MARCH 2011                                                                        Download PDF Version

Suits you, Sir?


Published in Global Wealth Magazine - March 2011

Chris Andrew of Clarmond Advisors explains investing in a Multi-Family-Office is like being sold somebody else’s bespoke suit.

A man walks into a Saville Row tailor looking for a suit.

“Perhaps Sir would like a nice ‘off-the-peg’ suit?” asks the assistant.

The man looks at the rack but is doubtful of the style and fit. “I think I might need a something a bit more special,” he muses. “What else do you have?”

 “Perhaps Sir would like to try our made-to-measure service?”

The assistant presents a  wide variety of patterns, fabrics, buttons and lining options. The price is a little higher, but these suits will be exactly what the man is looking for.

“They look perfect, but am I buying the best?”

“Well,” says the assistant, spotting an opportunity. “Sir could always try our bespoke service?”

An even wider range of options is revealed, but the man is shocked to learn the price — more than double a made to measure suit, and he’s not really sure what the difference is.

“I’m afraid that’s more than my budget allows,” he confesses. “I think I’d better stick with a made-to-measure suit.“

“Well,” says the assistant excitedly. “I think I have a solution. One of our regular bespoke customers has just ordered more suits than he needs. He looks about your size, and unlike our made to measure service, you can walk out in one of his suits straight away! Might Sir be interested in one of these?”

Someone else’s bespoke, isn’t bespoke for you

Sound ridiculous? Yet as I sit (in my made-to-measure suit), it occurs to me that investing with a multi-family-office is exactly like buying someone else’s bespoke solution.

There is nothing wrong with buying off-the-peg financial advice from private banks. Such advice is often fit for purpose, if perhaps somewhat routine and generic.

Better, of course, is the ‘made-to-measure’ investment advice that one might buy from a good independent investment advisory firm. This kind of advice should ‘fit you perfectly’ and be designed just for you. 

Of course, some of the very rich will inevitably aspire to an entirely bespoke service. The only way to achieve this is through a private family office. The advice might not, strictly speaking, be better than a made-to-measure service — in fact it may even use the same tailor — but the service element should now be exactly to your specifications.

But why would anyone ever buy somebody else’s bespoke service?

Triple whammy

I believe the answer to this lies in three mistakes:

First, MFOs are perceived as being more exclusive than made-to-measure investment advice. That’s only true insofar as there are literally fewer MFO clients. However, the rich and ultra rich are more likely to buy made-to-measure.

Secondly, MFOs are perceived as a simpler option. With an MFO you can ‘sign up and forget’, since they’ll be implementing a strategy that’s already been designed and is up and running for someone else. Contrastingly, a good investment adviser might actually need to ask you some questions.

Thirdly — and most surprisingly — it turns out that most MFO clients have only previously experienced off-the-peg private banking and aren’t aware that a made-to-measure service is on offer. This might be because boutique advisories are a relatively recent phenomenon, or it might be because good investment advice is intrinsically ‘sticky’. Either way, not a lot of clients sack their investment advisor in favour of an MFO.

Primus inter pares

It’s also worth noting that MFOs invariably grow out of a single family’s private investment office seeking to increase their assets under management and thereby access to bigger and better investments. Is that good business for the principal family? Possibly. What about the new joining families? Doubtful — the principal family will always be first amongst equals, particularly in moments of financial crisis. And of course the true and unambiguous beneficiaries of the move to an MFO model are the executives running the office who oversee the transition.

Today it seems that the inherent structural and philosophical weaknesses in the MFO model are causing some to revert to being private offices for their founding families, sometimes to the surprise and alarm of their erstwhile ‘partners’.

So when buying financial advice, just look inside your suit jacket and buy what you see. If it’s got someone else’s name in it, look for the nearest MFO. Otherwise, we expect you’ll be considering a good made-to-measure investment advisor.

Now, which buttons would Sir prefer?

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