MFOs Advised To Narrow Focus
Advisors who are striving to serve ultra-wealthy families need to clearly define the scope of their services and the type of client they wish to serve, according to a new report.

The reason these decisions are so crucial: Advisors can no longer afford to provide all services to all those in the upper echelons of wealth.
"If you're not smart about who you bring on, there is nothing you can do to make money in the (multi-family office) business," says Janelle Sallenave, who heads Schwab Institutional's family office services business.

In other words, the demands of today's ultra-wealthy client are too great for advisors to expect success with a "general" MFO practice.

"There is just no way for that to be a cost-effective model," she says.

These and other insights are part of a new Schwab report, entitled "Serving Ultra-Wealthy Families: Considerations For Evolving Your Firm," that is aimed at advisors considering a transition to an MFO model.

The report notes that, despite the economic downturn, the ultra-wealthy market remains vibrant. The world population of those with $1 million or more in net assets is expected to grow 8.1% through 2013, the report says, citing the 2009 World Wealth Report by Merrill Lynch.

At the same time, the growth of the ultra-affluent market is creating more intense demand for specialized advisory services. The report notes that services once only available to those with between $50 million and $100 million in wealth are now available to those lower on the wealth scale.
That means it's getting harder and harder for advisors to provide for everyone's needs, at least on a cost-efficient basis.

That's one of the reasons why MFOs are going beyond asset-based fees and using retainers and hourly fees, for example, as compensation for their services, Sallenave says.

"There has been a tremendous transition, particularly in the last three years, of advisors taking a fresh look at pricing and thinking about value," she says.

As MFOs tweak their revenue models, they are also carefully examining their operational costs. That has led to more use of third-party providers for selected services, and a growing realization that it's more cost-effective to cater services toward a narrow slice of the ultra-affluent market.

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