Family offices, which service many of the world's richest families, have grown immensely over the past decade as a subsection of the wealth management industry. Maria Elena (Mel) Lagomasino, CEO and Managing Partner of WE Family Offices, is a veteran family office leader whose firm is a certified B Corporation that works with ultrahigh net worth families. She will discuss what leading a family office looks like, and what financial advisors should know about the needs of today's family offices.
Transcription:
Victoria Zhuang (00:10):
Good afternoon and welcome to the Arizent Leaders Forum, a place where senior executives in the industry discuss some of the most pressing issues of their business. I'm your host Victoria Zhuang, Reporter at Financial Planning, which is a publication owned by Arizent. And today we will be discussing family offices, which are increasingly common in the wealth management industry. A family office is a private wealth management firm that caters to the entire financial life of an ultrahigh net worth family. These families typically have a minimum of $100 million of investible assets, sometimes quantified as net worth, although many have much more, and they are the richest of the rich, and their numbers are growing. Globally, as of this year. KPMG estimates that there are as many as 20,000 family offices. So how have family offices changed and what should wealth managers know about their needs today?
(01:03)
To answer that, I'm excited to welcome our guest today, Maria Elena "Mel" Lagomasimo, the CEO and managing partner of WE Family Offices. Mel's firm is an RIA based in Miami. It has $12 billion of assets under management, and it was featured in FP's 2023 rankings of the top 20 largest fee-only RIAs. The firm is a global multifamily office and a certified B corporation. So Mel herself is an industry veteran with over three decades of experience, and she was also formerly the chair and the CEO of J.P. Morgan Private Bank. So Mel, thank you for joining us today. Now, let's get started. Mel, tell me about how family offices have changed during your time in the field. What would you say is different today about them versus when you first joined the family office world? And what do you think wealth managers should be taking away from this changed landscape?
Maria Elena (Mel) Lagomasino (02:00):
Well, thank you for inviting me to join this session, Victoria. It's great to be with you. So when I started in the family office space, nobody called themselves a family office. And I actually tried to figure out how to name our company and I thought, is there any business model that works exclusively on behalf of the family without any economic interest in any recommendation they've made? And the only business model that I could come up with that had that characteristic was a family office. So at that point, we used the family office in our name. Lo and behold, over the last 15 years, it has — the name has actually exploded, and there's lots of people calling themselves family offices, whether they are or not. And one of the things that is out there is the thought that if you've seen one family office, you've seen one family office. So they're all different. But I think what has really changed is that you have all these different kinds of wealth management models calling themselves family offices. Independent ones, ones inside of banks, so all over the place. I even read someplace sometime ago in the New York Times that an art gallery had called themselves an art family office. So the word now is ubiquitous in all kinds of different business models.
Victoria Zhuang (03:42):
Well, certainly it seems like family offices have gone [from] being a non-entity to being very, very overwhelmingly ubiquitous. And when it comes to today's family offices, who are, we could say real family offices, what do you think are the biggest opportunities for them and what do you think are the biggest challenges for them today?
Maria Elena (Mel) Lagomasino (04:11):
Well, I think that the biggest opportunities is that as the world gets more complex from every perspective, from an investment perspective, from a tax perspective, from a governance perspective, for people who have that level of wealth, it becomes more and more important to have their own team working for them without having any product to sell. Just to help them connect all the pieces and make sure that what they're trying to accomplish is being accomplished without any conflict of interest. I think that's the biggest opportunity, is that I think that there's — because there's been a lot more wealth creation, there are a lot more families who are going to need these kind of services. I think that the biggest challenge in our space, the biggest challenge is always talent, is being able to find the right talent and groom the right talent to be able to support the needs of the business.
Victoria Zhuang (05:12):
Yeah, absolutely. Well, talent I think is a problem that plagues the wealth management industry in terms of leaders in general. Now is one of the most competitive times in recent history for financial advisors to be hired, period, at many firms. So when it comes to family offices trying to increasingly hire talent, sometimes from the wealth management world, from banks, how can they differentiate their value proposition? And what do you think family offices have to offer that maybe a traditional wealth management firm might not be able to offer, but needs to consider offering?
Maria Elena (Mel) Lagomasino (05:56):
Right. Well, I think that the key is what side you're on. I think that when you work for a financial management firm, for any kind of firm, you need to take a look at the business model. How are they compensated? What is really the purpose of your role? So in the wealth management firms, in all of the names that we know of, their management model, their revenue model is around selling products and services. Products and services that they sometimes manufacture themselves or products and services that they are paid to distribute by somebody else. So it's a sell side job, if I could put it that way. The family office business, because it shouldn't have any products at all, is really a buy side. You're on the side of the family helping them buy as opposed to on the side of a financial services institution trying to sell to the families. So you're on a different side of the table. That's the biggest differentiator and that has all kinds of implications.
Victoria Zhuang (07:04):
Yeah, definitely Mel. Well, in terms of implications, I think one that you and I have discussed earlier is compensation can be different. And you've mentioned to me how when you started your own firm, it was challenging in different ways. And I think you mentioned that compensation was one of those ways. So given that there are more family offices and there's opportunity to join a family office or for a wealth manager to maybe set up an RIA as a family office, for instance, what do you think are some things that people should know about transitioning to that side? Things that they might not be prepared for?
Maria Elena (Mel) Lagomasino (07:54):
Well, I think, and again, every family office is different, but in a family office like ours, for example, our clients just pay us a retainer regardless of what kind of actions they're taking. And that retainer is nowhere near the size of the kind of profit margins that you would have if that same family was working with a financial services firm. Ergo, the compensation's going to be very different. Compensation in financial services firms, there's a salary, but the bonus has a lot to do with what products you sell or how many assets under management you bring in. In a family office, you're paid a salary and a bonus, and the bonus is going to have to do more with, are you really getting the job done for your families as opposed to any product or service? Because we don't have any product or service, so we cannot possibly tie our compensation to that. Ergo, it tends to be lower. A family office company works on very slim margins because it has no product to sell. And the margins are in the products.
Victoria Zhuang (09:09):
Yeah, well, they do offer, I guess you would say holistic services, but you're right that it sounds like much fewer, certainly not including things such as in the wirehouses, banking products. So that's a bit of a hard sell, I think potentially for someone. What do you think is your sales pitch when you are trying to hire talent? How do you help prospective talent that you're trying to recruit, as a family office leader, overlook the side that may not be as appealing when it comes to compensation being different and likely lower than they might've been accustomed to?
Maria Elena (Mel) Lagomasino (09:58):
It is the pleasure in what you do. It's knowing that you're there to serve the families and whatever advice you're giving is not going to have any economic interest for you. It's going to be all about the family. So there's a lot of psychological sort of compensation that comes from people who want to do that, who want to be advisors in that way. And so it is about the mission and the culture, and what we do for a living. It's just a totally different role. I don't even think it's comparable. You can learn a lot of the skills as a financial advisor working for a financial services firm, but it's not at all the same thing when you are inside of a family office.
Victoria Zhuang (10:43):
Sure. Well, Mel, can you perhaps give me some examples of how — the way a financial advisor or wealth manager has to think differently about their role on a day-to-day basis? Certainly I would imagine they're serving far fewer clients, but in terms of the range of things that they have to consider when it comes to interacting with clients, how would you say that is different?
Maria Elena (Mel) Lagomasino (11:16):
Well, I think the first is the starting point. I think that the reason that you hire a family office is because you want your wealth to go beyond you. And so I think that has really taken into account the kind of governance that is in place for that wealth, because you're probably, particularly if you're first generation, you're making all the decisions now. But eventually you're not going to be around. And so there has to be a governance process put in place, not just while you're around, but after you're around. So I think the family office actually starts with governance front center. And then the roadmap and all of the stuff that we're working on with the family, has everything to do with how do we help that family successfully transition their wealth and everything in it, and all the different complexities that come from tax structures, planning structures, investments, real estate, collections, you name it.
(12:21)
How do we make sure that we put the right governance around it and work with the family to make sure that we successfully transition that wealth from whatever generation to the next generation? Which includes a lot of work that has to do with running family meetings, putting in place minutes of every meeting, particular strategies. I mean, there is a whole other, there's a whole envelope, if I could say that, and framework around the way that we do with families that goes way beyond helping them put their money to work, which by the way is a really important part of what we do, but it's within that framework.
Victoria Zhuang (13:04):
Yeah, definitely. So talking about governance, there was a study by Citi earlier this year that suggested a lot of family offices participating in the study at least had put governance as a priority on the back burner this year in light of just looking at the different things going on with market volatility. And so everyone talks about governance as the end game of a family office, or you could say of serving any client really in wealth management is ultimately passing on that wealth and creating generational wealth and a legacy. And so with, I think, a lot of people having conversations now about how wealth managers can offer value with estate planning services and helping families on governance, how do you think a family office can stand out in offering governance services and how do you think that might be different from a typical wealth management firm offering governance services?
Maria Elena (Mel) Lagomasino (14:12):
Well governance, what governance is, is about how decisions are made in a family, that's what it means. It's a big word, but that's all it is. It's making the decisions now and what do they need, what process do they put in place to make those decisions, and what do they need to do to make sure that when they're no longer around, there is a very clear and understood process for making decisions? So frankly, I can't see a situation, particularly when markets are volatile, where what you would deemphasize is governance. Actually what you want to emphasize, is how do you make good decisions in very volatile markets? So I think for us, it's just part of what we do and part of what we work, how we work, we wouldn't know how to work any other way because our particular mission is to help families make decisions, feeling in control and confident about those decisions. So the whole basis of what we do is around enabling decision-making.
Victoria Zhuang (15:20):
Yeah, absolutely. Well, by the way, at this time, everyone, if you're listening the audience, you're welcome to put any questions you have for Mel in the chat. Otherwise I'll keep on going a little bit more. So Mel, on that note, talking about serving families and serving families in their best interests, I wanted to hear more about your process of setting up WE as not only a fee-only RIA, but also a certified B corporation. I think that generally in the corporate world, it is still quite uncommon for a company to become certified B corporation. And so can you tell me about why you chose to take that extra step? I think when we see "RIA," there is already an association in the industry with fiduciary status and acting in the client's best interest at all times. So what motivated you to pursue the B corporation?
Maria Elena (Mel) Lagomasino (16:21):
Well, and I think you're right, it starts with this culture of being a fiduciary and having a business model that actually makes sure that you have undivided loyalty to your client at all times. But that also extends to your talent. You're asking, how do you attract the right talent? The talent we attract is talent who wants to do just that. And our whole role as managers is to actually help our talent be able to deliver that promise. So you have your clients, you have your talent, then you have your community. We're all living in communities that we're part of. And so we think it's important as we make decisions, to consider, how do the decisions we make affect the community? We believe, and I have believed for a very long time, for decades, that if you do the right thing for your clients and you put them front and center, you support your people so that they can do the right things for your clients, and you make sure that you're giving people time and you're giving people choices to support the communities they live in, that if you start there, that will deliver the right returns to the shareholders over time.
(17:36)
And so that is actually what it means to be a B Corp. It means to take into account all of those audiences, all of those constituencies when you make your business decisions. And so for us, it was important to be able to become a B Corp so that it becomes front and center of our business model. And it's clear to everyone that that's how we work. And by the way, going back to what you asked before, that does help us attract talent. They're proud to work for a B Corp.
Victoria Zhuang (18:09):
That's amazing. And I would certainly hope they are. So what was the process like for you to obtain B Corp status and how long did it take, when did you get started on it and what was it like you to go through that process, for our listeners who may be interested in following your example?
Maria Elena (Mel) Lagomasino (18:30):
Yeah, no, it wasn't very hard actually because we were already doing a lot of those things. And so we submitted our application and actually scored quite high right off the bat, but we had a few things that we had to put in place to actually be able to get the certification for B Corp, which we did. They made sense and we did, and then we got the certification. So it wasn't that difficult.
Victoria Zhuang (18:55):
Sure. And just to clarify, when did you guys end up getting the certification?
Maria Elena (Mel) Lagomasino (19:02):
Several years ago. I can't tell you exactly what year, but it was several years ago. Definitely pre-COVID. That's how I think about the world now. Pre-COVID post, it was definitely pre-COVID, maybe a couple of years pre-COVID.
Victoria Zhuang (19:16):
Yeah, absolutely. Well, I do have another question for you about COVID and then I'll also get to something I see in the chat. Now I think we're seeing in the working world at large, a return to in-person work, but many family offices, many businesses, went to remote work. So where is your staff now in terms of remote versus hybrid versus in-person? And what do you think would be the best strategy for a family office in terms of work-life balance and possibly considering the advantage on the talent hiring market of having flexibility with that?
Maria Elena (Mel) Lagomasino (20:06):
Yeah, I think obviously for every company, it depends. In our case, we ask our people to be in the office three days a week, but we have people that are working remotely more than that because they don't really need to be in the office more than three days a week. But the key is that the time that they spend in the office, that they spend it doing things that they can't do at home. That they spend time up close and personal with other colleagues, that we're in meetings together, having a conversation together. I think it's very different to actually be able to meet face-to-face. And so, we do ask that when people are in the office that they maximize the time in the office, being with each other, and they leave the stuff that can be done on video or remotely for those days that they're not in the office.
(21:00)
Now, a lot of us, me included, are on the road a lot, so I'm not actually in the office, but I am out there seeing clients and meeting people. So again, I think every company has to figure out what's the right thing. What COVID proved to us was that we could do our business remotely and we could continue serving the families we serve remotely, but there's no substitute for meeting face-to-face with the families we serve. And so we do encourage that those of us that work with clients, that we spend, we do a lot of our meetings in person.
Victoria Zhuang (21:48):
That absolutely makes sense. Well, I do want to get to some of the questions here in the chat, and it looks like we have one so far. Someone asked, is there a family minimum net worth value to work with your firm?
Maria Elena (Mel) Lagomasino (22:02):
Well, there isn't an actual minimum. I think what we try to do is figure out, can we help and will it be worth it to the family, to pay us a retainer for helping them? So that's typically going to be north of $50 [million] and probably closer to $100 [million], but it's not just about their investments, it's about their net worth. So we have families, for example, that maybe have relatively small amounts in this. If you think about this space, they might have $25 [million] or $30 million that's liquid, but they have $300 [million], $400 million in business interests. So it's not, because it's not about the liquidity. It's not just about the financial investments that are liquid, it's about their entire wealth enterprise and wealth picture.
Victoria Zhuang (22:55):
Sure. And I also see another question. This one is quite specific, are you licensed to work with families in California?
Maria Elena (Mel) Lagomasino (23:05):
Yes, absolutely. We have clients in California, we have clients in California. We have clients in different states in the U.S. and half of our business are international clients.
Victoria Zhuang (23:20):
Yeah. Well that is really interesting, Mel. It actually makes me think of another question to ask you. So going forward, where do you want to grow WE family offices? What's your priority when you look for a client and what types of clients are you looking to focus on cultivating more relationships with?
Maria Elena (Mel) Lagomasino (23:41):
I think it's really clients that have the kind of complexity where they feel that they would really like someone to help them feel comfortable and confident making the decisions about their financial lives. So it's not in any particular state or country, it's not around any particular issue. It's around families who really would like some help trying to simplify the complexity of their decision making and feeling that they can make these complicated and very important decisions with confidence.
Victoria Zhuang (24:22):
Yeah, that makes sense. I think we discussed earlier how a lot of these newer family offices, they're new money and so they don't have that experience necessarily with transferring wealth, generational wealth. They don't have necessarily the experience of what comes next after they become ultra-ultrahigh net worth essentially. So I think that's pretty much what we've got time for today though. So as a quick plug here, Financial Planning will be coming out next week with a feature story on what wealth managers should know about family offices today. And you can read that in our print magazine or online. And don't forget to follow us at financial-planning.com for our coverage of wealth management news. For Financial Planning. I'm Victoria Zhuang. Thanks so much, Mel, for joining us and I hope you all have a great day.
Maria Elena (Mel) Lagomasino (25:16):
Thank you, Victoria.
Victoria Zhuang (25:17):
Thank you.
