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Exclusive Interview: GenSpring On Unbundling The Integrated Wealth Management Offering

Harriet Davies, Editor - Family Wealth Report, 24 February 2012

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GenSpring Family Offices is well known for its integrated family-office model, so it may be a surprise to learn of the initiative underway at the firm: breaking down its service offering and segmenting clients.

GenSpring Family Offices is well known for its integrated family-office model, so it may be a surprise to learn of the initiative underway at the firm: breaking down its service offering and segmenting clients to align their needs and services more closely. It is, explains Steve Barimo, chief marketing officer at the firm, an unbundling of its tradition model.

“Over our history GenSpring really did one thing: integrated wealth management,” covering the financial and non-financial aspects, and “the whole basis around the company was really being able to do that,” says Barimo.

“Since ’08 families were asking for something different,” he says. They were asking for “parts and pieces” and at the same time the firm was having “more and more conversations with single-family offices,” which were looking to drive scale and reduce costs.

“This really made us step back and think: should GenSpring be this one service,” or should it be looking at more ways of partnering with wealthy families and SFOs?

So around a year-and-a-half ago, the firm set about unbundling its offering.

The single-family office opportunity

“There really are a lot of different flavors of SFOs,” says Barimo - an intuitive idea, as they are intimately connected with the founding family. “Many are very focused on investment management and reporting, some are purely administrative, some do everything for the family including education.”

“That, to us, resonated,” says Barimo, as there were some families and family offices “who just didn’t need” the combination of services the firm was offering.

“They really wanted us to do three things instead of seven,” for example, so they realized if they bought everything they’d be paying for services they didn’t need.

On the other hand, there are those families and SFOs who “just don’t want everything from one provider,” he says. The SFO doesn’t want to be displaced, it wants to act as a quarterback in these cases, picking and choosing services from other providers, he explains.

Finally, there’s a group of families who may “need and want” the whole array of services, but are just “not willing to increase expenses at the moment.” For those families, the firm will try and be the provider of choice for those “keep me awake at night” issues – the essentials – Barimo says.

Risks to the model

On the one hand, breaking down your services could increase the pool of potential clients. But it’s easy to envision a situation where you might lose business - where a family would have gone for the whole integrated model but, given the choice, slims down their demands and spends less.

“I think that is a risk,” says Barimo, “but we were more concerned about it before we made our decision.”

He thinks that tighter budgets are a reality and that, instead of putting clients off the firm’s service, this gives them a way of building trust up with new clients with a narrower mandate, and working on the relationship from there.

He also says that allowing clients to select only the services they need and value helps to avoid situations where clients feel like they are paying for services they aren’t using, which only creates “issues in client relationships” in the long run.

The cost question

The process of unbundling services and pricing them separately has “forced us to start tracking costs,” says Barimo.

On the non-financial side the firm has moved towards a retainer or fixed-fee pricing schedule, while charging an assets under management or administration fee for investment-related services. He says there is “no question” this has allowed the firm to better match costs and revenue.

“It’s more understandable for clients” too, he says, as they pick which services they want and understand “there’s a cost associated with that and I’m going to have to pay a fee.”

Using the alternative model - of paying a higher basis points fee for an all-in service - the “mental equation” becomes much harder for clients. With different firms offering different packages of services at various basis-point fees, they are left asking: “But how do I compare that? How do I equate the two?”

“It’s clear in this lower-return environment that part of our role is to drive down costs,” says Barimo. “And the onus is on us to make sure the family understands what it pays for and only pays for [the services and products] it is using.”

The categories of family office

Along these lines, “nine months ago we defined seven different types of family office,” says Barimo, including three “comprehensive” types and four “single-purpose” FOs.

The comprehensives were: the multi-generational office focused on sustaining wealth across generations; the financial family office, handling investment and financial management only, and the fiduciary family office, where the interests of the family are already tied up in irrevocable trusts.

The single-purpose were: the family investment office, which is purely asset-focused from liquid to illiquid; the family-business office, which has very few investment advisory needs and specializes in ownership structuring and family governance; the administrative office, where the family handles most of the investment work but wants help with reporting, taxes and bill paying; and the legacy family office, where the focus is purely on wealth transfer and preparation of heirs.

Faced with a menu of options, it becomes much easier for a family to identify the services they need most, says Barimo. In this way they “very quickly get to the one that fits them best.”

In fact, Barimo credits this approach with slashing the onboarding time at the multi-family office. In 2011, for the overall year, it was about 233 days. But in the second half alone, using this approach, it was only 171 days.

Challenges to the model

Behind the scenes though, the process is a complex one. It’s “easier said than done,” Barimo admits, and the internal execution has been “the biggest challenge.”

He believes a low advisor: client ratio is key, as this lends itself to high degree of tailoring to clients in the first place. But the idea of segmenting clients in this way was difficult operationally. For a start, it involves “treating clients differently” to an extent, and “it took a lot of changes internally.”

“[The process] started about a year-and-a-half ago but it’s clearly ongoing,” he adds.

However, he says some of the firm’s clients have helped it along the way, particularly “the single-family offices where we’re complementing work their direct employees are doing while staying integrated overall as a team.”

Part of a trend

At the end of the day, “people all want different things,” says Barimo, whereas the family-office model was perceived as being “all or nothing.” Meanwhile, the multi-family office world, “still in its infancy, is starting to grow up a bit,” he adds.

These trends are converging: the idea of separating advice and services from products has already taken hold, and this is the next step, he believes.

“You can buy advice but you don’t have to buy everything…I think it’s the next step in giving families a better choice. It is evolutionary.”

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