Transcript

Matt Heine (MH):
In this episode, I chat to Richard Milroy, founder and director of Private Wealth Network who specialises in family office and high-net-worth individuals. We explore the characteristics of family offices, the importance of governance and structures, and the gaps and opportunities available to advice firms servicing this sector. As always, I hope you enjoy the show. Richard, welcome to the show.

Richard Milroy (RM):
Thanks, Matt. Nice to be here. Nice to see you.

MH:
I'm really looking forward to our discussion today. We've got some great topics to cover, but I thought before we get into it, it would be great just to give a little bit of background to yourself if possible.

RM:
Sure. What do you want to know?

MH:
Why don't we go a little way back but not all the way back?

RM:
Okay, sure. Let's say a little way back. I came to Australia from the UK 20 odd years ago. That's quite a long way back. I'm Irish originally. My intention in my working life was to be a journalist, if go right back. And in fact, my first job was in a newspaper in France, in Paris of all places. At the Herald Tribune in Paris. But I quickly got sort of dis-amused of the idea of being a journalist, because A) I met a few of them and B) it wasn't something I was capable of doing. It wasn't what I thought it would be, and it wasn't to my strengths.

MH:
And were you speaking French at the time?

RM:
Yeah. I speak French and German, and that's kind of why I was in France. I was working in the publishing part of the newspaper on all those subscriptions and what they call the [foreign language 00:02:39]. So, the distribution of the newspaper. So, then I worked in special projects and the promotion of the newspaper and so on. Yeah, I had to speak three languages for that job, and that was going way back.

And then for some reason, I got into publishing through that, then in London subsequently. Again, more the advertising sales, publishing business side of it. That, for various reasons, was a bit unsatisfying. I got a job with a conference production company, specialising in finance, hedge funds, things I knew nothing about at the time. This is in the mid, late '90s. And it was an Australian-owned business, AIC. Owned by a guy called Tony Steele that some of the Sydney listeners might know of. Anyway, Tony was an Australian from Sydney and had this global business, and I worked for it. I ended up getting the transfer to Sydney and that's how I ended up in Australia.

MH:
Fantastic. And I've heard you say before that one of the companies you started when you got to Australia was one that you're actually very proud of and wish you'd stayed in, but equally that you've done a great job with your new company, PWN.

RM:
Yeah. As I said, I was sort of one of these conference organising people. I quickly decided this was not ... I always had this feeling that I wanted to work for myself. Yeah. I think it was more issues I had with authority when I was younger as much as anything else. I wanted to set up on myself.

As soon as I saw that opportunity, I did. I think I was 29. I set up a business again with a guy called Paul Resnick that many people listening to this might be familiar with, Resnick Communications. And I was actually the main shareholder of that, set that up in January 2000. I was just 29 years old. It flew. It was very, very successful. Lots of IFAs, independent financial advisers. Really interesting crowd would come along to those conferences, and we ended up doing eights of them and CPD points attached and it sort of morphed into something like a CPD financial education business.

MH:
That was actually when I started in the industry. And I remember going to those conferences vividly.

RM:
Yeah, right. Did you go on any of the cruises? You would have been in Melbourne rather than Sydney, do you?

MH:
No. We came up to Sydney quite often. I remember the conferences would always finish with a good cruise around the Sydney Harbour, which is a great fun.

RM:
Yeah, that's right. The very first time we did that, we scheduled it for four hours. You can imagine how that ended up. We realised maybe a little bit shorter was better. That was hugely successful.

My family aren't in business. I didn't have sort of a business background at all, and perhaps didn't realise just how successful it was. I think that's what I was alluding to, Matt. It grew really quickly over a couple of years. Someone came along and offered to buy it and sort of take us out, and I just jumped at that opportunity. It never occurred to me that maybe I should stick with it a bit longer.

I was only 32. As I said, I didn't really have a business background at the time. And it was a good offer, to be fair. That was Tribeca. Some people might remember them got taken over by Kaplan. So, it got morphed into and I think over time just sort of disappeared into the corners of that business somewhere.

MH:
There'd definitely be a few people and a few listeners that would remember all of those brands. They were good times and, obviously, a critical juncture in the industry.

RM:
You were just starting out, right?

MH:
Indeed.

RM:
If I remember rightly, so was I. I think actually one of the very first conferences we did, your dad was a speaker at was on property syndicates. Julius Coleman and all these guys who were loving doing property syndication.

MH:
Correct. That's going back a long time. Having sold to Tribeca, how did you come up with the next idea? What was the thought process when you were looking at the market and sort of thinking about, "Well, what do I do next? I've built these skills, where are the opportunities?"

RM:
Yeah. I didn't really consider myself a finance specialist. I consider myself almost a media person. I felt that my skills and what I was good at was sort of picking trends in different markets. The next thing we did actually was ... Now, people might call it a social enterprise because it never made any money, but it was a sustainability network called Three Pillars Network. I was always interested in that area. Now, it's become massive.

I was always interested in that whole area around sustainability, and climate change, and social impact, and all those things. I didn't want to preach to anyone, but I always just felt it was the future, and I think that was right I can say now. That was a fantastic network, and I still work with some people who my wife and I worked on that together and still work together. And there were others working at PWN who were involved in that.

MH:
What year was that?

RM:
That was sort of 20. I finished and earned that in 2004. I did a couple of other things 2005, and we started early 2006 with that to about 2009. I mean, look, the brand sort of still exists. We did an event with it a couple of years ago, but the time when we were just focused on that was 2006 to 2009, 2010. As I said, it was super interesting. We did big conferences about food sustainability, and food systems, and all sorts of interesting topics, but it was very hard to make a buck doing that.

MH:

And Richard, given that it was 2009, 2010, ethical investing, ESG investing, sustainability, that would have been miles off anyone's radar. What sort of people were attending at the time?

RM:

Yeah. It wasn't just investment people or finance people at all. It was people from government, local governments. Like the food thing, it was Woolworths, and Coles, and various businesses, and scientists and all sorts, investors. It really was.

What was most interesting about that organisation was just a range of people. It was just fascinating stuff. Yeah, it was kind of before ... I mean, look, there was definitely ... I've done conferences in ethical investment way before with Resnick. We've done that way, way before. ESG had always been around particularly in pension funds and institutional investment, but it was just slowly, slowly growing not really on the mainstream radar as you say. So, those conferences, though, they were for all sorts of different people in the ecosystem, if you want to call it that. It wasn't just investment, finance people.

MH:

Because I remember specifically attending a conference, I think it might have been an RIAA conference at the time. And one of the big industry funds had just surveyed all of their members and said, "Would you invest into ethical options?" And the response was overwhelmingly yes. Six months later, having gone to the effort of actually putting in place a number of different options for their members to take up was less than 1%, so there was still a huge disconnect between what people were asking for, what people are understanding, the take up.

RM:

Absolutely. Look, the Ethical Investment Association, what became the RIAA, I've got a picture on my wall. The very first conference, which I organised, their very first conference when they had like five members or something. It was in April of 2000. We did a survey with KPMG. I wonder if this is the same one.

We commissioned a survey and 78% of people said they would definitely take the ESG choice in their super if they had that option. So, then exactly as you just described, people then ... Super funds at the time all went and implemented that, and then no one took it up. There's a name for that, which I've subsequently found out. That's called the behaviour gap in social science. What people say they want and what they're ...

They say what you want them to say, or we all do this. I say they, we. We say what we think people want us to say or what they want to hear, or what we think is the good thing to say to make ourselves look good or feel good. But then when it comes to actually actioning it, that's something else.

MH:

I might come back to that, because that's an interesting topic that I hadn't expected to explore, but I think it's so pertinent to so many things that we do in this industry.

RM:

Absolutely. I mean, behaviour is massive. We did a conference with Three Pillars. This was probably one of biggest learnings in those years with Three Pillars Network. We did a conference call behaviour change. It went into detail. We did three years of that. I mean as you can imagine, we made no ... We basically funded that - we lost money on it, but it was fascinating like why we all do the things we do. There's no way more than in finance investment. It's so based on a kind of fear, and greed, and all those things - so that sometimes what we think is rational, really isn't.

MH:

And presumably, it was through that period that Paul Resnick decided to start up FinaMetrica, was it? He was profiling the ultimate in the behaviour gap.

RM:

Absolutely. A lot of my interest in these topics really came from Paul. I should credit him. He got me really interested in money and what money means to people, and what wealth is, and the psychology, and how people connect with it. All those really interesting topics under the surface that I think for most of us who work in the financial services industry, you don't really get a lot of time to think about those things, but they're really pertinent like you say.

MH:

That's probably a good segue into what you're currently doing. You run a very successful and a very significant network called PWN or the Private Wealth Network, which specialises in family offices, high-net-worth individuals. How did you make the leap and how did you end up servicing that part of the market, which is pretty tough?

RM:

Yeah. I'd love to say it was a great strategic plan move, but it really wasn't. It was a combination of things over years. I mean, what we just talked about. My interest in the broader aspects around money and wealth.

I’d come across family offices way, way back in London in the late '90s, so I kind of knew what family offices were as a concept. I had worked in and around philanthropy with Three Pillars, so I've been connected to some of the big Melbourne-based foundations in particular, The Myer Foundation and others who were working in social areas.

Actually, it was a conference that we had on the side almost, family office conference, family office congress, which originally we organised - in 2008 was the very first year of it. Originally, we organised it for advisers. But the combination of the content we had, there was a lot about psychology. There was a lot about philanthropy and social things, as well as investments. There was stuff about family dynamics in the conference.

I remember the very first year, quite a lot of families turned up and we hadn't expected them and we weren't targeting them. We thought it was more for the industry if you like. I guess we cottoned on pretty quick. "Oh, looks like a lot of families need to find out more and they need a network. They need others to talk to about some of these issues." That's where it came from.

 

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MH:

And then at what point did you decide you would focus just on the families and not the advisers?

RM:

Yeah. Over time. I've had a lot more history with the advisers. I had some philanthropy work that I've done with different families. Over time, it just sort of evolved. It was actually the advisers started ... We started doing other lunches and side things around this conference and the conference got bigger over a couple of years.

Actually, many of the advisers said to us, "Look, I think ..." I'm not making this up. They would say to us, "Look, I think this is more relevant for our clients than for us." The really good advisers would say that.

In 2012, four years after the first time we did the conference, I got together with my now business partner, Alan Duncan, who really understood membership networks probably better than I did and the dynamics of a membership organisation. He'd worked at The Economist Group and other places running a CEO forum, running membership organisations, or being involved in those. So, we got together and developed it as a membership group, and it went from there. And as you say, it's not easy. It took a long time to build up the members. Yeah, it's been an amazing journey.

MH:

So, we might come back to PWN in a moment, but just for the listeners. How do you define a high-net-worth individual versus a family office? And what are some of the characteristics that link them?

RM:

It's an interesting question. The first thing I would say is a lot of these definitions can be difficult, misleading, or used for the wrong reasons, like used for marketing rather than for the family in question.

The difference between high-net-worth individual and family office wealth? I mean, most of the family members where there is a family office will be high-net-worth individuals. I think often people perceive it as a difference in size and scale. My view is a bit more nuanced than that. I mean, people are people. From what I've seen of families where there's significant wealth, there are so many contradictory things that don't quite sit right with these definitions.

For example, oftentimes, an entrepreneur has maybe made $30 or $40 million in the business, so it's a very significant wealth and that money is their own, and they do what they please with it. And that's a very different scenario to a third or fourth to generation family office, where you've got responsibilities with cousins and governance.

It's not like people are walking around with a billion dollars in their pocket. Whereas your entrepreneur who's made 30 or 40 million and just sold a company. He kind of is walking around with 30, 40 million. I think these things are very nuanced. The family office often is not always, but sometimes it's set up almost to block the family members from getting to the wealth.

Sometimes, and not always, but sometimes, family members may not feel that well disposed to the concept of the family office. Sometimes that's not the case, sometimes I think it's great. Sometimes, I've met individuals from very, very wealthy families where the individual has no money.

On one occasion, someone I knew through PWN, whenever we would visit Sydney, I literally had to lend him 50 bucks a couple of times. I mean, ridiculous, but true. The family would be worth... I mean, it's a European family, but the family on paper is worth a billion dollars or something ridiculous.

So, go figure. Sorry. That's a waffly answer, Matt. What I would say is resist the definitions, because people are people at the end of the day and probably the relationship with the individual person or the family as a group of individuals is more important than trying to sort of define them as a high-net-worth or a family office or whatever.

MH:

I think that's a great answer. And again, maybe on a more technical front. Australia, a couple of 100 years old, doesn't have the legacy of many of the European family offices or the American family offices. What are the most common structures you're seeing in Australia when it comes to the establishment and running of a family office?

​A lot of what I see is first to second to third generation. So, the relatively early stage of setting up a family office. I think it depends a little bit what you mean by structures. It's hard to even say typically. There's a phrase, “you've seen one family office, you've seen one family office”. But if I'm going to say typically, there might be a pool of family wealth that has a legacy of a founder who's passed maybe, or is very old. And then there may be different branches of the family, three or four branches with cousins who may individually get distributions or not. So, they themselves may have their own personal wealth associated with the family.

In terms of structures, I think typically once you start to think of governing family wealth where you've got cousins and intergenerational wealth, I think the key things is a governance system rather than the governance structure. So, not a set of written rules, which I would characterise as a structure, but rather a system.

We meet every quarter. Our investment committee meets. We have a couple of external people on that investment committee. We have a family board and that meets twice a year or four times a year. And again, we might have an external person on that.

Once a year, we'll have a family meeting and we may have a day of that meeting where we invite spouses and in-laws along. More of a system and informal rules. I hesitate because every family is different, but I think a system and informal rules works better in that family context than kind of laying down the law in some legal document. Be very wary of sort of legal charges and constitutions, I think.

You've often talked about sort of governance and structures. And I think that's a great explanation. Is the reason for putting that in place in the first place to avoid disagreement? Or is it to create a more harmonious family unit? What are the reasons that people go down that path? Because it is a lot of work.

RM:

Yeah. Conflict in families is just a natural thing, it happens. And where there's a lot of ownership and wealth issues between brothers, and sisters, and cousins, and aunties, and uncles. It can flare up into a bigger issue and can go on for longer. Lawyers get involved, et cetera, et cetera.

So, I think conflict is normal. And the concept of even avoiding conflict in families is probably impossible. It's more about how do you manage it, and then how do we all agree and accept the way we make decisions.

I've seen very, very often where there's ... Very often. You could almost say always when it gets to cousins, there's always some family members who just don't really want to be involved in the family wealth. They've got other things to do. That's very, very common, but those people need to accept the decision making processes and need to have some sort of involvement.

Otherwise, I think that's where conflict can happen is, "Oh, you've just gone and lost this money on that. You never told us you were going to do that." Simple stuff. "Oh, but I did tell you, you just didn't listen." "Yeah, but you said it was a low risk thing." "Well, it was a low risk thing, it just didn't work, et cetera."

So, that's where conflicts can happen, or it might be like, "Well, granddad said that I could have this building or he told me we weren't going to sell this, but you said that ..." "Oh, no, you told me something else. And mom says this and blah-blah-blah." It's classic family stuff really. I don't know if that's making sense, Matt, but ...

MH:

No, it is. A good quote I think at one of your conferences historically that the CEO of a family office is actually the chief emotional officer. So many of the things do occur, deeply emotional for family members, which leads me to my next question. What are some of the services that PWN ... How do you service the community? Why do people sign up in the first place and why do they keep coming back?

RM:

Yeah. Good question. Took me a while to work it out itself, I must say. I think fundamentally, it's almost the support network for a group of people who, at the end of the day, have got an unusual set of fairly challenging circumstances.

Now, obviously, there's lots of great things about having wealth and money in the family, lots of opportunities and so on, but it's also a lot of challenging, difficult things, and it can be isolating. People can feel a bit lonely with those problems. So, I think fundamentally, we've been able to connect with a group of people who are nonjudgmental about that and share some of those issues or sympathise with some of those issues is very, very powerful for people in that situation. I think that's number one reason fundamentally.

And then you can sort of look at that a bit more closely and say, "Well, then they learn off each other. How do you do governance? What do you do if there's a bit of a spat in the family? How do you avoid big fights? And then how do you do your investments? Where do you get your deal flow from? Who do you use an adviser for your impact investing?" All those type of things. "What about your philanthropy? I don't just want to throw money down the drain. How do we know if it's working?" All those sort of questions that the families will want answers from.

I think often, they can be wary of advice, because there's so many people offering advice. Lawyers, accountants, investment advisers, et cetera. And everyone has got the greatest idea of what you should do with your money sort of thing. So, oftentimes, they can be wary that there's a hidden agenda with sort of impartial advice. And so, speaking to a group of peers can be very, very helpful.

MH:

When it does come to professional servicing high-net-worth and family office clients, what are some of these services that are needed? And how are the advice firms that are doing it well doing it?

RM:

Yeah, I think there's definitely some gaps in the market for advice for sort of ultra high-net-worth family office, family members. We get quite often, if you know anyone can help us with this ... So, let's just look at investments, for example. Oftentimes, you have a family member who's got a portfolio that might be quite a sudden money that's come through inheritance or the sale of something, and it might be 10, or 20, or 30 million bucks and they're trying to deal with it. This is probably a smaller end where there isn't a big family office set up necessarily.

I've had a number of times, I just can't find an adviser that will just give me some asset allocation advice without it being tied to products. I can't find an adviser that I can just bounce ideas off. I think often, people where you've significant assets like that, more significant assets, they want sort of a partnership. They've got their own network. They want to be able to show things to advisers and say, "What do you think of this?" And they don't want the, "Oh, well, I'm sorry. We can't recommend that response." They want to know what you think of it.

In investments, that can be a bit hard to find. The things that are often lacking as well is just the human part that we talked about before. So, the governance, what you might characterise as the soft skills, the chief emotional officer stuff. The financial advice industry is primarily set up in lots of legal issues in the background, lots of compliance issues. Often, the offering can be a bit limited by those compliance issues. Where the individual in question, again, might want more of a partnership, more of a consulting type approach.

There are some asset consultants who've tried to offer that at a smaller scale for family members and family offices, but there is definitely a bit of a gap between sort of retail and institutional where there's perhaps a bit of a lack of advice. There are some good ones who focus on it, mutual trusts, plenty of others actually, who do a good job, but each of them has a slightly different focus.

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MH:

We're starting to see some interesting business models emerge around intergenerational wealth transfer. And particularly within that sort of high-net-worth space, how advisers can help with the younger generations. Are you seeing much in that space that you think is interesting or inspiring?

RM:

Yes. We've been trying to cater for younger family members. PWN has, over the years ... And as we get older, it gets tricky. Younger teams do that. We're doing that. Some of the advice firms have done a good job. I think of bringing younger family members together, trying to engage with them.

I mean, if I could be really blunt, Matt, I think the fundamental problem is, who is paying for the advice, whether it's legal advice, camping advice. It's often the older person who is the owner. It's a bit like the estate planning conundrum. The person who makes the plans isn't there when the plans have to be enacted. So, it's often an older person that has the client adviser relationship. And so, the adviser is unsurprisingly having to respond to them.

Whereas if you think that next generation might have a very different set of preferences. I mean, good example, I had one recently. This is a third to fourth generation family. I remember just hearing a story about them.

The older generation actually have been very entrepreneurial, had lots of business investments. The younger generation didn't want to do that. They didn't want to be sitting on boards with these businesses. They had a whole different set of interests around philanthropy and impact investing, and actually venture capital. It's different.

The guy, the CEO at the time had been working for them for 20 years or something and saying he was trying to convince the older generation just to sell out everything and let the younger generation just reinvest completely from scratch. Again, I'm not sure if that's answering your question, I tend to ramble on about this. What have you seen?

MH:

We're seeing all sorts of different models at the moment. Education seems to be a key element that underpins. So, where possible, and as you said early on in the piece, not everyone is going to be interested in learning how to invest or to be involved in the family wealth in the next generation, but where they are, it starts with education.

We're seeing some firms setting up sort of robo services to give them a taste of investing without necessarily having to worry about their compliance overheads that you touched on. It's going to be a huge focus, and we are now at a point where the Gen X and millennials are getting older and that wealth transfer is going to start coming through. So, it's an interesting area that I think firms operating in that space do need to think about and get their heads around.

RM:

Yeah. And PWN does quite a bit of educational oriented stuff, which is often attended by younger people and some others. I mean, again, mutual trust and the likes. I think they've been quite good at that. Yeah.

MH:

But finding new ways to educate. I think the days of sitting in a lecture for two and a half hours are probably behind us. So, it needs to be more interactive and immersive learning where possible.

RM:

Yes. I was just thinking the same thing. I mean, we found that with that younger group and that ... Look, I felt the same way. Having someone stand up and lecture for two or three hours is not necessarily what you want. You want to be able to learn in groups with your friends or with your peers and ask questions maybe if that older sort of wise person get responses. Maybe hear some short presentation from them, but you want to be able who interact and learn as a group as well.

MH:

Richard, we're going to run out of time any minute now, but before you go, you've had an interesting couple of years for a membership group. Obviously, you've had to run forums and events virtually like everyone else. How are your members feeling about the next 12 to 24 months? Is there a sense of optimism as the world reawakens?

RM:

Yes, I think so. Like with everyone, I think there's a sense of apprehension about what's going to happen next, whether that be in the business world, in investing, in their philanthropy. It's been an awful lot of ups and downs in that area and in the arts and climate change and all these different causes in the last two years as well. So, I think people are feeling a sense of apprehension, but I think there's a general feeling of optimism. Yes. Yeah. Opportunities ahead.

MH:

Excellent. No doubt you're looking forward to having that first face to face event and a dinner and a nice glass of red.

RM:

We are. And I think we've got one on in Melbourne tomorrow, or in a couple of days, Matt, which I think we might be at.

MH:

I look forward to it. Richard, as always, thank you for your insights. It's been a great chat and look forward to catching up soon.

RM:

Thank you, Matt. Thanks for doing the interview. Cheers. Bye.