How A Family Office Should Put Investment Managers To The Test

Tom Burroughes

14 October 2013

(Editor's note: I have been reviewing a book, Family Wealth Management: Seven Imperatives For Successful Investing in The New World Order; the book is written by Mark Haynes Daniell and Tom McCullough and published by Wiley. I intend to write a full report on my thoughts in a few days’ time. For now, as a taster of the thoroughness and all-round excellence of this book, here is a checklist for a family office in what to ask any prospective investment manager. I would argue that this is about the most thorough such checklist I have seen. Any family office that does this is doing its beneficiaries a favour and I will be most interested to know from readers if this list is exhaustive.)

Sample Questions To Ask Investment Managers:

Outline any significant developments that have occurred within your firm in the past year (ownership, company direction, personnel, etc).

What percentage of the firm is currently owned by employees? If less than 100 per cent, who owns the remainder?

Have any additional steps been put in place to ensure the firm’s continuity (succession planning)?

Indicate what your future plans may be, involving both investment management and other business activities (business plan projections, asset/regional growth plans, organic growth vs merger, etc).

Indicate the details of any new investment services, products, or mandates an investor has or plans to introduce.

Do you have any plans to cap the firm’s growth in terms of total assets, total number of clients, or total assets in a particular mandate? If yes, please explain.

What areas of your business do you see growing over the next five years (institutional, private client, funds, etc)?

Has your firm or any employee been involved in any legal actions and/or sanctioned by any regulatory body in the past year? If yes, please provide details.

Has your firm been audited by regulators over the past year? If yes, please provide a copy of the audit.

Indicate the number of professionals, with additions/deletions over the past five years (please provide an organisational flowchart).

List names, positions held, and dates of all personnel departures in the past year.

Have there been significant changes to your compensation structure?

What is the approximate market value of the total assets managed by your firm?

Please provide the breakdown of the number of accounts gained and lost during the past year.

Have there been any significant changes to your investment philosophy/process in the past year? Are there any pending changes?

Provide the names and titles for all members of the investment policy and strategy committee.

Please provide a copy of your most current version of the following documents:

Firm’s regulatory-related policies

Certification of compliance letter

Are your performance numbers CFA Institute compliant and audited for last year? If yes, please provide a copy of the audited results.