Family Office Networking: Inside the Industry

Video transcript

The Family Office Association was founded in 2007 as a peer network for single family offices. Family office networking. Today we're going to talk about the family office ecosystem. We will share a few observations from the perspective of the unique challenges faced by family offices in building a useful network. Some of these points may seem obvious, but you would be amazed how often they are overlooked. Let's start with the question of whether the family office space should be considered an industry or not. If every family office is a unique snowflake, how can it collectively be considered an industry or is that a misnomer? The first law of family office states once you know one family office, you know one family office. If this is true, then an irony exists because if every family office is different, then it's impossible to define best practices. And since industry formation requires repeatable processes and uniform predictable outcomes, then family offices cannot be an industry. The counterargument is that service providers have written books and white papers, created conferences and legal structures and designed business processes to define a standard set of practices that apply across a broad spectrum of family offices. A tension exists therefore between the first law of family office and the emergence of a professional class of experts that serve families to prevent the second law of family office from happening. that is to prevent a family from succumbing to the shirt sleeves to shirt sleeves in three generations phenomenon. In the family office context, we believe the word industry refers to a knowledge base of professionals dedicated to helping families navigate complex systems and sophisticated asset portfolios across multiple generations. And the fact that MBA courses now teach classes on family office suggests that a core set of family office principles and best practices can be taught. The question then arises around how players in the family office industry use the language of family office to put a container around their largest and most complex clients. From this perspective, the family office industry can be thought of as a market segmentation that the private wealth industrial complex uses to organize their sales and marketing teams. The logical conclusion from this line of thinking is that private banks and wealth management firms are merely co-opting the best practices of family offices to create a product offering for their wealthiest clients. This has subsequently spawned a myriad of service providers who attempt to create repeatable processes to serve family office clients, but they're challenged by the operational demands that providing individualized solutions for each unique family office entails. Let's now expand our discussion to include family office networking more broadly. One question we frequently get from service providers and family offices is how can we network with other family offices? The reality is that single family offices are inundated with networking opportunities. The right question to ask is are any of the family office networks available to me any good? There has been an enormous increase in recent years in the number of networks, clubs, and associations that claim to connect and serve family offices. Most of the self-proclaimed family office networks are run for profit with a few notable non-commercial exceptions. Some of the networks look like multi-family offices or loosely affiliated groups of family offices. Others are simply trying to cobble together family office industry conferences or deal platforms. Family offices should keep in mind the old cliche that when the product is free, you are likely the product. They might also take Groucho Marx's advice and refuse to join any club that would have them as a member. The primary thing to keep in mind when considering any family office group or networking opportunity is the business model. This will determine your experience rather than any claims made on a website. We have identified three different business models when it comes to family office networks. Membership-based organizations are the most aligned with family offices but tend to be expensive and these groups become stale and static after a while. Commission-based organizations are based on sourcing deal flow. These models require volume to maximize profits and therefore tend to attract lower quality non-proprietary opportunities that are recycled within the membership group. And lastly, there are advertising based organizations who derive their revenue by directly monetizing access to their family office contacts. Rest assured, if you're not already inundated by service providers, once you sign up for a family office conference or newsletter with one of these organizations, you will be. So, always ask what the revenue model is before joining. In many ways, the term family office is probably the most overused, misused, and poorly used term in finance today. More and more high-net-worth investors claim the status of family office than probably should and more and more groups claim to have access to networks of family offices than probably exist. At the same time, family offices are increasingly seeking a network of their peers to help them with a host of issues. Whether it be a safe place to ask questions, to share due diligence, or to pull capital for no or low fee co-investment opportunities. This is why we founded the family office association in 2007 as a peer network for single family office senior executives and principles. Over the years, members have met regularly to exchange ideas, share best practice, and discuss a broad range of family office related issues. TFOA now includes some of the largest and wealthiest families in the world and has evolved into a tight network of trusted contemporaries. What distinguishes the family office association from the many other family office groups that have sprung up is that we're a true peer network and we are not looking to monetize our relationships. Our TFOA community is solely for education, networking, pulling diligence, selective co-investment, and a resource for family office professionals to share ideas, deal flow, and best practice. Thank you for listening. We hope you have enjoyed this content. Please share with others or visit tfoa.info to learn more.