Interview with Nicholas Warr
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This interview touches on in-house vs. outsourced legal counsel, choice of jurisdiction, insight into interfaces between legal advisors and family offices and the value of soft skills.
This interview was conducted by Steven Sidore.
Your firm provides a program of legal services for ultra high net worth families and individuals. From your standpoint, at what point is it worthwhile for a family office to maintain their legal counsel in house and at what point does it make sense to take advantage of external resources like yours?
Nicholas Warr: I don’t think the point relates to a monetary sum. It’s more the complexity of the investments coupled with other factors, such as whether there’s still a legacy family business involved. It also depends on what the daily legal needs are and how much assistance they need in managing external legal relationships. If you’ve got a complex trading business, then there may be a number of legal relationships that need managing, and it’s helpful and more efficient to have that managed by an internal person.
For example, a large portion of what I do—my day job, so to speak—is the internal constructs of the family office. That involves arranging ownership structures and how they govern the behaviors of individuals, which is normally transmitted via family governance instruments such as a family charter or family constitution.
When you’re giving advice to a family office, how do you advise them in terms of where to establish their jurisdiction? Does it matter particularly?
NW: Again this depends on a number of factors. One: is there a legacy family business that is operating? Secondly: if there is already a core of expertise, where is that situated? Thirdly: tax implications of both the office itself and the family members.
It’s not as though there’s a one-size-fits-all-solution. To the contrary, one must appreciate that the family office is a very, very broad church and it means different things to different people.
How do you channel clients towards the appropriate resource levels?
NW: First, we need to determine what their motivations are and what the aims are for the family office. Is this something that they’ve thought through and require i.e. do they require a multi-generational structure or merely to meet the needs of that immediate generation? You’d think it would always be the former, but you’d be amazed how often it is the latter.
Once you have established the real requirement, we can then properly look at how to resource it. This could range from hiring a comprehensive team deployed to manage the day to day trading businesses, to an individual/individuals with the skills to apply in-depth quantitative analysis on external investments, right through to a person employed to simply support the family’s day-to-day needs.
How do you normally interact with a family office?
Are you typically consulting with the family officer, or presenting directly to the family itself?
NW: This really does vary according to the location and size of the family office and how sophisticated it is. For example, if the family office is very sophisticated and headquartered in London, I would tend to speak with the MD almost every morning. This would serve as an ongoing review of the projects we’ve got on the go at any one time, which is continually evolving. I would then meet with the principals probably once a month and the whole family once a quarter. That’s one end of the spectrum.
At the other end could be a family located in the Middle East, in this situation I would meet the principal more often but only communicate with the family office once per quarter.
And then somewhere in between is a family office that works with us only on a project-by-project basis, as we are one of a number of legal firms who this particular family office uses. They mix and match depending on what their legal requirements are.
So, for example, one day we’ll be asked to advise them on a transaction and then hear nothing for months, and then we’ll get an instruction on, say, a reputation management project.
During the establishment of a new family office, which areas are most likely to produce problems, from your legal standpoint?
NW: Problems are most likely to arise if the thought process behind the creation of a family office is not done thoroughly enough. By that I mean where someone has met someone else and decided they need a family office, they then set out in a direction to create one and this may not be the right solution to their needs.
When this happens, not enough up-front analysis is done on the cost/benefit analysis. For example, hiring a large team of highly paid and highly skilled investment individuals is not necessarily required if the family just has an operating businesses making widgets. This is a complete mis-deployment of human capital and financial resource.
Do soft skills play a major factor for legal advisors to family offices?
NW: I think as far as the daily interactions are concerned, there’s got to be a large amount of EQ as there are interesting dynamics in all families which need to be navigated carefully. It is also about actually identifying what the family really needs, which requires a lot of listening, a lot of refining and testing, because sometimes they don’t know what they want.