The landscape of the wealth management industry is dynamic and continually evolving. In order to stay competitive, RIAs must consistently seek new avenues for growth and consider how to enhance their client service offering.
With the number of ultra-high net worth families — with a net worth greater than $30 million — continuing to rise, RIAs hoping to capture a piece of the more than $11.3 trillion of wealth held by UHNW families must assess what types of service offerings will be most attractive to families with multi-generational wealth.
A strategic move starting to gain a lot of traction in the wealth management space is determining whether to make the transition to become a multi-family office or incorporate MFO services into the existing offering.
As firms seek to gain a competitive edge and increase their ability to attract and retain UHNW clients, MFO services become a major consideration. However, the decision to become an MFO, or offer an abbreviated menu of one, should not be taken lightly.
Firms looking to transition should pay close attention to the myriad potential benefits and other critical factors before taking the leap.
Understanding MFOs
Family offices have long been a popular choice among UHNW families as they consolidate many of the financial, and non-financial, services often needed by families that have the complexities of multi-generational wealth.
They've gained significant popularity as they are a vehicle that's seemingly able to offer the best of both worlds for families who have substantial wealth but are not yet ready, or perhaps large or complex enough, to warrant creating one of their own.
Services offered by MFOs vary greatly from one firm to the next and can cover a long array of categories including:
- Investment strategy & asset management
- Risk management
- Tax planning and compliance
- Estate planning
- Liquidity/cash flow management
- Liability/debt management
- Philanthropy
- Family governance and dynamics
- Lifestyle management
- Record keeping and reporting
The Benefits of Becoming an MFO
Although the list of services may be exhaustive and require a lot of coordination, the list of benefits for an RIA providing a selection of these services or setting up a multi-family office structure to provide all of them in-house can be compelling:
1. Cost Efficiency for the Firm and Clients
While the initial costs of setting up a family office can be substantial, the benefits of making that initial investment can include future economies of scale and cost efficiency in serving a particular niche of clients — one that potentially provides an increased and diversified revenue stream.
Wealthier families with more complex balance sheets require additional services that may allow firms to charge both an assets under management fee as well as fees for additional services like tax preparation or bill pay. Investing a larger pool of assets can provide better pricing breaks and increase negotiating power.
UHNW families may enjoy the cost effectiveness of centralized administration and oversight of assets as well as and avoid a duplication of efforts amongst multiple advisors that aren't working collaboratively.
2. Privacy & Customization
The addition of family office services which attracts larger clients may also allow an RIA to boast additional privacy and exclusivity. High complexity clients demand more attention from their advisory firm, which can lead to a lower client-to-advisor ratio, and consequently enable better customization for the families.
