Reimagining Wealth Management – ​​Back to Basics at Farro Capital

A multi-family office founded a few years ago and already making a name for itself tells this news service about the “fear of missing out,” proving real value, saying “no” to clients and guiding them through volatile markets.

In the investment world, there are thousands of products, ideas that outnumber those products, and too much market noise. And to top it all off, there are countless advisors who want to sell a product or idea, not because it is the best option, but because it offers the highest commissions.

That’s the sharp take of Manish Tibrewal, co-founder of Singapore-based Farro Capital, a multi-family office and an example of the kind of independent firm that’s competing with banks and other business models in Asia and elsewhere. (In December 2023, one of the firms, Farro Ventures, opened in Dubai.)

Tibrewal says a big problem in the wealth sector – and the broader financial sector – today is “FOMO” – fear of missing out. With stocks like chipmaker Nvidia soaring into the stratosphere and the air buzzing about AI and other developments, this dizzying atmosphere demands calm.

“If we look at history as a good teacher, the biggest lesson we learn is that not most, but all hypes eventually die. There is a big difference between a generational trend and a hype,” he said.

“Fads can last in the short term, but in the long term, markets always return to fundamental reality. It’s always 20-20 hindsight when we look back, but it’s sometimes hard to distinguish a fad from a long-term trend. For example, the dot-com bubble was a fad at the time, but in the long term, it became a generational trend.”

“Those investors who held their nerve and invested in the winners reaped rich dividends. Contrast that with the recent zero interest rate environment, where companies with no path to profitability were trading at wild valuations. The moment the interest rate environment changed, all of these companies became nearly worthless,” Tibrewal continued.

Tibrewal said the sector has another point that is all too easily forgotten: compounding.

“Every dollar saved is a dollar earned,” the saying goes. Similarly, in the investing world, every dollar not lost to avoidable risk is a dollar of return on investment. Think about it: If you lose 50 percent of the value of your investment, you need to make 100 percent of the profit to get back to your original amount. So if you have to compound over the long term, you can’t afford to have large declines in the value of your portfolio because that will significantly erode the gains that have been made over the years,” he said.

It is not always easy to explain some of these points to wealthy clients who may be surprised by the hype or even the more credible ideas that Tibrewal talks about. Especially when wealthy and ultra-wealthy clients have built their fortunes by taking big risks.

“We have the courage to have deep conversations with the families, including some of the uncomfortable issues around their family dynamics, family net worth versus liquid net worth, gaps in their investment philosophy and the deep realization that it is not necessarily (the case) that every successful entrepreneur will be a successful investor,” he said. “On the contrary, many entrepreneurs get caught off guard when it comes to investing because they are inherently wired to take risk. That’s why they tend to do well in bull markets but get burned in times of volatility,” he said.

This news service has become familiar to Tibrewal and his colleagues over the past few years. Farro, which was founded in 2022, is licensed by the Monetary Authority of Singapore. Farro takes its name from an ancient grain that dates back many millennia and is still thriving. Tibrewal was previously CEO of Maitri, the Singapore-based fund manager and multi-family office. He has more than 19 years of experience in various leadership roles in India, Africa and Singapore at the multi-billion dollar Tolaram Group.

Value proposition
WBA wondered why asset managers have difficulty explaining their value proposition.

“The landscape has changed dramatically over the last 20 years. Owning a bearer share company or a numbered account without KYC is a thing of the past. The margins in the industry used to be high because the brokerage was not transparent and there were no low-cost technology-driven competitors in the market,” he said. “A lot of these banks and wealth management companies are still stuck in the past and think the old model is what the clients want and keep making cosmetic changes to their offering without addressing the fundamental problem.”

Tibrewal argued that many firms still have inherent conflicts of interest because they charge commissions, which encourages them to sell their portfolio.

“They (companies) are also limited by the internal platform capabilities. There would be many products and investment theses that are better than their own offering, but they are not able to provide a best-in-class solution to the customer,” he said.

Farro delivers “best-in-class” solutions to customers because it is agnostic across products and platforms, Tibrewal continued.

One problem is that most asset managers and banks often focus only on a client’s liquid financial assets, he continued.

“Although they are aware that a family belongs to the ‘billionaire’ class, they use that to promote their business and do not pay enough attention to the ways to add value to their business,” he replied.

Tibrewal gave a concrete example of how Farro works.

“When we reviewed a recently joined client’s portfolio, we noticed that he had a disproportionately large exposure to a particular stock. When we asked about it, he said he was surprised to hear that. The reason was that he had direct equity with one custodian, a long derivative with another custodian, another long derivative on the same stock with a third custodian, and a fund whose largest holding was the same stock,” Tibrewal said. “The total exposure to the stock was five times what the client thought he had in his portfolio. The reason was simple: all the custodians simply knew the level of exposure with them, and the client had never consolidated his portfolio to see the performance and exposure in aggregate,” he said.

Farro uses technologies to gain a complete view of a portfolio and provide clients with a complete picture of their investments, including corporate assets, real estate, wine, art and other alternative assets.

WBA Tibrewal asked what happens when some clients fire their advisors and hire new ones.

“The biggest problem in our industry is that of ‘over-promising and under-delivering’ and mis-selling due to conflicts and vested interests. Clients can be dissatisfied if their advisor’s recommendations appear to prioritize the company’s benefits over their own financial goals, such as pushing proprietary products with higher commissions, and such products are pushed as ‘high belief’ ideas,” he said.

“This undermines trust and causes clients to seek out advisors who truly prioritize their best interests. Insufficient customization is another major concern. Clients with unique financial needs and goals can feel underserved when advisors offer generic solutions rather than tailored advice.

“For example, a family with complex estate planning needs may want to move to a firm that offers specialized expertise and personalized strategies. In addition, lack of communication is a major issue; clients expect regular updates and proactive communication from their advisors. When advisors are unresponsive or fail to keep clients informed about their portfolio performance and market conditions, it creates frustration and a sense of neglect,” he said.

Finally, WBA asked Tibrewal about the need for advisors to sometimes say “no” to a client and formulate their expectations realistically.

“Because we see ourselves as an extension of our clients, we don’t hesitate to give our opinion. Our clients engage us and trust us because we always have their best interests at heart. It is our primary responsibility to ensure that if we think a certain decision or strategy is not in line with the client’s needs and could have a negative impact, we have a mature conversation to explain our concerns,” he replied. “Fortunately, we have built a high level of trust with our clients and they take our advice very seriously. Often these discussions are about asset allocation.”

Avoiding mistakes
“For example, one of our clients recently exited his technology company, which he had built from the ground up. Since he had no interest in traditional assets, he wanted to invest all of his money in high-growth companies. Coming from a modest background and a tech genius, he had little interest in conventional financial investments,” Tibrewal said. “During our conversations, he mentioned that other advisors were eager to invest all of his capital in high-growth companies, which were his preferred options. He wondered why we insisted on creating a nest egg, especially since he is young and has plenty of time to recover any losses from high-growth investments,” he continued.

“We had an in-depth conversation where we pointed out that his plan did not take into account the possibility that he would not be around in the future. In that unfortunate scenario, would his family be able to maintain the same lifestyle if all of his assets were tied up in illiquid, high-growth companies? This perspective changed the entire conversation. He is now happy knowing that he has secured insurance for his family by investing some of his wealth in safer and less volatile assets,” Tibrewal added.