Schwab: Family Offices Weather Storm
High-end advisors have been taking their lumps along with everyone else in this economic crisis, but the family office niche remains strong and is actually poised for more growth, according to the Charles Schwab 2009 Benchmarking Study.

The annual report indicated that advisors with $1 billion or more in assets under management were faring better than their smaller colleagues. Additionally, advisors in this category are already honing strategies for achieving further growth.

"Billion-plus advisors are weathering the storm pretty well," says Janelle Sallenave, who heads Schwab Institutional's family-office custodial business. "They are continuing to gain new clients and they're working rapidly to offset declining assets."

The scale of the $1 billion-and-up market, according to the study, has enabled family offices to endure the erosion in assets and revenues that has impacted the entire industry.

Of the 610 firms that participated in the Schwab study, 53 had more than $1 billion in assets. Most of this subgroup could be categorized as multifamily offices, with an average of 1,144 clients, $2.2 billion in assets under management and $10.3 million in revenues.

Among the findings in the $1 billion-plus niche:
Firms are anticipating a 10% decline in revenues in 2009. This comes after a 5% gain in 2008, and annual growth of 22% in 2006 and 2007.
The value of assets under management fell by 21% in 2008, after growth of 14% in 2007 and 28% in 2006.
Growth in new clients has continued, but at a slower pace. In 2008, client growth was 5% at the median, compared to 8% in 2007 and 7% in 2006.
Firms were able to offset some of the asset declines from continued, albeit slower, growth in net new assets. The median firm in this group added $78 million from net asset flows in 2008.
The percentage of firms dissatisfied with their growth decreased from 22% in 2007 to 12% in 2009.

Despite the slowdown, advisors indicated they are poised to pursue new growth opportunities. Ninety percent of the high-end advisors said they are planning to grow either aggressively or moderately over the next five years.

Moreover, advisors are paying closer attention to business operations, Sallenave says.

"There's an increased focus around efficiency and productivity," she says. "There's a general interest in the advisor community in improving the way they run their businesses."

As one example, she says, multifamily offices are exploring ways of growing organically by using a more active approach in recruiting potential clients.

The study found that advisors in the $1 billion-and-up category currently get about 82% of their new clients from referrals from clients, professional colleagues and custodian programs.

Multifamily offices are now taking these activities a step further by building out marketing plans, doing client appreciation events and encouraging clients to invite friends to firm events, Sallenave says.

When advisors were asked what they viewed as their top "growth enabler" going forward, "closing deals after prospect meetings" ranked first-cited by 83% of advisors.

"They're looking at plans that help them expand on the word-of-mouth referrals," she says. "They're more thoughtful in how they choose to spend dollars to attract clients."