Interview with Leslie Voth
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This wide-ranging interview touches on the genesis of the multi-family office, promoting family cohesiveness and the qualities of effective family office advisors.
This interview was conducted by Peter Preller.
Did your company begin as a single or a multi-family office?
Leslie Voth: Our firm’s roots are as a single family office that was established in 1923 by the Pitcairn family. The family patriarch, John Pitcairn, was a Scottish-born American industrialist who was a contemporary of John D. Rockefeller and Andrew Carnegie. He worked his way up through the ranks of the railroad industry, later becoming a serial entrepreneur and investor in real estate, oil and gas, and other private ventures. Most notably, he was the co-founder of Pittsburgh Plate Glass Company (today, known as PPG Industries).
John Pitcairn passed away in 1916 and without much structure around his wealth. His three sons, Raymond, Theodore and Harold, inherited a complex pool of investments. At that time, each son had their own advisors and shared interests in the family business, trusts, and other investments. The eldest brother, Raymond, knowing there was a better way to manage their wealth and advisors, convinced his younger brothers to pool their assets and form a private holding company, today known as a family office.
So, this was a rudimentary family office?
LV: They didn’t even know the words ‘family office’ back then, but they were really focused on: how do we continue to grow this wealth and sustain it. They saw value in bringing their own advisors under one roof to work together on behalf of the family.
That’s the heart of the family office industry. Back then, the families who recognized the benefit of centralizing their resources found that they experienced better results, because things were better coordinated with respect to issues ranging from the family business to investments, legal and tax planning to personal spending needs. They really benefited from having a more diversified team around them that not only could do the work, but who could also understand all the moving pieces.
What happened as the family grew?
LV: The Pitcairn family office remained a single family office (SFO) for the next 60 years, planning for the third and fourth generations. By the 1980s, there were over 30 households to serve, which made the SFO feel more like a multi-family office.
Each household had different needs and objectives, but what held them together was the pooling of their investments in one entity that was managed in a cohesive way. They all benefitted from that. They had 60 years of terrific success.
Did they retain the legacy operating business?
LV: For some time, yes, but as the family grew, they needed more liquidity. So ultimately the Pitcairn family began to diversify away from that concentrated holding, eventually selling all of their stake in PPG in 1986. As a result, they liquidated the holding company, distributing the cash out to all the investors, trusts, partnerships, charities, and entities that they’d created.
So, there’s the cash event. What next?
LV: The family recognized that there was a new business opportunity on the horizon. In 1987, they changed their legal structure and became a private trust company, regulated by the Commonwealth of Pennsylvania Department of Banking. This new legal structure would allow Pitcairn to provide family office services to other families.
And that was the genesis of the multi-family office?
LV: Yes, they spent some time trying to figure out the new business model. They decided that they would only offer investment services to the new families. But the new families that were coming to Pitcairn said: “We can get investment advice anywhere. What we can’t get is this great planning that you’ve done for your family and the implementation of that.”
They didn’t know how to charge for these new services at first. There wasn’t a lot of flat fee pricing at that time to compare with and for us to say, “For $200,000 a year, this service contract, we’ll do the following things.” That just wasn’t something that was standard practice back then.
There was a lot of emphasis on investments initially. But as we’ve learned over time, investments are not the only thing these families need to do well to ensure that they successfully transfer wealth to the next generation.
And as the single family office transitioned to the multi-family office structure, some family members wanted to go their own way. The family leadership offered them the option to either remain with the family office or do their own thing.
What impact did this have?
LV: Over time, we’ve served fewer and fewer Pitcairn family members in the family office. We’ve found that as the wealth has moved to the fourth, fifth and, now sixth generations, not all family members want the full offerings of the family office and they prefer to do things more independently.
This wasn’t part of the governance structure?
LV: It was new thinking, because back when they built the office, everybody did everything together and you were bound together legally. The idea of breaking that up, or changing it, wasn’t really anticipated.
One of the things that I’ve learned from being the leader of this office is that families need to be flexible because things change, and the next generation may want to carve a different path. The previous generation may or may not even know what that next generation wants to do or not do with respect to the business, or the wealth, or the family office.
That’s why it’s so important to always include the next generation early enough to get their thoughts and desires on the table. As we moved through the Pitcairn family generationally, the firm learned a lot of these lessons. Giving family members the ability to leave the family office structure was a positive learning opportunity.
How do you manage the dynamics of keeping the family together? Each generation potentially has different views, different advisors and friends and different ideas.
LV: This is a really big philosophical issue that a family needs to consider. Some families are healthy and absolutely wired to stay together, and that’s how they think about it from the very beginning. Other families might not have the characteristics that lend themselves to making collective long-term decisions. That’s where a lot of families lose momentum. Advisors need to be able to identify these issues and try to help the families work through it.
If your goal is to keep the family together, then you really need to spend time and effort and be very intentional about doing that. And I think advisors in the United States have let families down in that area. Many advisors draw a very, very strong line. They say, “We’re financial advisors, we are not helping them on the family side, it’s not our thing, we’re not skilled at that. We’re only going to run the money.”
But if you look at it, it’s the family issues that derail financial sustainability over time—advisors shouldn’t become psychologists, but you have to be aware and be able to advise a family when they are having interpersonal issues.
Is it possible to promote ‘effective behaviors’ in this area?
LV: Sometimes we have this discussion with families directly, and they’re open to that. Other times, we plant seeds and help them build out a multi-year strategy. It’s very similar to what you would ask for a business transition: “What’s your strategy for seeing this transition through?”
It takes a long time to make these transitions, or even to know what a successful transition looks like.
And what do you do in the meanwhile?
LV: We try to be more proactive—rather than wait until things aren’t going well. It takes families a lot of time to be intentional about telling the next generation: “We want you to work side-by-side with us, we want you to learn what we’re doing, to see how we make decisions. We want to invite you to come to this meeting with our advisors. We’d love for you to be part of that.” Make it a normal routine.
Families that do that, that find structure, and are disciplined about doing that consistently are successful. It’s all about achieving positive momentum into that next generation. We know because we’ve watched families lose momentum. They totally stall out and sometimes don’t make progress for almost a whole generation.
How do you find talented employees, given that the FO sector is a colorful field with different knowledge—capital markets, legal, tax, personality?
LV: Over the years we’ve changed our view on this. We used to hire specialists—a lawyer, a tax specialist, etc. We built the teams with specialists, which was fine for doing the work and implementing the plans for families.
But specialists often don’t make good relationship managers for multi-generational families. We found we needed more generalists, people with stronger communication skills and a desire to serve families. There’s a service gene that has to be present. We can train other things around that.
That’s fairly ambiguous. Is there something tangible you look for?
LV: We’ve started to train inside our talent pool, starting with our relationship management team. We’ve certainly hired from the outside, but we are very specific about what we’re looking for. We want to find talent that can connect with families on a personal level, someone who demonstrates emotional intelligence. It’s not just about the degrees and certifications. When the family needs support, you need to be able to recognize that and be able to help that family.
That’s a certain skill that has really been lacking in many family offices. The advisors who are helping these families go through these transitions need to be smart individuals, but they don’t need to be the smartest individual in the room. They have to be able to guide the family on their journey—set up the right agenda, facilitate conversations, facilitate conflict, and be organized to positively help that family move down the path.