be put to work. That discussion is a good deal easier before the wire than in the weeks after it.
Continuity.
The office maintains a single file, kept current: what is held and where, in whose name it stands, what each holding is for, whom to telephone at each institution, and the reasoning behind every decision of consequence. It is written to be usable by somebody who has never met the office, and a copy is held by the family as well as here.
If a family wishes, the office takes the next generation through the same material at whatever pace suits them, so that an inheritance is something to be read rather than investigated.
Alongside.
The office replaces nobody. The banks, managers, lawyers, accountants and trustees a family already uses remain where they are; no account is closed and nothing is moved.
Those relationships tend to be long, often personal, and sometimes inherited along with the money. A firm that requires a family to end them is asking for something it has no business asking for. What changes is that one office now reads all of it, and takes the decisions that have been falling between everybody.
What the office does not do.
Some of these follow from the licence. Most are choices.
- i
Hold money or assets. Everything stays in the family's name at the family's own banks.
- ii
Place a trade, or exercise discretion over an account.
- iii
Accept payment from a manager, a platform or anyone raising capital.
- iv
Represent a manager, a sponsor or a product.
- v
Forecast what a market or a portfolio will do.