Joe Reilly:  Any thoughts on where the industry is heading post-endowment model?

Robert Elliott:  I would suggest that it’s not necessarily a post-endowment model – just that there’s more awareness in the investment community of over-committing to alternative assets given their limited liquidity.  Allocations for wealthy families should still include a commitment to illiquid investments, because most families have a long time horizon and can capture the incremental returns from private equity and real estate.  As Swenson and others have noted, the key to alternatives is gaining access to top quartile managers, which many families fail to do.

Joe Reilly:  You have spoken many times on trust in the industry and how to build it with clients and the general public.  Do you think the industry has recovered the trust of its clients since 2008?

Robert Elliott:  Somewhat.  But not entirely.  Wealthy families are longing for trustworthy advisors and some firms have improved transparency and better alignment of interest with their clients. MFOs, as a whole, are benefiting from this trend.  But the continuation of bad conduct hits the news way too regularly to give clients comfort that there has really been a sea change.  Whether its insider trading, LIBOR rate fixing, proprietary trading against a client and other shenanigans, bad practices continue.

There have been some initiatives out there to lend more confidence to investors.  For example, increasing the standard for brokers from suitability to fiduciary would be a big step. But where is that process now?  It’s been six years, and it’s gone nowhere– that doesn’t help.  And even though some investors are asking more questions, the bull market is probably hiding some bad behaviors out there.  So, some trust has been recovered, but not all, and even what’s been recovered feels tenuous.

Ironically, a lot of the regulation we’re seeing that prevents money center banks and wirehouses from proprietary trading is resulting in a greater push toward building their wealth management businesses.  That raises some concern, because too many times we’ve seen the push for profits override good ethics in an industry focused on boosting value for shareholders and management.

Joe Reilly:  Great relationship managers - bred or bought?

Robert Elliott:  I don’t want this to sound like a cop out, but it’s a little of both.  There are a lot of skills that we can teach, but there are some that we can merely hone.  The most important thing is that they need to have a natural interest and curiosity.  Those things can develop, but they generally come from within.  However, we need to then take what was bred and make it fit the culture of our firm and fit with the values of our clients.  And because Market Street has such a distinct, client-centric culture, it’s important for us to bring people along, and prepare them for long careers here.  Wealthy families want long-term relationships with the firm and its people.

Part of that process includes a sort of apprenticeship – matching up a young advisor with someone senior.  But there are also opportunities to find good fits from the outside that bring best practices from their prior firm.

Joe Reilly:  Where do you see the strengths and weaknesses in the current MFO market?

Robert Elliott:  One of the strengths of many multi-family offices is the exclusive focus on wealthy families.  We are very targeted and focused on who we serve.  We also generally have lower staff-to-client ratios and multi-family offices generally take an integrated, holistic wealth-management approach, which is increasingly important as the complexity of clients’ financial and non-financial lives has escalated.

MFOs also, for the most part, are independent of larger firms and don’t have the conflicts that many of them have – MFOs generally do not sell investment products to their clients.  The firm’s goals are a little more closely aligned with their clients, although none more so than Market Street, where we’re actually a shared family office, owned by our clients, so the goal alignment is pure.

Weaknesses are sometimes that multi-family offices are not well understood, and part of that is a lack of marketing and business development.  At the high end of the wealth management spectrum, the private banks have marketing machines, but few family offices develop business through grand marketing programs, so there’s a bit of a lack of visibility.

Part of being smaller and more focused than the private banks means that multi-family offices also are resource-challenged, which is why you see them partnering up on some activities and ventures.

Joe Reilly:  What is the biggest change in the wealth management space that you have observed since you began your career?

Robert Elliott:  Well, one change from the mid-70s is the numbers on client statements have a lot more zeroes.

The biggest changes are related to the evolution of the business itself.  There wasn’t one, until the late 1970s.  There was the trust business, then personal banking, then private banking and then wealth management.  The stronger people in the investment business were focused on institutional clients in the 70s and 80s when little new wealth was being created. The better people went to other parts of the business.

But it’s become a hot area for growth, and resources, training and personnel have improved.  It has grown up tremendously after the lack of education and focus that existed in the 70s and 80s. There have been a number of wealth management programs started in the last several years at major universities around the world, demonstrating this expanded education, the most recent of which was announced the other day that the University of Toronto was starting a wealth management program.

At the same time, though, we’ve seen a big dilution in what the term “wealth management” means.  Many RIAs and even insurance companies use this term to imply a deeper relationship with clients, but don’t really provide full wealth management.