In my book ‘When you are Super Rich who can you Trust?’ I encourage families to create an inner circle of confidence – a team of independent professionals who will report to the family on the good management or otherwise of their assets. This is the role of a non-executive board of a company and the same principles need to be followed at trust level and single-family office level as well.
One of my first clients when I was in my twenties was a family which owned a large chunk of London. I would meet up with the eldest son and heir after work, when the clock was not ticking. He wanted to share his views and concerns with someone who was knowledgeable and who would listen. ‘I see buildings with scaffolding up for weeks on end, with no builders in sight – surely this cannot be good for our business?’ and ‘With the new Leasehold Reform Acts coming through, why are we not diversifying out of London residential property – like other London estate owners?’
With some trepidation, I approached the Trustee Council Chairman with the young man’s concerns. His retort ‘Don’t listen to him, he knows nothing about managing property. We will make sure he is given a handsome distribution to keep him quiet and buy another car!’. I still have a picture of the new car. But the Chairman’s words rankled.
Everyone at Trustee level of this trust had a vested interest. The Trustee Council Chairman was the head of a well-known property management company, our senior partners were their property lawyers and a leading accountant did the books and advised on property taxes. They were all keen for nothing to change, but was this strategy in the best interests of the beneficiaries? No-one was watching over them, no-one was holding them to account, no-one was keeping the property empire in check – apart from this young man – who they dismissed as ‘stupid’ and was told ‘not to interfere’.
As you can imagine, I was very soon told I had no future at the firm and asked to leave.
Only years after, did I discover that, irregularities were discovered at both trustee and management level and litigation threatened. Some very important city business folk were lucky not to lose their reputation; the dispute was settled out of court.
You may think this is an extreme example, and could not happen today, but I am not so sure.
Three conversations last week reminded me of this first brush with self-interest at trustee and single-family office level. In all three independent situations, I heard the same thing ‘I do not know what our trustees/investment managers/single family office/ property managers are doing for us, but we seem to pay them a lot in fees for little return!’
Many single-family offices whether owned in-house or independently, have no-one who is professionally qualified and independent holding them to account – they invest as best they can, in some cases well, but in other cases not so well; but the family find it hard to know which and where they are getting value for money.
The answer is not to give it a quick fix; hiring professionals to prepare reports as a one off. This will simply highlight where some improvements should be made, but if they are not permanently engaged they will not spot weaknesses as they arise.
What is needed is good governance – such that ongoing performance is held to account. This works two ways, if management is poor sack them, but if exceptional give them bonuses.
But, surely, a trustee has a ‘fiduciary’ duty of care to look after the best interests of his client’. Yes, they do – they have the beneficiaries’ best interests uppermost. But, sometimes there is temptation such as losing your best client, when it becomes tricky to know what influenced a decision – the beneficiaries best interest or that of your own business. In these situations, it is better to have an independent view rather than to litigate the matter with disgruntled members of the family.
If a trustee is faced with losing his best client, his decision needs not only to be independent, but to be seen to be independent. This is what good governance is about – and is needed at trust and single-family office level as well as in the company boardroom.
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