David’s Articles

David has been writing and publishing since 2006.  

This post was written and published prior to September 2023 when David and his prior firm, Family Capital Strategy, merged with Greycourt.  Views expressed reflected David’s personal views at the time and do not necessarily reflect the views of Greycourt.  Posts and information may be out of date and should not be relied upon for investment advice.

Picking an Investment Partner – Where to Start?

May 19, 2020 | Family Wealth

“If confusion is the first step to knowledge, I must be a genius.”

Larry Leissner
family office wealth management
Photo by Scott Graham on Unsplash

Selecting the investment partner for a family office is a question that most offices will choose to answer.  Having a partner to help navigate the capital markets is a way to further leverage the resources of the family, as well as provide investment opportunities that may have not been available otherwise.

Yet, between the complexity of the capital markets and highly creative (and well compensated) corporate marketing departments, there are few choices as over-whelming as selecting an investment partner.  In general, the industry is awash in a sea of sameness with excess jargon and little clarity.  Every firm talks about their holistic planning and proprietary investment process – but what does it all mean?  Where are the actual lines of difference that allow you to determine the difference of one firm from another?

In an attempt to at least outline the edges of the playing field, we want to walk through 10 different dimensions that stratify each type of firm in the hope of assisting you in navigating your journey. 

Dimension 1:  Regulatory Structure – Fiduciary or Not

It is important to determine what standard of care the firm is held to in rendering its services.  Registered investment advisers (RIAs) and/or trust companies are generally held to fiduciary standards, whereas brokerage firms are not.  There are pros and cons to either side, and it’s important to go in eyes wide open as to the nature of the relationship.

Dimension 2:  Discretionary or Not

Can the investment team make decisions without consulting you?  Some firms serve in a purely consultative capacity, and will not make portfolio decisions and retain liability for them.  Other firms will serve as the Chief Investment Officer and can make full decisions regarding the portfolio and advise the client only after the fact.

Dimension 3 – Open Architecture vs. In-House

Some firms will build out internal investment teams to manage portfolios in-house.  Others only manage asset allocations in-house and use third party managers to implement – also known as an open architecture structure. Will you be in comingled funds or own individual securities (and can engage in tax loss harvesting)?

Dimension 4 – Big or Boutique

Do you want to be part of a large, national firm or a smaller boutique focused around a particular geography or type of client?  There are a bunch of other sub-considerations to this dimension – such as how important is a local vs. a remote physical presence? 

Dimension 5 – Types of Clients

Firms may serve a broad range of types of clients.  Is it important to you that the firm’s average client is close to your net worth?  Or do you mind being a small fish in a big pond, and being able to coattail ride on larger clients?  Or would you rather be a big fish, where the firm will bend over backwards to keep you happy. 

Dimension 6 – Adviser Managed Portfolios or Centrally Managed

This is one of the fastest changing dynamics  in the asset management world.  When large brokerage firms have analyzed advisor level performance, they have found massive levels of performance dispersion at the same firm between clients with similar asset allocations, the difference being the people actually implementing the portfolios.  In light of this, many firms are choosing to centralize portfolio management so that clients of the same allocation receive similar performance. At other firms, the relationship manager may also be the person directly managing the portfolio.

Dimension  7 – To Trustee or Not to Trustee

The simple reality is that for wealthy families the assets will almost always land in trust.   Whether or not the investment firm will serve as trustee or choose to use a ‘directed-trustee’ is a question to consider.  Serving as investment manager and trustee does represent some degree of a conflict of interest.  Directed trustees allow someone else to serve as the investment manager while they retain trustee power.  The key question here is how does a trust beneficiary hold the investor / trustee accountable for their decision making?

Dimension 8 – Individual or Team

How will your client relationship be serviced?  Some firms rely on a single advisor to deliver the majority of services, whereas others address client needs with a team-based approach.  Will the person who began the relationship, the rainmaker, be involved in the relationship going forward or will you be transitioned to someone else.  If so, what is your relationship like with that individual.

Dimension 9 – Bespoke vs. Standardized Portfolios

How flexible is the firm in letting you keep a unique asset allocation or are clients portfolios relatively standardized across the firm?  Do you have unique stock concentration or low tax basis issues that would be a major dynamic to keep in mind.

Dimension 10 – One or Many Services

Some firms only engage in investment related services, while others may provide accounting, concierge, etc. services to clients.   Some firms will include the cost of these additional services in their fee – so it is important to only engage with / pay for the services needed.

As you can see, even within these 10 dimensions are a number of other sub-considerations.  Importantly, there are pros and cons to each side of the spectrum.  Narrowing down the choice of investment partner for a family office and selecting the right firm is ultimately about comprehensively understanding the family’s needs and how that aligns with the firms under consideration. 

Disclaimer: This does not constitute investment advice or an offer to buy or sell any securities. It is provided for informational purposes only and represents the author’s own opinions


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