Early warning signs ! Your Family Office advisor is changing tracks and that’s not good news for you.

Conflict of Interest

The biggest step a family takes from becoming a family business to a business family is the setting of a separate Family Office which segregates the family wealth so that it can be managed more professionally and with a proper structure. The next decision that the family has to take is around the challenge of finding talent to help plan for and manage this wealth. The biggest mistakes families make here is to assume that any investment professional with above average experience will be able to make this big shift to managing ‘own’ money.
Depending on the size of the portfolio and what the expectations of the family are the family might choose to take help of external advisors to effectively manage their family office. This choice allows them to take advantage of getting cumulative advice from a ‘team’ of experts, assuming the team has enough experience of exclusively advising many family offices of different shapes an sizes.
The issue arises when the same advisor (or a wealth manager) slowly changes track from being a non-conflicted advisor to finding opportunities to make ‘extra’ income over and above the fee being charged to the clients. This decline in the non-conflict nature and integrity is slow and most time well hidden under various so called client-friendly initiatives. The family office client may be unaware of this slow decline or sometimes may not ask tough questions just so to keep the relationship cordial.

There are some early warning signs which the market experts have witnessed in our industry and once these conflicts start to appear they are like termites and eat away the very foundation of the promise of pure advisory contracted with you:-

1. The advisor starts talking about providing a ‘comfortable value-added platform’ for certain assets by launching its own products: This usually starts with having a brokerage or a managed accounts license (PMS) which forms the basis of providing ‘discretionary’ equity advice. This is usually promoted as a better alternative to allocating all the money to quality fund managers and justifications are artificially created.
The advisor thereby starts to earn extra income by way of either pure brokerage (if only execution is happening) or a combination of brokerage & management fee is some discretion is given to the advisor. This income is usually booked in a different entity as in many jurisdictions this conflict may not be allowed.

2. The Advisor starts constructing its own products: This includes launching its own products more blatantly under the guise of preparing a ‘better product’ with additional advantages. This can take shape of a regulated fund (like an AIF in India), launching a PMS scheme or launching a fund-of-funds product which may either be run on an AIF or a PMS platform.
These provide a more blatant conflict-of interest in cases where the in-house product gets favorable treatment as compared to externally managed products. The reason is simple that there is an obvious/hidden fee built into the product which is usually much higher than the basis point fee being charged to the clients as advisory fee.
In case of fund-of-funds the advisor makes another layer of fee on top of the fee being charged by the underlying product manufacturers. The excuse is that using fund of fund structure the advisor can get the clients access to ‘superior’ funds.

3. The advisors starts acting like a placement agent: This involves taking placement mandates from ‘promising startups’ and then pushing the same to the set of family office clients. While it may look very benign from outside but think from the angle of your RM/account manager; he/she earns fees anywhere between 1%-3% (some indirectly as well) which is far far higher than the advisory fee being charged. This pushes the individual to focus on making sure the deal happens since that will allow him/her to reach the target or get higher incentives. With focus on getting the deal thru the RM’s focus fully stays on the placement and many a times the RM will delay investments in other products which may deplete the available funds. Again, this fee may be booked in a different entity.

These are some initial signs that your family office advisor is changing tracks and is not fully aligned to providing you an absolutely non-conflicted advisory. Any initial signs of these changes should warn you enough so as to take an informed decision. In some cases the advisor may not push some of the above mentioned initiatives towards you but knowing that this is happening with other clients should make you stand up and take note.

 

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Cervin Family Office & Advisors Pvt. Ltd.

    • WeWork, Oberoi Commerz II,
      Mohan Gokhale Road,
      Goregaon-East,
      Mumbai 400063, Maharashtra,
      INDIA

Engage With Us

Grievance Redressal Mechanism

In case of any grievance / complaints against the investment advisor:

  1. Please contact the Compliance Officer Mr.Manish Kalra at manish.kalra@cervinfamilyoffice.com and mobile number 9167074847
  2. You may also also approach the Principal Officer Rohit Karkera at rohit.karkera@cervinfamilyoffice.com and mobile number 9892817751

If you are not satisfied with the response of the Advisor you can lodge your grievance with SEBI at http://scores.gov.in or you may also write to any of the offices of SEBI. For any queries, feedback or assistance, please contact SEBI office on Toll Free Helpline at 1800 22 7575 / 1800 266 7575

Cervin Family Office & Advisors Pvt. Ltd.

    • CIN Number : U74999MH2019PTC324434
    • SEBI Investment Advisor Registration : INA000015385
    • Type of Registration : Non-Individual
    • Validity : Perpetual
    • BSE Membership No. BASL1469
    • Principal officer : Mr Rohit Karkera

Complaint Status (September 2024)

    • Beginning of the month : 0
    • Received during the month : 0
    • Resolved during the month : 0
    • Pending at the end of the month : 0
    • Reasons for pendency : NA

Investments in securities market are subject to market risks. Read all the related documents before investing

Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors

Cervin Family Office & Advisors Pvt. Ltd.

    • WeWork, Oberoi Commerz II,
      Mohan Gokhale Road,
      Goregaon-East,
      Mumbai 400063, Maharashtra,
      INDIA

Engage With Us

Grievance Redressal Mechanism

In case of any grievance / complaints against the investment advisor:

  1. Please contact the Compliance Officer Mr.Manish Kalra at manish.kalra@cervinfamilyoffice.com and mobile number 9167074847
  2. You may also also approach the Principal Officer Rohit Karkera at rohit.karkera@cervinfamilyoffice.com and mobile number 9892817751

If you are not satisfied with the response of the Advisor you can lodge your grievance with SEBI at http://scores.gov.in or you may also write to any of the offices of SEBI. For any queries, feedback or assistance, please contact SEBI office on Toll Free Helpline at 1800 22 7575 / 1800 266 7575

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Cervin Family Office & Advisors Pvt. Ltd.

    • CIN Number : U74999MH2019PTC324434
    • SEBI Investment Advisor Registration : INA000015385
    • Type of Registration : Non-Individual
    • Validity : Perpetual
    • BSE Membership No. BASL1469
    • Principal officer : Mr Rohit Karkera

Complaint Status (September 2024)

    • Beginning of the month : 0
    • Received during the month : 0
    • Resolved during the month : 0
    • Pending at the end of the month : 0
    • Reasons for pendency : NA

Investments in securities market are subject to market risks. Read all the related documents before investing

Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors

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Copyright © 2024 Cervin Family Office & Advisors Pvt. Ltd. All rights reserved
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