Podcast: What is a Family Office? Interview with Richard Wilson

By Ryan Tansom
Published: July 17, 2017 | Last updated: March 22, 2024
Key Takeaways

A family office may be the solution you’ve been looking for in your wealth management strategy. Richard Wilson’s interview elaborates.


About the Host

Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called The Value Advantage™ that helps in exit planning, value building and financial management.


About the Guest

Richard Wilson creates and manages single family offices for ultra-wealthy families. He also is the founder of the Family Office Club with membership of over 1,500 families of similar net worth totaling over $1 trillion in assets. He started off doing risk consulting out of college and joined the angel investing and capital raising world before positioning himself as the thought leader on family offices.

If you listen, you will learn:

  • What is a family office
  • The different types of family offices
  • How to create a family office to manage your wealth and business
  • Benefits of a holistic wealth management solution
  • Importance of building a platform business expanding on your niche
  • How a family office can reduce chaos and stress

Full Transcript

Ryan Tansom:

[00:00:30]Welcome back to the Life After Business podcast, this is Ryan Tansom here. Today's guests name is Richard Wilson. Richard and I dive into the topic of family offices. Richard's got plenty of experiences to speak to because he runs the Family Office Club, which is one of the largest associations in the family office industry. It's got over 1,500 registered single and multi-family offices with over a trillion dollars in wealth. He's got a book called the Single-Family Office.



[00:01:30]He's got a podcast, he's got multiple business that he's got his hands in all supporting the family office industry, the creation, spreading the word about what it is. That is exactly what we dive into in this podcast. Richard explains what a family office is. How ultra-high net worth individuals and families will create these entities to help them then manage their wealth, buy businesses, manage their underlying assets. We really dive into what would it be like to sell to a family office or a family like this? Then we also flip the page. We say, "Okay, what would it be like to create a family office to help you manage your wealth and your businesses like this?" I think it's a very, very rich content podcast interview, because everybody that is listening could potentially be on one side or the other of this scenario.

[00:02:00]I really hope you enjoy the interview. There's lots of gold nuggets. This episode of Life After Business is sponsored by The Value Advantage™. The Value Advantage is a platform delivered via peer groups and or one-on-one to help you build a valuable company that can thrive without you. While putting an exit plan in place, so you have the options to sell when you want to who you want for how much you want. You're able to manage the business by the numbers. Work in the business as much or as little as you want and you fully understand how the business impacts your personal financials. If you want to know more check out the show notes or website. Without further ado, here's Richard Wilson. Richard, how are you doing today?


Richard Wilson: Great Ryan how are you?


Ryan Tansom:

I'm doing good. I'm really excited to bring you on the show today. I think this topic that we're about to approach is one that is very ambiguous. I think your experience should be able to shed some light on it. For the sake of our listeners, can you just give us a little bit of a backdrop on how you got into this family office industry, this subject and where you are today?

Richard Wilson:


[00:03:30]Sure. I'll try to keep it real short and brief on the background of it. Essentially for the last decade I've been running the Family Office Club, which is leading community of ultra-wealthy families. Our families are typically worth 50 million, 100 million, several hundred million or much more. Really this term family office, has been emerging over the past 20, 30 years and has really taken hold in just the past two to four years, it's a little bit more of a mainstream word. I got into this space because I was doing risk consulting just out of college. Before that I'd done a little bit of angel investor, capital raising type work for high tech start-ups. I was exposed to the investor capital raising world. While I was doing risk consulting, I was bored out of my mind, but I got my MBA done, looked around and at age 22 or 23 I had my MBA and didn't know what to do.


[00:04:30]I said, "Well, let's do something that doesn't matter how much gray hair I have and go work in the capital markets." So I moved to Boston, started raising capital for hedge funds, fund to fund, long only investment shops. I ran into this term called a family office. What I realized was that if I was going to be raising capital, why would I waste my time approaching the wealth management firms. I might as well go for the bigger tickets at the family office level, which would represent the top .1% or 1% of all wealth management firms out there. Long story short, essentially I saw there's thousands of people trying to be the expert on wealth management. Nobody was being helpful to me on learning about the family office space. I decided just to jump into that position. As I learned I'd share it with the public and positioned myself as a thought leader and someone that was sharing insights on the space, just as you are for growing business owners or business owners that area about to go through an exit perhaps, et cetera.

Ryan Tansom:

[00:05:00]I love how you can just find a hole and you fill it. For the people that are not familiar with the term family office, can you shed some light on what is a family office and what function is plays for a particular family?

Richard Wilson:

[00:05:30]Sure. I'll give you the basic answer is it's just a more complete, holistic, wealth management solution that is really addressing hopefully all the different things affecting your balance sheet. Traditionally wealth management is about managing your stocks and bonds or some ETFs and REITs in your stock portfolio and market exposure. What happens is as people become ultra wealthy and you're worth 10, 20 million, 50 million or more, a 1% mistake on your taxation, or your insurance coverage, or your returns on your real estate, selling it one month late after a tax law changed, et cetera, is very costly. The wealthier you are the less you can afford to make little silly mistakes because your advisors aren't always talking to each other in the traditional financial planning world.


[00:06:30]Traditionally you've got your wealth management group. Separately you have a CPA. You're supposed to remember what your CPA says. Then tell that to your insurance guy and keep that in mind. The reality is, not only are the mistakes more costly as you become more wealthy, but also you're much more likely to make a mistake because you're busier than most every other human being on planet Earth if you're one of the top .1% earners that goes hand-in-hand with people throwing opportunities at you, people asking you for money, your business having a lot of employees, a lot of daily fires to put out. That just drives the need for a family office. I want to define real quick, a lot of people have heard of the word family office, but you're going to start hearing about a few different types of family offices. If you're really doing research on this for yourself you should know up front there's really three types. It's very simple.


[00:07:30]There's a single family office, which means it's an organization set up just for you and your family and nobody else. The team is just serving you all day long. There is a virtual family office, which just means a very leanly operated single family office. Maybe only one or two employees or even one part-time employee looking after you. It's very lean and that's why it's called a virtual family office. That's for people that typically are at 100 million or below, it might be a 10, 20, 30, 50 million. Then there is a multi-family office, which is as close to the traditional wealth management firm as you're going to see. It's basically a more holistic wealth management solution for people that are worth 10,20 million or more. They might have 500 clients or 20 different families they're serving or 10 different families they're serving. Those are the three variations out there in the marketplace if you see those terms thrown around in the Wall Street Journal or elsewhere.

Ryan Tansom:

[00:08:00]You know what? It's like the whole thing of the financial advisors and all. There's so much ambiguity of a lot of people saying it, no one actually executing it because I think I mentioned to you right before and my listeners have probably heard me say it. Which is the fact the tax estate, investment management, the corporate structure, all that is so intertwined. Someone actually has to look at that stuff and not just pretend that they are because I've mentioned that. My dad and I missed out on almost a couple million dollars because of a lack of planning, holistic planning. It quickly … It takes a long time to make that up. Any kind of returns when you're dealing with those kind of assets.

Richard Wilson:


[00:09:00]Right. For sure. I think it's great that you focus on business owners. I think some of the most successful people that serve the ultra wealthy are focused on one type of demographic, one type of way of creating wealth. Such as surgeons in a certain area or professional athletes in one area are business owners of a certain size because their specific needs and risks and typical tolerances for risk and liquidity issues that come up with focusing on a certain type of wealth creator. I think what you just brought up is exactly one of them, is that when you have something like a lot of your net worth inside of a business. Just the very simple math of making sure people realize when you take money out of your business, typically when you're taking that income tax hit on it. Hopefully not at a state level. If you move to a place like Florida, like I have for that reason. Then at the federal level, at least you might be taking a hit on the income tax level.


[00:10:00]When you take that out of the business, then you've got to reinvest it elsewhere. You have to know that you might be starting it. Now you have 66 cents on that dollar. How much returns do you have to get back up to that. Some people even with that simple of math they've been grinding their business 12 hours a day for 12 years. That just getting them to think clearly about here's the options. Here's what you said the risks you want to take. Here's how we might be able to structure something and minimize the taxes and fees, but maximize the inheritance gifting, and the protection, and your position, and the right diversity within your business and portfolio. Your ability to speak to that is going to be superior to someone who works with everybody under the sun. They don't understand the liquidity needs and risk preferences of a entrepreneur.

Ryan Tansom:


[00:11:00]No. It's a complex Rubik's cube is the way I like to word it. For you being on this show. I want to be able to dive in and give a look into some of the ultra affluent individuals that you're working with, because our listeners who are in the Main street or most of them are in the mid-market with their businesses and they're trying to figure out whether it's a family succession plan or they're going to sell to a third party or a part of their business. What are the options? That's the whole goal is to increase your options and your control. I think family offices doesn't really come to an actual option. Investment bakers aren't always necessarily pushing towards family offices, or you stumbled across it. When you're talking to the upper, the 1% as you're referring to and you're managing a portfolio with them. Can you describe what the investment goals are and the purposes where a family office would go out and buy companies. I don't know exactly where you want to start with that. Just give us some insight into that.

Richard Wilson:

[00:11:30]Yeah, sure. I think it's probably most helpful to quickly get three to four real quick case studies like one minute each or less. Then we can always go deeper on something if you want to. One of my clients is just in his mid 40s, sold his business for several hundred million. Now he's reinvesting heavily. His goal is to become a billionaire, and I'm pretty sure he's going to get there. He loves his work and he's energetic and he works around the clock. He's looking to take risk. What would be perceived as risk by other people. He manages the downside very aggressively through structures, through partners, through cutting out layers of fees. Through using consultants instead of a fund manager to gain expertise, et cetera. His motivation is to get better deal flow and just be able to move more quickly towards his goal of growing his net worth and it's a big game to him.


[00:12:30]Another client is a first generation family going on second generation. They just sold their business last month for several tens of millions of dollars. I just spent a half day at their house. They're looking at starting a family office right now to acquire one business for each division of the family. Maybe some core real estate holdings for the family to make the wealth transfer safe for the next generation and have something that's relatively low risk in the scheme of things like a hard asset self storage or apartment building. They don't know what they need or want yet. They're coming to the realization, "Okay, we have some components of family office employees. What are we missing?"

[00:13:00]We're helping them with a couple of those missing pieces, also I happen to have been in contact the last three years with a five million a year in profits distributions business. The business they were just in was distribution, so they're very interested in speaking to that business about acquiring it, that's a second example. A couple other ones on different ends of the spectrum would be a more recent family has come to us that made their money in a niche industry. They don't have a family office, but they want more deal flow, but only in that niche industry. We're helping brand their family office organization around that industry so that people in that industry will see them at events. They'll see them around town. They'll see them on LinkedIn and they'll know that even if they don't want to take VC money and deal with all their lawyers and 37 page agreements.

[00:13:30]You could go to a family that made all their money in your niche, and they're very long-term minded and bring them on as a board member or sell half your business to them because they took their company public and then got crazy connections for you. We're helping them in positioning themselves to get entrepreneurs to say yes to them who wouldn't say yes to anyone else, and they're not even officially raising capital. Those are the best companies out there that are pumping out lots of profits. They can afford to be patient. They don't need to go and raise ECPE capital because they're desperate for it.


[00:14:30]Helping one family like that, which is on the small end. Our smallest client right now is 50 million as I mentioned before, but we're talking to a couple brothers that are in the 20, 30 million range. We're looking to bring them on next month. Our largest couple of clients are two and three billion dollars, both in the US for those two. They both invest heavily in the industry where they made their money as well, but they're also looking at other investments. They want to connect to other billion dollar plus family offices to co-invest, joint venture and look to see how they could horse trade resources and combine efforts where appropriate to invest more intelligently.

Ryan Tansom:

[00:15:00]I think like you said there's a lot of different ways we can go. I think you painted a really cool picture. I think a good place to start might be, is why are they doing this? I can maybe tee it up to the reality is the average individual wants to make 200, $250,000 for the rest of the year just to live off of. You reverse back, and that's five million bucks. Afterwards it's like, "What do you do with this money?" I think throwing it into a bunch of indexed ETFs, it's just boring. There's the reality of that, that you want to have a safe part of your investments.

[00:15:30]These families are able to go buy companies and buy real estate, buy these other investments that have a little bit more of a sophisticated way to transfer wealth. Then also to keep them lively, because to your point it is a game. Once you're an entrepreneur, it's hard to get out of it. One of the things that we see is once they liquidate they think it's their job to deploy their assets as fast as they can. Can you maybe shed some light on some of the conversations that you're having with these families? What are they trying to accomplish by acquiring these businesses?

Richard Wilson:


[00:16:30]Sure. A lot of them have built up their contacts, their research, maybe core team members, distribution agreements, reputation, brand, databases, intellectual property assets like patents or processes that are proprietary and just took a long time to figure out. Once they know how to work those patterns and navigate that type of jungle. For them, really they can take "Risks" at a much less downside than other families. Once you're in an industry it's easier to add on additional businesses than to learn a whole new industry, like for us with the Family Office Club. We have our events that we host 10 times a year, but then we also have family office executive search, we also help people with starting family offices and adding on those additional divisions we use our same office space, our same core team.

[00:17:00]I might hire one or two additional full time people. We might write a new book on an area where we really focusing. How to start a family office is an area we wrote a book on, it just hits it between the eyes if that's what someone is looking to do. Then it brings them to us we leverage our core infrastructure and many of our families do that. We really steal ideas from them that we try to use in our own operating business that we see working over and over and over again. One big reason, is that they just see less risk and more out-sized return in applying their knowledge and their DNA. Just like the Jim Collins hedgehog strategy of what you're passionate about. Leveraging DNA and what could you make a lot of money with too.


[00:18:00]That's going to line up probably with something related to what you have done in the past. That's one big reason. The other thing is that a lot of them have if they're not a real estate family typically the right percentage is going to depend on the client obviously and about 50 questions they should go through first. Most families have about a 25% when we surveyed them through our benchmark study at 25% allocation of real estate when they are allocating to real estate. A lot of them like to keep 20 to 40% liquidity for a big market event, like the market going down or a great buying opportunity they're not expecting or an emergency. Then a lot of them are reinvesting in one, two, or three industries that are parallel to each other that they feel like they know or they might say, "Hey clean energy or biotech or stem cells is going to be huge. We don't know that space yet, but let's put a stake in the ground and on top of where we made our money.

[00:18:30]Let's get into stem cells in a big way. We're going to invest in this. That's going to be a second pillar of where we create our wealth on top of manufacturing or on top of apartment building construction, et cetera. This is the types of thoughts going through their head. It's really often times about building a platform business. You can keep on adding new businesses and cross sell, up sell, leverage core infrastructure and you can expand and acquire easier than your competitors at a large scale, like Amazon acquiring Whole Foods. Also, they think about niche domination. In a small real estate, in a small geographical area how do you dominate that niche or in an industry niche and a niche within a niche. How do you just own that? Own the intellectual property. Own the relationships and just lock it down with your superior knowledge and capital.


Ryan Tansom:


I think you hit a couple cool key points there where it is their competitive edge, whether it's the same industry. They're doing in order to because they can. They want to continue to stay relevant and it's enjoyable. The other one was how they partner up with these businesses too. Who they're looking for is important because they don't have to do this. I think if we maybe go back and forth on the difference between the family office who is doing I remember for their own passion, their love of a business or love of an industry or the game of trying to get to the billionaire. That's a lot different than a private equity fund. I don't know if you want to point out a maybe just point out a couple key differences that you see?

Richard Wilson:


[00:20:30]Right. Right. I had this exact conversation riding in the car with one of my clients who's worth several million dollars. We were going to his house and we were talking about how even at a small level there's a point I think with an entrepreneur where you have a big enough team, or if you wanted to you could move to a low cost place in Florida or outside in a suburb in Houston and get a nice stone house, and have your employees run the business. Not care about scaling it too much and you could sustain yourself without working if you wanted to. When you get to that point, but you decide to double down and grow your business, I think you actually end up working harder sometimes than when you are grinding from the beginning just trying to make payroll for the first time or hire your first team member or two.

[00:21:00]I think that's the feeling some family offices get. It's like, "Well, if I'm going to choose to work and I don't have to, then I'm going to make sure that every hour that I put in, it's going to be an intense hour and we're going to get real results out of this, we're not just messing around as an experiment here." I think that is a mentality that they bring to the table. I also think that they have a permanency to their intent. If you know you want to dominate an area such as stem cells, then it doesn't matter how long it takes. It doesn't matter the ROI, the number of years it'll take to get an ROI on an asset. If it's going to be a strategic asset, you buy it. While other people worry about payback periods and how are they going to exit before they get in.

[00:21:30]Will they get board approval? Will they get partner's approval, et cetera, et cetera. Is it big enough because they can only do so many deals a year. They need to be spending all their capital. They have to return their dry powder to their private equity LP investor clients. Family offices can be more agile, but at the same time more patient. The more patient could be waiting for the right price or it could be waiting for the ROI for the very long-term. We've seen this and we try to replicate that as much as we can. I'm not worth $100 million, but we try to replicate that in our culture internally as well of just do things that we know inevitably will be very valuable, even if we don't know if it's going to take 11 years or three years to get ROI on it.

[00:22:00]I think that's really important to the competitive advantage of a private equity firm, which is different than almost everyone else out there. Only sovereign wealth funds and some endowment funds might come even close to the type of thinking a family office can do. Importantly, family offices fill the void between angels and super angels and the private equity groups out there. If your company is only doing half a million a year in profits or one, two, three million a year in profits, nobody wants you.


[00:23:00]Especially if you're doing $800,000 a year in profits or 600, 000. You're an unwanted stepchild of the capital landscape [crosstalk 00:22:34]. You get no respect from anybody so family offices can be there and they're excited to buy two or three different companies of your size. Then sell it to private equity and aggregate that as a platform. They're excited to come in, take 50% equity and get you to 10 million a year revenue and three million a year profits faster or get you to 50 million a year revenue. They can bring real motivation and strategic expertise or a board member type seat to your cap table when you don't anyone else on your cap table because you see it as too messy and you'd rather build it organically. I think that's important to point out too.

Ryan Tansom:


[00:24:00]Yeah, you really know, it's one person or a few people where you get to really find their motivations. If someone really wants to dominate a niche, it's not going to be too difficult to see their passion and their motivation and to understand why they want your company. Versus how many horror stories you've heard of. Don't get me wrong there's great investment advisors out there. There's great business brokers out there and there's great private equity funds out there. It's very difficult to find them. Then it takes a long time to find their motivations because a couple things you mentioned like the PE firms. They'll have to go out and raise the money. They have to promise a return to 3Ms pension fund or the police department's pension fund. Then they have to squeeze it out of your company because it's return based. Where if you're sitting down and obviously Mark Cuban is a unique example because it's Shark Tank and everybody knows about it, but you know why he's doing it. You've got clear expectations going forward.

Richard Wilson: For sure. For sure.

Ryan Tansom:

[00:24:30]What is the way, I just think about mine and my dad's situation where we were to bring an investment banker in. Again every investment banker wants two million in EBITDA and above. Then everybody between two million and 500 is left floundering because they're usually sophisticated older businesses that have been chugging along. You've got the business broker's that hover on the mainstream with five million in revenue and below. How do you go out and find a family office? How many are out there? What is the market if you're a business owner that thinks this might be a right fit?


Richard Wilson:


Sure. I think there's many ways. Several ways just to rattle off some ideas would be one, the Family Office Club on LinkedIn is free to join, there's no cost. If you join you can then look through by city and ZIP code and just identify some in your city. I would also do something as simple as looking up your industry niche and the key-words family office and see who has a family office and is discussing that or has been mentioned in a news article about investing in pharma or biotech or self storage, et cetera. Also I'm biased to think that conferences are a good way to meet 100 family offices at once. I had to plug that in. On top of that there are ultra wealthy communities all around you typically, if you're in any major city. That maybe they don't wear the name family office on their sleeve, but they might be an industry titan. They might be a very successful entrepreneur in the niche that's had a liquidity event or took their company public.


[00:26:30]Keep in mind that most people who are qualified to have a family office, don't have one yet and have never heard the term before. Keep your eyes open for people in your area, who if they took a company public this year, Goldman-Sachs and everyone else is chasing them and banging down their door. I don't think it's worth the effort of trying to get their attention. Let's say they were more famous three to five years ago, but they have a big track record of doing something big or having a sale to private equity or something like that had a liquidity event. I would create a database of the top 30 leads that help relevant industry strategic expertise. Our family offices are qualified to have one and then work that list of 30 strategic investors and you could be surprised by the response you get if those people have made their money in your industry they're going to be excited to talk to you and keep in touch and work together in some way, most times.

Ryan Tansom:If I'm an owner and I'm going through that process, do you end up engaging with advisors like yourself or the business owner? What's the process of the courtship or courting?


Richard Wilson:

Usually it's going to start out something very concise. I would really tell people do not write a six paragraph essay. You're not trying to convince them to make an investment off your email. I would make your voicemail very clear, that you're in the industry where it looks like they're investing or where they made their money. I would get it down to a single sentence of, "Hi, my name is Richard. I run a $12 million a year medical device distribution business. I saw you guys invest in that area or made your money in that area. I'd like to come by your office next Tuesday or the following Wednesday and here's my number.

[00:27:30]I keep a email that short as well. If you have a one pager or an infographic, maybe attach that. Nobody is going to read a 70 page PowerPoint and no one cares to read your long business plan before they know who you are. You're just selling them on getting 10 minutes of face-time. I would just start it like that to get their attention. Make sure you point out why the heck they should meet with you or get on the phone with you. Just make it easy for them. Tell them exactly what you're doing and why you want to meet. Keep it real short and try to do it in person.


Ryan Tansom:

Let's say you got the meeting and you're sitting down. I think on this show or in the M&A industry, there's a lot of buzz terms about the EBITDA, all the due diligence processes and stuff like that. We're in the spectrum of that whole process. Do you see them? What's the most important things that they look at?

Richard Wilson: Can you say that question in another way?

Ryan Tansom:

[00:28:30]Okay. I'll rephrase it. If you're sitting down with an investment banker, they help package you up. They've got the prospectus, they've got the whole sim, they're marketing it to do the controlled auction or whatever it might be. What is it that they're looking for? Because it's a little bit different if it's a strategic buy versus a financial buy. What is it? Does that make sense?

Richard Wilson:

[00:29:00]Yeah, yeah. For sure. One thing they're going to look at is do you have a reasonable valuation. Lots of people out there, especially the ones who aren't making much money think that they're worth the moon. They're like, "Oh well, we're this mobile app or we're this high tech start-up on our first valuation round with some golf club investors they valued us at five million dollars. After two years they had no revenue still and they were losing money. Those things drive me nuts because family offices are used to putting a $5 million valuation on something that's making $1.5 million a year profit. They're not going to pay $5 million for a mobile app idea. They can burn the money out in back of their house if they wanted to do that.

[00:29:30]I think people just need to know the valuations have to be reasonable. Typically, that means if you're doing under a million a year profits unless it's scaling, like wildfire and you have a very defendable position, you're going to get three times profits. If you're at a million or very close to a million it's typically going to be 3.5, maybe four times profits. Over a million up to that three million range, you're playing with that four to six, four to five, four to five point five times valuation will be a fair valuation in the eyes of the family office.

[00:30:00]You should really see that with their help, it's like pitching on Shark Tank. It's like, do you want the shark on your team or do you not because they're not going to say yes to the golf club valuation, that uninformed non-strategic, non-titans of industries are going to agree to, who see no deal flow and don't even know what the market rate is for good piece of deal flow. If you want that money, you can always find that money at a higher valuation. You have to decide if you want the family office strategic money or the dumb money. I think that people forget that.

Ryan Tansom:

[00:30:30]No. I think you hit on a huge point here too. That dovetails into how do they like to structure it, because I think to your point having a strategic partner like that, can also make you more money. What is the best way or the variations of ways that the family offices like to structure the deals?

Richard Wilson:

[00:31:00]Most families are going to want control if they're worth several hundred million dollars, and they've made a lot of money in their industry. You're going to have to know going in that there's a good chance they're going to want control of your business. The reasons are many. One is that even if you are aligned to be a good steward of their wealth and they might only invest 40%. Even if you're perfectly aligned, they've already made a lot of money in this industry and you're still proving yourself at some level. Assuming you've both created wealth in the same space. They want to make sure that their money is treated well. They don't want it abused by a third party, which often does get to be abused. They want to de-risk that.


[00:32:00]That's important to know up front that, that might be requested. Also going into it they often times will want some sort of earn out. They might see that you want to sell 100%. In the beginning they might only want to buy 51% and at a certain valuation. Then once you hit this other benchmark they'll buy out another 20% or another 30%. They want you to have skin in the game. Before they get to the point of even structuring the deal, often times families, especially when an entrepreneur tries to stick a high valuation to them. They look around and they see can they buy a different competitor at a three times valuation. Then they'll go dark on the current negotiation or they'll say, "We have the team. We know, this space. Why don't we start our own thing. Instead of buying you for five million.


[00:33:00]We'll throw a million on our own and we'll own 100%. We're going to be your size in 14 months. Now we're going to be coming and eating your lunch. I think some people forget some of that and they think that is not an option and it very much is. You have to really gel with the spirit. There has to be somewhat of a trust level with that family office investor too because it's opening the kimono to them. You have to be careful about what you reveal. The truth is if they're very sophisticated in your space, anything you reveal, you're not really teaching them anything. They might teaching you something about the questions they ask. The level of questions they ask and their background should either grow your desire to work with them because there is no risk, or if they seem to be … If they seem to not know a lot, but they're asking lots and lots of questions then you have to reflect that in the valuation you offer them, because they're going to be adding less strategic value likewise post close.

Ryan Tansom:

[00:33:30]Good point. I think it's pretty fair to say that regardless whether it's a PE firm or anybody. Even if it's just a single private investor or family office or whatever it is, people want control because why take the risk and not have control. That's why you can discount that for estate tax planning purposes. I think that's pretty normal. Let's say there's a deal structured and they're working with one of your clients or a family office like that. What is the management styles you've seen with a combination of the individual, the wealthy family and the advisors like yourself or their family office. What does that structure usually look like?

Richard Wilson:


[00:34:30]If they're going to be a minority investor often times they want a board seat or they want to at least have a say when it comes to the future sale of the business or a say on whether they agree that they're okay with being diluted on a future round of capital being raised, et cetera. They like some sort of minority controls or protections around abuse, transparency, reporting. Reporting on operating businesses is oftentimes very inconsistent and not professionally done. Until you get to 10 million a year in revenue, most people it's an afterthought and you're lucky if you get a buyer and you won't report with much granularity. Proper accounting oftentimes isn't done. I think that's important to account. Many times families would want to acquire the business, but leave the executive management in place and add their executive staff.

[00:35:00]Many companies until you get a 10, 20 million dollar a year in revenue don't have all of the senior executive staff they need because they've been living off the business and drawing 200, 500,000 a year from the business instead of reinvesting it heavily in the business to grow it faster. The family office recapitalized in the business. They want to put the executive staff in place and ramp up sales and marketing and maybe have a little bit of debt in the business, maybe not. Oftentimes it means the family offices controlling those management aspects and driving it forward. Sometimes they leave executive staff in place, but they want it literally in the family office's place of business. It just depends on the geographical relocation options of that operating business they're acquiring really.


Ryan Tansom:

I have been unclear on a couple of things.

Richard Wilson: Sure.

Ryan Tansom:

[00:36:00]You've got obviously the individuals that grew and sold their company and they're specialized in the niche. They're obviously going to be doing a lot of the stuff that you said too. Does that also include the advisors that the family office is helping that individual with so they're involved in the business as well too or is there usually synergistic skill sets that are applied? I'm just curious on the relationship on how, because I believe. I totally agree with everything you said. Where does the line stop between the advisors of the family office and the individual?

Richard Wilson:

[00:36:30]Sure. There's trends, like the size of a family and how much they're focused on one or two industries will change where they are in the spectrum. The level of structure and leveraging the infrastructure for the operating business. Many times it comes down to the Dan Sullivan concept of Unique Ability and applying that to a family offices portfolio of direct investments. Really them saying to themselves, "What are we excellent at? What do we have as a structure that we can leverage?"

[00:37:00]That's part of the sales process to the entrepreneur. Saying, "Hey, we have all the back office accounting. We have an outsourced CFO that you can leverage. We are killer at lead generation and marketing and branding. When we come into this, we're going to be doing all your marketing. All your accounting and you guys are going to be the sales force and the executive team and the talent, but we're going to really dial up your financial literacy." Know your ratios and KPIs and your financial metrics. Also pushing the marketing. Different clients will have different skillsets they bring to the table. That's what determines how deeply embedded those advisors are in the business or the infrastructure is in their business.

Ryan Tansom:

[00:37:30]That almost reflects I think the term a lot of people are more familiar with is more like a holding company, where you're centralizing all the operations or cross-pollinating very good skill sets and it's services between current holdings, correct?

Richard Wilson: Right. Right, that's correct.

Ryan Tansom:

[00:38:00]I want to flip the switch while we've got some time left. Now we've been talking about selling to a family office, but I think a lot of the individuals that are listening to this can also create one their-selves too. We touched on that already. Let's dive into I think you had mentioned prior to us jumping on that a lot of people think they've got a family office. They've got their CPA, they've got their insurance guy, they've got their financial advisor, they've got their banker, but they really don't have family office structure. What does that look like? How do you know whether you've got one or not? Then how do you put one together?

Richard Wilson:


[00:39:00]Sure. On a high level people think that a family office is sometimes when they hear that, "Oh, you need a foundation or a CPA or insurance advisor, et cetera." But oftentimes you don't if you haven't heard the term before. It really means at the core that you have people managing the pieces of your balance sheet holistically and many people just don't have that in place. What you really need at the very minimal level is basically to have someone who's managing and playing quarterback in a central place. You need documentation and systems to manage it. Just like when you're starting the business and you're working really hard every day. Then you finally get to hiring your first few employees and you need to work on the business and not in the business, you need a family office so that you're working on the system that's overseeing your assets and you're not working on an asset and just working on the business.

[00:39:30]Now you need to work on your portfolio of businesses on your portfolio of assets. It's another level up of systems thinking about your balance sheet and about protecting yourself and growing your assets. I think that is the difference. Many times people don't have the core charter document or management dashboard in place to manage the chaos. People need a family office if they want to reduce chaos and stress. Have a more holistic mindset and oversight on their assets and their service providers that are serving them. Define their strike zone and their goals more. Organize and prioritize their deal flow.

[00:40:00]Then as an end result do all that, so they have less taxes, less fees paid hopefully, as well as better returns because you're more focused and organized in what you're doing. Many times people are operating, shooting from the hip on deal flow, on stacks of paper on their desk. Maybe an Excel spreadsheet of deal flows prioritized that might be updated and just verbal conversations. It gets very messy and chaotic. Many times on the team it's not been set out explicitly, exactly what the strike zone is for investments that they're looking for right now. You end up taking a lot of meetings that are a complete waste of time. You end up looking at deals that you should never have looked at. Just a little bit of formalization can save a lot of time and grief.


Ryan Tansom:

It's so crazy because before we sold when we needed money and needed funds, you can't find it. Then the next things you know, you sell and everybody you know is in. "Hey, by the way I've got a cool billion. I've got this software company over in California." It is mind-boggling how much stuff comes out of the woodwork.

Richard Wilson:

[00:41:00]For sure. Families often need someone just to say no for them so when their brother-in-law or their cousin or their best friend from college comes to them, they can say, "Oh well, let me send you to my family office. We'll see if it fits our current mandate." Then you can nicely and politely say, "Oh maybe not right now. Maybe you've heard of the family office that would like to look at it." Or suggest to them how they could network with similar types of investors and at least be helpful to them. Without the family member take the time to actually take the meeting and have that social pressure to say yes just because they feel bad because everybody wants a handout and thinks that you can afford one at that point.

Ryan Tansom:

[00:41:30]When you're saying managing to the balance sheet. I think that's something that everybody in their business understands, but when you're thinking about a family balance sheet, can you maybe elaborate on that a little bit more? I don't want to steal too much, but you're referring to the net worth and the cash flow, of mitigating taxes and all that kind of stuff? I don't know if there is anything you want to expand then?

Richard Wilson:


[00:42:30]It could be everything from concierge, bill paying, to charitable giving to how you structure real estate investments. To whether your long-term trust and estate goals and making sure that planning is synced up with insurance policies or fund management investments are synced up with having an insurance wrapper around it if appropriate, et cetera. There's a saying that, "If you know one family office, you know one family office." That's really not true. People like to say it because it sounds nice. There's a lot of different variations out there. If you talk to two families that are both worth $2 billion and they both made their money in real estate, they're going to have a lot in common. If you look into the Amazon jungle, there's a lot of different types of animals out there, but if you narrow it down to snakes that live in a certain area between X size and Y size, they have a lot in common.


[00:43:30]Our job here at the Family Office Club is to help break down the species and genus of different types of animals out there in the family office jungle and make it a little bit easier for people to meet with each other, if they are ultra wealthy. They're running their own family offices, and make the spaces easier to navigate for those raising capital. We've seen that the result is that we can act as a helpful, more efficient provider of an industry platform that way because really at the end of the day it shouldn't be as hard as it is, but it's such a new industry. There's just a lack of awareness that this concept even exists and that's the biggest challenge right now. We're just trying to spread the word as far and wide as possible, even if we never do business with anyone listening to your podcast or to our family office podcast that's fine because it spreads the word of mouth. Then it all comes around as good karma long-term if we can add genuine value to someone listening here today.

Ryan Tansom:

[00:44:00]No. I 100% agree with you. I think about my situation, my clients situation or even there's a gentleman that just sold for a large amount of money that I'm in touch with. I think the biggest challenge to even starting the family office conversation is that everybody has got these relationships. I think a lot of people outgrow their advisors in a lot of different areas. I know we did to. You feel this blind loyalty to them. A couple of questions we're getting towards the end. How do you determine who to hire and then whether your people are capable of staying into the team or not? Then what kind of payment structure or fee structure is typical for a family office?

Richard Wilson:


[00:45:00]I'm glad you brought that up. This comes up all the time. I think at the very least you need to get a second opinion on your trust and estate planning. A second opinion maybe on how your accounting is being done to make sure it is appropriate at your level of wealth. A good rule of thumb is to see are you the only family office client they have? Have they ever heard of the word family office before? Do they have other clients worth 10 million, $50 million or more and how many do they have? If the answer is zero, or only one or two you should either compartmentalize their work and okay keep them on as your accountant for that one operating business. Then bring on a higher level accountant for the family office level of work to respect and keep their valuable opinion at the table, since they know the nuances in case an audit comes up, they can help you navigate that.


[00:46:00]Maybe don't burn the bridge with them, but maybe compartmentalize or minimize their work to some degree. Many times people need to upgrade their service providers because they've outgrown them completely. That's something that's not always easy to do. It's not the most enjoyable process. In addition to that in terms of fees and structure. Many times currently multi-family offices might charge 60 to 80 basis points or 1% flat, sometimes over 1% if they're doing concierge work and more advisory work or philanthropic related work. Sometimes trust and estate legal costs and fund manager investments will be on top of the 1% or 1.25% charge.

[00:46:30]Other times it's structured by someone who acts in a consulting function and will just have a retainer for setting up the family office and then maybe just upside on deals completed, direct investments completed through deals they brought to the table. There's a full spectrum out there. A lot of it comes down to whether you're keeping your current private banker or wealth management firm in place and you just need help starting a family office to layer on top of that and you're going to keep the current wealth management practice in place or do you want to completely scrape what you have now. Start over fresh and have a complete holistic solution that comes in a ready to go box that will then be customized, trust and estate, and portfolio allocation wise to your needs, but all being ran by one organization.

[00:47:00]That will change what your needs are and who the relationships are with. I would say probably 60% of the time people are keeping their private banker or wealth management firm in place to begin with. They're layering on top direct investments into real estate and operating businesses. Then long-term as they grow or if their wealth is more than two to 300 million, then they might switch over who's doing their wealth management. It really depends on the preferences of the family and what options they have on the table. A lot of it comes down to trust, relationships, transparency, and just a good match in all of those things.


Ryan Tansom:

Are those basis points applied to the assets or the overall net worth do you see?

Richard Wilson:


[00:48:30]Many times it's applied to the assets. There could be breakdowns based on how much wealth is managed. I know one group might charge 60 basis points on the first 100 million. Then sorry 40 basis points on each 100 million after that. They happen to require a minimum of 100 million in investible assets. Many people say, "Well I won't get out of bed for less than 200,000 a year as a fee. They might offer a nondiscretionary investment consulting solution or an outsourced chief investment officer solution to families. They charge a minimum 200,000. What that comes out to in terms of basis points might be standardized once you get to a certain level of net worth. If you're at 30 million or 80 million and you want their help, they're still going to charge you 200,000 because for less than that it just doesn't make sense for their business because the margins aren't amazingly high for this type of work because it takes so much work and expensive brain power on the team to fulfill the work.

Ryan Tansom:

[00:49:00]Essentially they're all business individuals and entrepreneurs. It's like having a CFO. What they can expect for those cost, those investments, because it should be an investment because their returns should be huge for whatever savings or return they get. Is it like a CFO quality where they've got the CFO, the attorney or a quarterback that's working with their people? What is the communication style and expertise that comes with that fee?

Richard Wilson:


[00:50:00]Typically, you're working with the wealth creator and their family. Sometimes you'll be working with the head of the business unit. Sometimes there's some synergies that could be played out and interviews that need to be done. Data collected from the business unit eds. You might be interacting with the operating business CEOs that they own a part of. Most of the work is done with the wealth creator themselves. Oftentimes people have a liquidity event and then they hear the word family office in one or two places. They try to figure out what it is. Then they realize that there's been chaos created by a lack of systems being put in place at that higher level. Their need to have the systems, to manage the chaos and to operate at that higher mental level of navigating deal flow in a portfolio of businesses makes it so their very much engaged and excited to get a family office solution in place.

Ryan Tansom:Then on the family office advisory side, is it actually CPAs or wealth managers or attorneys that are on staff for them for that? What kind of layers of payroll I guess is pretty much what they're getting. What can they expect for that fee?

Richard Wilson:


[00:51:00]If you wanted to have a virtual family office you simply need to find one or two people that you either put on payroll or you find as an outsource professional. You might be paying four to 10,000 a month on the low end, up to 400,000 a year on the high end. Just have one or two people and outsource everything else and be very focused on the goals of the family. That's the most lean structure. The next structure is the most common one, I would think is families that are at 100, 200 million or more, but under a billion will often have four to 12 team members. I just got off the phone with someone who has 800 million in assets. They have three people, pretty much running everything and then outsource the rest.

[00:51:30]They are full time employees, W-2 staff of the family office. I talked to another group, it's just father and son. It's $150 million net worth family here in Florida that we just spoke to yesterday. They're another example of a virtual family office type. Then we have clients that have 100 plus staff members. It depends on whether the cost allocation is going to go down to within the operating business unit or if there's advantages to having the cost allocation at the family office level and that can change your staff level. If you push it all down into operating businesses and that is allowed with your structure and unique abilities of your family, then it drastically changes fulfilling all the CFO, accounting, marketing, drafting, graphic design rolls at the family office level.

Ryan Tansom:

[00:52:00]I know. I totally get it because that's the beauty of when you get to that level because the cost can be allocated to entities that can use it as a write off. It's a beautiful thing.

Richard Wilson:

[00:52:30]For sure. I don't want to mislead anyone by just talking about it in a cursory level, but there are advantages to having a formalized family office LLC sometimes in place that has its own P&L, so you can write off some family meetings that otherwise might just look like a casual conversation to the IRS in an audit. You really are looking at deal flow. You really have meeting notes on a deal you're doing due diligence on. It's a legitimate reason, and many family offices set it up that way. Obviously in your country, city, state, you have to do your own research. With everything we're talking about here and any podcast you listen to, you've got to do your own homework.

Ryan Tansom:I think that's fantastic insights. Richard, is there anything you want to highlight from the breadth of stuff we talked on?

Richard Wilson:


[00:53:30]I think the last thing is just the importance of having excellent deal flow as a family office. If you can decide what type of deal flow you want and position yourself strategically to get great deal flow within a niche industry. Then that position is going to sweat for you day in and day out, whether you're proactively pushing it or not. People are going to find you more often and send you deals more often in that area. I think that's missed by a lot of families. Also what's missed that's connected to that is if you're only looking at 20 real deals a year or you're only seeing 100 deals in your inbox per year, then you have horrible deal flow. You could have much better investments most likely, unless all of your friends are Jeff Bezos and Warren Buffett, et cetera. Which I'm sure they're probably not.


[00:54:30]What happens is people don't realize, if you could keep the quality high and the industry focus, niche focused, then with those two things assumed it would be better if you were getting 500 pieces of deal flow. You might still only take the time to have a phone call with 50 of them per year. You might only take the time to meet with 20 of them per year. That 20 is going to be so far superior than if you only get 100 pieces of deal flow through your inbox or voicemail box per year because you need to find those statistical anomalies for someone who really respects your strategic expertise, or they had a divorce, or a death in the family, or they have to sell for an industry change that's coming. Those anomalies is what you're looking for. It's anomaly on valuation, or opportunity, or upside, or market timing, or talent or JV with another family office. You're just not going to find many anomalies if you're only looking at 20 deals a year in total. A lot of families would be benefiting if they had more deal flow coming in.

Ryan Tansom:Nope. Totally agree. If there's one place or a couple places for our listeners to get in touch with you, what would it be?

Richard Wilson:

[00:55:00]If you love podcasts like this one, we have our Family Office podcast. We also have the most visited website in the industry. It's just called, so that's pretty simple. We've got a best-selling book as well called the Single Family Office Book. You can grab that on Amazon or if you shoot me an email I'll just give it to you for free. We don't really care about selling them. We don't really care about selling them. We're just trying to spread the word about the industry. My email is [email protected].

Ryan Tansom:I will put all those links in the show notes.

Richard Wilson: Awesome. Thank you Ryan.

Ryan Tansom:Thanks for coming on the show.

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Written by Ryan Tansom

Ryan Tansom

Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.

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