Picture this, the average HNW Client has five different Wealth Management Providers. (EY 2019) Each provider gives the client isolated advice based on the portion of wealth in their control.
What does this mean? With no overlap, that client will never get to see a composite view of how all their wealth is performing and never get to plan or implement long term financial objectives.
Single Family Offices
The solution to this, a Single-Family Office (SFO), is not particularly foreign, but limited by resources and more importantly money. SFOs follow a client-led approach and are created purely to manage the wealth of an individual affluent family. SFOs provide services ranges from sophisticated handling of key family assets (estate based or business based), to providing educational and lifestyle services to the family.
A UBS report stated that the ideal candidate for a SFO are families with a private wealth above $150m. (2017) Since a $1m net worth already puts you in the top 0.8% of America it is clear how limited SFO are as an option. (Credit Suisse, 2018) The $150m requirement is due to SFOs typically costing between £1.5m to £20m to run a year. (City Bank, 2018) These costs cover four categories: operational, expenses, professional fees, and advisory fees.
Despite these huge costs, SFOs are currently among the fastest growing businesses in the world. In 2017, there were 10,000 SFOs in existence globally with at least half set up in the last 15 years. (EY, 2017) The reason for this is simple: the client experience. The personalisation and relationship gained through a SFO is unrivalled by any other form of wealth management. You cannot define a distinct purpose for a SFO because it truly depends on the family that they serve.
The Advantages of Seeing All your Wealth
Managing a large pool of wealth is extremely time consuming and difficult, the benefits of a Single-Family Offices, are their consolidated performance reporting.
This enables the ability to think and invest long-term, which ensure the preservation and growth of wealth; whether the family’s goal is to build a rich legacy, manage their risk, or explore different markets. (Deloitte, 2019) This kind of comprehensive wealth management plan is far beyond the capacity of any one professional advisor. Moreover, while financial advisory firms might have staff that change frequently – in family offices it is very rare.
This enables a deep relationship to be built around trust, and provides an inherently better understanding of the family businesses and finances. As SFOs are financially reliant on the family’s success, the incentive to build a good relation that benefits both parties are more tangible.
Perhaps the question here is not to consider what the benefits of a Family Office are but why affluent families are attracted to them in the first place. While basic aggregator tools exist for commercial retail banking, there is nothing market ready for investments and more complex means.
If we consider the changing demands of HNWIs in the backdrop of Wealth Management, then the ability to see all your wealth become a key requirement.
About the author: Gary Skovron
I was an Investment Banker for 25 years – I left Credit Suisse as Managing Director in 2012. Experience in trading options, futures, derivatives, Delta 1 products and Exchange Traded Funds. For 3 years, I was then a CEO of a London based charity looking after people with Learning disabilities. Joined ARQ to work with former colleague from Credit Suisse to create a Wealth Management App.
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