The wealth management business has a certain schizophrenic characteristic. On the one hand, the number of rich and super-rich investors (those with a net worth of $500 million or more) is increasing like never before in history. They are also becoming appreciably wealthier. This means that the demand for high-quality wealth management services is growing and likely to intensify.
On the other hand, when demand is strong, the supply of prospective wealth managers also increases. The wealth management industry, all in all, is becoming significantly more competitive. Technology such as artificial intelligence, though it doesn’t have a substantial impact on the high-end wealth management business, will be transformative in the future—leading to lower fees and the displacement of many financial professionals.
For wealth managers to excel in today’s hypercompetitive environment, they must focus their efforts and have the organization to serve their chosen cohorts. Without question, the ultra-wealthy (whose net worth is $30 million or more) are preferred clients for investments, life insurance, banking and other professional services. They have the financial needs and wants coupled with the ability to pay for value. Thus, a lot of different types of firms are competing to address the financial needs and concerns of this group.
About three-quarters of the participants in a survey of 206 ultra-wealthy individuals said they prefer to work with multifamily offices. Another 15% like wealth management firms. Less than 10% chose investment advisors. The remaining few opt for planning firms. Clearly, individuals with money are strongly attracted to multifamily offices.
What’s essential for wealthy families is to get the results they expect. A distinguishing characteristic of well-run multifamily offices, which come in many varieties, is that they are exceedingly service-oriented; they not only quickly address issues but also anticipate them and have solutions at hand.
Almost all the ultra-wealthy who prefer multifamily offices cite their responsiveness and holistic approaches as critical reasons for their attraction to the model. About four out of five are looking for state-of-the-art solutions and see multifamily offices as the best providers of exceptional services and products. About three-quarters of them prefer to work with a firm that delivers more than financial services and products. Well run multifamily offices will often also deal with high-net-worth clients’ administrative and lifestyle matters.
Clearly the ultra-wealthy want what a well-run multifamily office can deliver. In fact, about 85% of them would establish a single-family office if they could afford to. The complication is that it is all too easy for wealth managers to say they are multifamily offices even if they are not able to deliver. The ultra-wealthy therefore tend to make a concerted effort when selecting an office to work with.