Jeanie Wyatt didn’t plan to start a family office business within her wealth management firm -- but fate seemed to take her hand.
Wyatt, who was once an investment heavyweight with Cullen/Frost Bankers, Inc., was content for her firm, South Texas Money Management, Ltd., to serve clients whose assets typically fell within the $1 million- to $5-million range. Then, two years ago, one of the firm’s clients announced they were searching for a family office provider -- and wanted STMM to throw its hat into the ring.
“My first thought was, ‘No, that’s not a core competency,” said Wyatt, whose 60-person business manages about $2 billion. “But when you have a family like this approach you with something like that, you have to think seriously about it.”
After the request, STMM hired consultant Family Office Exchange LLC, of Chicago, to evaluate whether an expansion made sense. “They said we should and must do this,” said Wyatt.
Today, STMM has a new, wholly owned family-office subsidiary that has gathered $150 million so far (Wyatt declined to say how much of that that is from the original client, which did end up entrusting their entire net worth to STMM).
Wyatt sees significant growth ahead for the unit, which accepts clients for a minimum annual fee of $500,000. She expects the family office business, along with a growing focus on clients with assets in the $10 million- to $50-million area, to help the firm double its assets over the next three years.
Karen Neal, managing director, consulting with Family Office Exchange, says her business gets “a ton of calls” from advisors and planners who are thinking about expanding into the family office arena.
And, as was the case with STMM, the trigger is usually the fact that a client or clients has asked for such services. Interested firms need to decide whether they’re really prepared to commit to family office, says Neal.
“Firms have to understand that it’s a completely different business model,” she says.
Having the proper skill sets in-house is a major issue, given the complexities of family office. And a dedicated business focusing just on the wealthy families is a must, Neal said: Firms that hope to use the same people to serve family office clients and regular clients are probably kidding themselves.
What’s more, firms won’t be able to coast on their existing technology. They must be ready to provide the high level of reporting and fee transparency, for example, that family-office clients expect.
A final hurdle is that family office relationships are typical less profitable than regular advisory ones until firms gain significant scale -- meaning assets in the billions of dollars, says Neal.
For Wyatt, the family office business is the latest plot twist in a career that’s well into its second act. The Certified Financial Analyst founded STMM in December 2000 after a 23-year stint with Frost.
At the banking company, she headed the unit that later became Frost Investment Advisors. She was also responsible for the investment areas of nine trust departments around the state of Texas, with approximately $13 billion in assets. In addition, she managed the trust department's largest commingled equity fund for 15 years.
While Wyatt enjoyed the experience, she had dreamed since her 20s of having her own firm. Finally, with her son recently graduated from college and her Frost stock having appreciated nicely, Wyatt saw her chance and jumped.
Wyatt’s bosses at Frost were surprised when she announced she was leaving the company, and they offered, in vain, to buy controlling interest in the new firm, she says.
Helping to allay the awkwardness of the break was the fact that STMM tapped Frost as its sole custodian. Though the firm now uses multiple custodians, “we’ve been a very good source of revenue for the bank,” Wyatt said.
STMM’s fortunes have benefited from the investing acumen of Wyatt, who is the firm’s chief investment officer as well as its chief executive. Since its inception on Dec. 31, 2000, the annualized return of STMM’s core strategy has outperformed that of the benchmark S&P 500 by 5.51% to 1.95%.
Wyatt said the firm’s investing strategy focuses on preserving capital with the help of preservation with the help of quantitative models.
“The way you accumulate wealth is to be in a style disciplined (system) where you lose less when the market goes down,” she said.