Is the wealth management industry going back to the future? Cerulli Associates has released data showing that the fastest growth in any segment of the high net worth financial advice space is found in Registered Investment Advisors’ (RIAs) multi-family offices practices, which grew their assets under management at a rate of 18 percent during 2010.
And now, consulting firm Rothstein Kass finds that many financial advisors are more and more interested in pursuing the multi-office model to reach additional clients and expand revenues.
Just keep in mind that the family office model has been around for hundreds of years. Some say it dates back to the sixth century when one person would be in charge of a wealthy family's money.
The firm’s 13-page report, based on information from 477 financial advisors surveyed during the first quarter of this year—including registered reps, independents and RIAs—found nearly 80 percent of respondents are interested in providing some level of multi-family office support, though less than 25 percent currently provide such services to clients.
Roughly 60 percent of advisors indicated that they would consider introducing family office services for select clients, while an additional 17 percent expressed interest in launching a comprehensive platform. Of those considering introducing some services:
- 77.4 percent seek to build stronger client relationships.
- 69.5 percent want to enhance revenues.
- 53.8 percent want to attract new, wealthier clients.
Generally speaking, advisors intersected in entering the space would be well advised to target the ultra rich, the report states.
In his introduction to the survey, Rick Flynn, a Principal and Head of the Family Office Group at Rothstein Kass, says, “Because single-family offices provide optimal sophistication and support, ultra wealthy clients have been willing to pay a premium for this level of service. However, the associated costs were prohibitive to all but the most affluent.”
Flynn tells eFinancialCareers, “In evaluating whether it makes sense to offer multi-family office services, the first consideration has to be the composition of the client base. For any advisor that works with at least four ultra-wealthy families, the benefits usually outweigh the risks.
“To be successful, it also helps to have a solid understanding of their long-term goals to recognize what products and services will be of the greatest value. Because priorities can change overnight, it’s equally important to build a scalable model and maintain a network of trusted service providers.”
Which services to offer?
The new research identifies three distinct levels of interest in regard to providing family office services—establishing a comprehensive platform, offering services to select clients and non-participation.
The majority of advisors surveyed expressed interest in providing family office services only to select ultra wealthy clients, and have approximately four high net worth relationships that would support implementation.
That said, the decision to provide family office services should be made “after careful deliberation that begins with profiling current clients to assess needs in relation to current capabilities and resources,” says Rothstein Kass.
“Just as advisors interested in a comprehensive platform have been incentivized by early successes, others have been hardened by past failures,” observes Alan Kufeld, a principal in the Rothstein Kass Family Office Group. “The reasons for these missteps are as varied as the organizations involved. However, from our findings, it’s safe to conclude that many of these advisors recognized innate potential but did not have enough wealthy clients from the onset.
“As a result, some of these early adapters introduced products and services that offered little value to existing clients and were not consistent with the expectations of the ultra wealthy individuals they were hoping to attract,” said Kufeld.