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Many successful people are rich for a reason. Richard Wilson, the Founder and CEO of Family Office Club, is familiar with these very affluent people. Working as an expert in family offices, Richard breaks down some of their investment strategies and how they are pursuing them. Covering the basics, he defines what family offices are, their typical assets under management, and what they are targeting today in industry asset allocation. Richard shares some tips on how you can attract these family offices and create a system that will have them calling you rather than you reaching out to them. Don’t miss out on this episode to discover how you can crack open this seemingly exclusive group of people.

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Wealth Strategies Of The Ultra Wealthy with Richard Wilson

Our guest is Richard Wilson. Richard is from the Family Office Club. He is an expert in family offices, family office investing strategy and working with family offices in our businesses to raise capital from them as investors in our opportunities. I’m very excited about this one. Richard, thank you for joining us.

Thank you for having me, Taylor.

To get started, for folks that don't have a background in what family offices are, can you give us a little bit of a primer as to just define a family office and what a typical organization looks like?

A family office is a holistic wealth solution put together for a family and there are two types. One would be a single-family office. For example, if you sold a multifamily portfolio for $100 million, you might not want to walk down the street into Merrill Lynch and to Bank of America. You want a more sophisticated holistic solution. You can put together your own team and that would be a single-family office where each person on the team is serving you. The other type is a multifamily office and that is essentially a wealth management firm that is decided to cater to those that are worth $10 million, $50 million. They might have a dozen clients or 200 clients. They basically are taking what a wealth management firm does and making it much more holistic.

Obviously, not every person on the team is being hired for one client. It's for the benefit of most clients that we'll need to access that person's estate planning brain or be able to access their ability to manage trust for families or design trust structures or tax efficiency or manage all the service providers they have to touch. The single and the multifamily office structures both have been taken off. A lot of families want to hear about these existing. They say, "Why don't we have that for our family?" It's driving more demand for the industry the more that education spreads on the trend.

A family office is a holistic wealth solution put together for a family. Click To Tweet

What are the typical assets under management or a typical size of either a single-family office or a multifamily office? What size range is the most common?

Once somebody is at $30 million to $50 million net worth, they could have a small single-family office while also subsidizing or also leveraging a private or a multifamily office. They could start to have their own single-family office. Once they get close to $100 million in net worth or above that, they need to have some single-family office functionality in place to serve themselves well. On the multifamily office side, when somebody is worth $7 million, $8 million or $10 million, they could go out and engage a multifamily office. If you get up to $20 million-plus, then you shouldn't put it off any longer in case you've been dragging your feet on doing it. That's where the numbers start. I know many families that are worth $200 million that are with multifamily offices. It's just that as you get to that size, you need lots of help with direct investments, investments into real estate, your own private transactions. A lot of multifamily offices, wealth management firms and private banks aren't equipped to help you to a high degree in that manner. That's why those numbers cross over those different points.

Regarding where we are in the market cycle, things are pretty good, interest rates are ticking up in everything. On average, what are family offices targeting in industry asset allocation and what kind of returns are they looking for if we could get a bit into the current strategies they're pursuing?

A lot of families break up, have a look at their portfolio into three different parts and they'll have one part that's almost pure defense and have exposure to the stock market, to bonds and to commodities. It's just their diversification bucket that's very low-risk and they might only expect to get a 4% to 6% or 6% to 9% return on that over the longer-term. The commercial real estate part of their portfolio, they try to go into projects that are being underwritten at 15% to 22% or even bringing in something close to that range. Not all projects go as planned, but they're hoping that their commercial real estate portfolio will produce a good 8% to 12% or 10% to 15% return, including the ones that go bad or it gets stalled for years or partners falling through, etc.

The third part of their portfolio is where they created their wealth in manufacturing or in running an operating business. Wherever their wealth was created, they often invest back into and that's where they're most aggressive and play the most offense. In that area, they don't look at it like IRR or they don't look at it as, "We need to get 10% return." They look at it long-term, how do they dominate a space, how do they build $100 million business, how do they build something big in a niche or in an industry versus trying to hold themselves to some IRR. That's pretty tough to measure on a business that they might be growing over ten or twenty years.

PWS 33 | Family Offices Wealth Strategies
Family Offices Wealth Strategies: Family offices trust people who are dedicated to their space and show expertise, focus, and dedication.

You mentioned they tend to make their money in a variety of ways. It sounds like they're not making that substantial wealth initially off of say real estate investing. They're just putting money into, as an example, a real estate investment but they made their money in operating some kind of manufacturing firm or some other type of business. In a family office, do you have inherited wealth or are you dealing with the folks who directly made the wealth on their own? I assume there's probably some distribution there, but is there a significant skew one way or another?

Almost all my clients are first-generation or early second-generation wealth and their interest in having a family office created is just to have a better solution or a solution that's most appropriate for them being newly liquid. Probably 30% of the families that I've worked with in the past and are working with now created their wealth in real estate. That is the area where they would play offense and invest back into. The three sections of investing that are for families who made their money in non-real estate spaces.

I think that when someone has a liquidity event and they do their homework, they stumble across the family office concept. Whereas if a family's in a third or fourth generation, they might have figured out some great systems to manage their wealth. They have great service providers. The ones who have had enough wealth to survive three or four generations of it dissipating down through the kids and grandkids, etc., they're still worth hundreds of millions or a billion dollars plus. A lot of times what they have working for them is a single-family office structure or some variation of it.

That's a pretty incredible achievement because as you go through three or four generations, they're passing all of those skills and disciplines and everything like that in the inheritance and also the folks working in the family and running the family office itself, the employees essentially. They're also bringing in good quality people as that moves along and moves on down the generations to keep the success going.

The one thing that's very tough is that the first generation is very hungry, oftentimes grew up with few resources, had to work very hard to create something. The next generation grows up going to $40,000 preschools and living in four different houses with private jets and engendering that sense of motivation, aspiration, being relatively thrifty, resourceful and working very hard. It's hard to carry that through over multiple generations. It's also hard sometimes to pass on the passion or the interest or the focus on the thing which created the wealth for the family. That makes it challenging. Markets change, industries get over-commoditized and get overly competitive or prices get knocked down. Even if you can pass on the hunger and the work ethic and pass on the skills, they might need to apply that to a new area such as stem cell therapy instead of whatever the family had focused on before. There are a lot of challenges.

You have to come to the table knowing your competition better than the family office does. Click To Tweet

When a family office thinks about its investments, what are they thinking about in terms of the time they're going to stay in their average investment? Are they comfortable committing to a ten-year window? Are they looking to leave in five to seven? Do they want to find opportunities where their money's going to be parked somewhere for some significant amount of time just so they don't have to spend time managing it? What's the distribution there in terms of how long they're investing their money in any particular type of investment?

There's variation between families and also between what type of investment we're talking about. One is an investment under somebody else's control. Sometimes they like to know that the money's going to be brought back after five, seven or ten years, oftentimes not too much longer. If they don't have control the point at which the asset is being sold, it might make them a little bit uncomfortable. If they have control over when to sell, then I think that changes things. They might be comfortable with the fact that it might be a very long-term play or something fortuitous might happen and it might be able to take the money off the table earlier. Families like when there's a downside cap on the risks that they're taking because of hard asset value or tangible value of something. They also like when they can refinance out or use a gross revenue royalty and an operating business or something to get their money off the table that they've invested, the principal. Let the rest ride for a long time going forward and then they can recycle that investment and put it to use elsewhere.

Most people in the audience, if not all of them, are multifamily real estate syndicators at one degree of experience or another, people that are buying real estate by raising money from passive investors. We've already touched on commercial real estate as a vehicle for family offices to invest their money in. Coming from the side of somebody that's looking to raise money from a family office or family offices in general, can we get a bit into what do they like to see? What's a good resume to have? What kind of mentality do we need to have when approaching family offices? Can you talk a bit to that scenario?

I think the most important thing is to realize that you don't need to find 30 family offices to work with. A lot of people come into the family office space after raising capital from 42 different LPs that all invested $50,000 or $150,000 each on average or a couple of hundred thousand each. With family offices, all you need is two or three of them or a handful of them and it's going to raise credibility and allow you to raise more capital from smaller LPs as well as more family offices down the road. It can be game-changing just to get a couple on board to give you momentum in the space. Family offices like to work with people that they trust. They trust people who are dedicated to their space and show expertise, focus and dedication over the long-term to a space.

A lot of them see a lot of deal flow so you have to come to the table knowing your competition better than the family office does and knowing how you're unique in a way that the family office cares about. If you come to them and say, "We're a multifamily independent sponsor. We buy apartment buildings and we buy B class or garden style. We do $5,000 to $10,000 renovations per door and slowly raise rents. We produce 20% IRR," they've heard that 5,000 times. You have to be certain about exactly who you are in the landscape and of the other sponsors out there and be able to communicate that within a single sentence. Those are some of the most important points and it's the opposite of what most people do. Most people go around pitching their deals, not building the relationship first, not adding value first, saying the same thing everybody else says. I think that you have to be different or you just get lost in the noisy inboxes.

PWS 33 | Family Offices Wealth Strategies
Family Offices Wealth Strategies: Family offices are used to having people ignoring them when they pitch them because they just get pitched and people don't really listen to them.

There are a good number of multifamily sponsors syndicators out there raising money and you alluded to, “They've heard that same pitch over and over again.” As far as getting those opportunities to pitch or build that relationship, you mentioned we shouldn't be focused on pitching but we should be focused on building relationships. What's a good way for us to get started just meeting family offices in the first place? I'll take my case. I'm in Richmond, Virginia. I have a decent network here and throughout the country, but I don't know any family offices. I don't even know where to get started. What does someone do to start networking with family offices?

One thing is to figure out where the types of family offices are most likely to invest in your deal's congregate. It could mean someone who lives local to the multifamily properties that you're investing in and figuring out how to get access to them. Are they part of local charitable philanthropy organizations? Are they part of a local YPO or Tiger 21 or a program, membership, an association or a Porsche club? I used to be part of a Rolls-Royce Bentley Owners Club in South Florida, for example. Many times if you look at your passions and what types of programs would attract a family office quality professionals, there could be an overlap. I pay $50,000 a year for membership in one organization and I just go once a quarter for two days.

The networking is excellent and the knowledge you get from there is excellent so it pays for itself. That is hard advice to follow when you're getting started because people don't have $25,000 or $50,000 to throw around for memberships. You have to get creative and create those relationships. Otherwise, you can do things. We have ten investor summits a year with the Family Office Club. At each one we've got 30 family offices speaking on stage. At the very least out of our ten investors summits, if you came to just three, you would hear from 90 family offices what they're looking for, how they invest, how they think, how they manage their portfolio. It's a quick education on what space expects of people pitching them deals. Another thing is looking at family office directories and databases and finding one so that you can, while traveling, meet with more family offices by leveraging a database or directory, but also reaching out.

When I was in Prague, I found a couple of family offices in Prague via LinkedIn. I met with one out of the two. I approached via email, face-to-face, and built a relationship with them. I think that you have to realize that family offices might be secretive and hard to get a hold of, but they also are everywhere. They're in every city, every state, etc. The last thing I'll say is that the best way to generate relationships with family offices would be to figure out a very consistent way where you can add value to them first so that you can have a foot in the door consistently and create a system where you can attract family office investors. If you can create a system where family offices are cold calling you and emailing you, then it's much better than you reaching out to them.

There are many ways to do that based on your geography and skill sets. I've got a resource called How to Start A Family Office. I help families that just had a liquidity event and I help them put their family office together so that gets us new relationships in the space every week. We produce content, publications, podcasts and the whole Family Office Club itself was designed to add genuine value to family offices and those looking to start one as well as those raising capital from them. That attracts family offices to us all the time as well. We need to figure out what system you can set up for yourself to attract family offices as well so you're not chasing them but they’re coming to you.

Family offices might be secretive and hard to get a hold of, but they are also everywhere. Click To Tweet

The best way is to figure out a way to add value to them, some kind of piece of content or content strategy that gets them coming to you asking questions. You've created a whole ecosystem, thought leadership to get them coming to you. The proof's in the pudding. Not everybody has $50,000 to a drop on going to one meeting a quarter. When you get to that point and you've built that whole funnel, then it makes a lot more sense to continue going out and meeting the family offices where they are.

I don't want people to get the wrong idea either. When I started, I had $900 in my bank account and my rent in Harvard Square was $1,400 a month. I had to figure things out and I didn't have any investors in the Family Office Club. We don't have any investors or debt in the Family Office Club but I had to use elbow grease and providing thought leadership and adding insight. You're adding lots of insight and my own time and hard work that build things up and then I kept on reinvesting. I started with absolutely nothing. People might be like, "That's cheating. That's great for you. You have money to throw around." I didn't. It was twelve years later after a lot of hard work that I've just kept reinvesting.

The other thing I've mentioned is that I used to live in Portland, Oregon where there are absolutely no family offices. All the craft breweries and marijuana voters scare him away along with the high taxes. For six years operating in Oregon, I met two family offices at my four-year-old's backyard barbecue birthday. We had three family offices just in the backyard at the barbecue because they happen to be in the preschool class of my daughter. Where you live and where you spend your time, what communities you're a part of, etc. make a massive impact. You can, on accident, meet more family offices taking your kid to the park if you're living in the right area versus where you live being 100% cost and not an investment that you're ever going to get an ROI on if you're living in a space that's sparse with any investors or successful people that are going to motivate you and partner with.

From your perspective, what are family offices hunting for in the sense of a particular type of investment? What kind of asset class are they looking for? I just want to pick your brain for some other thought leadership type of ideas. What's something that you wish you could do with your thought leadership platform, but for whatever reason you're not going to do?

Family offices want more than anything to work with people that are very long-term minded and have a unique approach. Hopefully, there are two things that are compelling and unique about your approach. It could be your focus or it could be another thing. A couple of examples of that would be there's a multifamily group in the Midwest and they only buy apartment buildings in one city. They bought ten apartment buildings in that one city so they have around 4,000 doors in that city. Whenever a property goes on the market, they see it first. They know how to value it quickly. Brokers know that they close. Investors have confidence that they know their market very well. The story is much stronger than the sponsor who says, "We invest in this region or these five different cities. We're always looking at demographics and adjusting our strategy versus knowing something down cold."

Another example is a group that not only has a very lean fee model, so their fees are about a third of what everyone else is charging. On top of that, they're only buying office parts in the Midwest that are at a 9% cap rate or higher. That combination of finding good cap rate deals, very focused office parts only in the Midwest and very low fees has allowed them to grow from $400 million in assets under management to $1.6 billion. Those are two examples of when I talked about focus or something compelling or unique or something that stands out from all the rest of the stuff that's just slightly different. It's like you're doing it in Atlanta versus Chicago. Your team is great like everyone else's team. You need something that is going to reach out and grab people when they hear it and say, “That's awesome. I've been looking for something like that."

Family offices are used to have people ignoring them when they pitch them when they just get pitched and people don't listen to them. I think one trend is performance-only fees or performance-slanted fees versus charging acquisition fees, management fees, asset management fees, property management fees, renovation fees, construction fees. Having it be more about we charge you money when we make you money and that's when we've earned it is an industry trend. The last part of what you asked in terms of a thought leadership focus, family offices are looking for areas of inefficiency.

It could be something they're not aware of when it comes to opportunity zones or they think they know multifamily or they haven't considered this one niche of it. Maybe they've heard of multifamily a lot, but they haven't seriously considered mobile home park portfolio investing. Maybe that's an area where there are some inefficiencies. It's about finding where you can arbitrage, where there is either inefficiency, confusion or where there's a pain. You are relieving the pain that they have, the pain of being charged a lot of fees before someone makes them money, the pain of maybe they want to do direct investing. Everyone wants them to be an LP, but they would like to be joint venturing with a sponsor if they could and developing a program around that.

I'd like to ask you a couple of questions that are more centered around your specific experience in investing. First, what is the best investment that you, Richard Wilson, have ever made?

I'd have to say my own business because I don't get taxed on it and I can put that money right back in. I have control over what's happening so hopefully anyone here that runs a business believes their own business is the best investment. Otherwise, I would shut it down and invest in other people's ideas. Other than that, the best one was a royalty investment that we made a couple of years ago in an operating business. We got a healthy gross revenue royalty and within six months we were able to triple the revenues in that business and then exited the business. We did well on that deal. Because of that, we just closed another gross revenue royalty deal.

If you have people on your team that are not aligned with the culture, things are going to be anchors all around you, slowing you down. Click To Tweet

On the other side of that, what is the worst investment that you've ever made?

The worst investment was in an ice cream business. It was the second location of a franchise brand of ice cream business. The first location seemed to be going well, so I invested in the second one. It was awful and painful every step of the way. The lessons I learned from that was one, I didn't have the ability to step in and take over and run the investment. I'd want that ability in the future or at least ability to help in ways that I could with my team. Also, investing only. We've really tried it through operators with a seven-year track record hopefully or longer that have met substantial success and are doing $1 million plus in revenue and not a group that just started one location. To watch out for warning signs early on that somebody who's not experienced as a business person for some things that you shouldn't have to explain. If it’s somebody's first time running a business, then they don’t know the very basics and they’re burning your money for their diploma.

My favorite question and this is a question I ask at the end of every show, what is the most important lesson you've learned in investing?

The most important thing I've learned in investing is also the most important thing for running a family office or raising capital and for personal life. That's all one thing. It's integrity or making sure that everything is integrated, not just moral integrity. That's good to have as well, but the other 500 things that are going on in your life. What you had for dinner, is that aligned with who you're trying to be? Who are you meeting with tomorrow? What emails are you spending time answering? What are you putting out in the marketplace? Is that aligned and integrated with what family offices want? Is that aligned with what's going to make you stand out and be unique in the marketplace?

If you have people on your teams that are not aligned with their culture or you are working with partners not aligned with your own morals or ethics, then things are going to be anchors all around you, slowing you down, making life unpleasant and slow to make progress in. If you move from Portland, Oregon to where I live on the island of Key Biscayne in Miami, then things become more aligned and things started going better. The more that a family office, a capital raiser or any individual can align all the variables in our life to all be pointed in the same direction, the more momentum you’ll get because there’s harmony among all the moving pieces instead of things clashing against each other constantly.

The mentality of how you do anything is how you do everything. That makes a lot of sense. You have your thought leadership platform that we touched on. You have a great podcast. Would you like to tell everyone about that?

It's called the Family Office Podcast and a little bit of our event content and some quick notes from me on there. If you're interested in raising capital, we have CapitalRaising.com, a free 80-page book that takes an hour or two to get through. If you enjoy that, we have ten live workshops on capital raising. We do it all over the US as well as London, Toronto, Singapore that you might want to check out. Those are on FamilyOffices.com. Family offices is a brand-new concept. If you're still not sure what we're talking about, I hope everyone has understood that it's not running an office out of somebody's home. It's serving the ultra-wealthy. If you do want to dig in more and learn all about the space and it sounds exciting to you, we've got a free book on FamilyOffices.com. We've got tons of stuff on YouTube for free. Our whole model is just to give away as much as we can at no cost. Things always come around and we make business friends that way. We help people out years before they do business with us. That seems to be working well for us.

If folks want to get in touch with you to ask follow-up questions, what's the best place for them to reach out?

The best way is to email me directly at [email protected]. To be honest with you, I get so many incoming messages that there will be some messages that I will reply to because I can help you and it's a quick response. If it's something more in detail or I need to get on the phone to understand what we do, then I'll be connecting you with one of the eighteen people on my team.

Thank you very much for joining us. I certainly encourage you to check out Richard's podcast. It's a great listen and the folks that are there are just absolute killers. People that are major power players and made fortunes originally, making big moves on Wall Street or founding a huge business and doing very well, having an awesome liquidity event and then getting into the family office space. I highly recommended you to check out the website. For now, thank you for reading. If you're enjoying the show, please leave us a five-star rating on iTunes and subscribe wherever you get your podcasts. Take care.

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About Richard Wilson

PWS 33 | Family Offices Wealth StrategiesRichard C. Wilson helps $100M+ net worth families create and manage their single-family offices and currently manages 14 clients including mandates with three billionaire families and as the CEO of a $500M+ single family office and Head of Direct Investments for another with $200M+ in assets. The Wilson Holding Company is also the exclusive wine importer and a wine brand representative for Hofkellerei des Fursten Von Liechtenstein, the 600-year-old vineyard owned by the princely family of Liechtenstein.

Richard is author of the #1 bestselling book in the family office industry, The Single Family Office: Creating, Operating, and Managing the Investments of a Single Family Office and a recently released book called How to Start a Family Office: Blueprints for Setting Up Your Single Family Office. Richard has his undergraduate degree from Oregon State University, his M.B.A. from University of Portland, and has studied master’s level psychology through Harvard’s ALM program while previously residing in Boston. Richard currently resides 10 minutes from downtown Miami on the island of Key Biscayne, Florida with his wife and three daughters.

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About Taylor

I am a real estate investor, syndicator, and host of the Passive Wealth Strategies for Busy Professionals Podcast.

I started the show because I realized that the typical “skip that $3 latte once a week” financial advice does not produce the life of abundance that so many Busy Professionals desire.

We’re here to learn how to live at a higher level.

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