Written by: Andrew Mescon | Ballast Rock Private Wealth
It’s time for the wealth management industry to learn a thing or two from family offices about service.
The family office approach to managing wealth is generally only available to ultra-high-net-worth clients. Given their vast wealth, there exists a need for family office managers to employ a more sophisticated and customized suite of investment management services. Services for which they are typically well-compensated for providing.
The industry is littered with “high-touch” and “white-glove” service taglines, but are clients actually receiving the type of counsel they deserve even outside of the family office setting?
Given the changing dynamics in wealth management, more investors, particularly accredited and ultra-affluent, deserve a similar family office experience, and should expect as much if they’re willing to entrust their financial future to a wealth manager.
Make no mistake, the way wealth is managed worldwide is changing, and will continue to do so. According to a report from PwC released in July, 16% of existing asset and wealth management firms will be out of business by 2027, which is twice the traditional historical rate of turnover. Why? Technology has transformed the way people can invest, allowing clients to make their own choices, and/or provide access to robo-advisor options fueled by artificial intelligence capable of making informed decisions about asset allocation. In addition, easily accessible index options, whether they be mutual funds or exchange-traded funds, give an easy entry point into passive strategies.
Many advisors will say that there is no substitute for the experience and advice a true fiduciary can offer. While this is true, it may not matter that much to every client. Given the ubiquitous nature of financial data and information, clients might prefer to make decisions on their own, particularly if they don’t feel their advisor gives them the appropriate time and attention.
That’s where a family office approach helps. Managers of family offices never disengage from their clients. They are constantly thinking about what strategies and advice they can bring to preserve and grow wealth. They are visible. They are relied upon. They manage not just the underlying assets, but the overall financial and family dynamics of the people they serve.
Clients are asking for this, and they are willing to switch to other advisors to get it. In a separate PwC report, nearly half, or 46%, of all high-net-worth clients surveyed said they planned to change or add wealth managers within the next 12 to 24 months. Why? Two-thirds of respondents said it was because they wanted increased personalization in their wealth management relationship, while 28%cited their current advisor’s inability to support their changing financial circumstances, and 27% indicated they wanted access to different products and services.
Those new services and products are the bread-and-butter of most family offices: tax planning, legacy planning, long-term healthcare, insurance planning, etc. Additionally, this class of investor typically also desires access to more private market and venture capital deals, in addition to more nuanced investments like digital assets and impact-focused opportunities.
Given that so many clients seem eager to switch advisors due to their service needs going unmet, this trend should be a wake-up call to an industry that has relied on providing the status quo for too long.
While It’s clear that a broader swath of wealthy clients could benefit from a family office approach, what does this look like in practice?
Putting All Your Wealth in One Place. The industry throws around the term “holistic” a lot, but very rarely do advisors take control of the entire scope of their clients’ wealth. Many manage just the liquid portion of a portfolio and don’t incorporate private assets or direct investment. Oftentimes, they also don’t know what insurance coverage a client may have, or how a will is structured. Advisors don’t necessarily have to be the ones actually selling insurance policies, or creating estate plans, as there are already qualified professionals better suited to directly handle those matters. However, it is imperative the advisor be involved in these processes to better understand the context of their clients’ overall financial condition, in order to establish the optimal framework for strategically planning and deploying their clients’ wealth.
Philanthropy. High-net-worth individuals care about the impact of their wealth, and most have a commitment to charitable giving that goes beyond simply the tax benefits. Family offices very often consult directly on philanthropy, seeking insight on how wealth can be used to drive a family’s mission and values. Advisors should be more involved in walking clients through the heartfelt decisions philanthropy demands. Advisors should provide an ability to focus on impact investing that makes a difference based on the family's values while making a profit. This requires customized curation to achieve, based on the family's values, which makes philanthropy more sustainable.
Multi-Generational Planning. Family offices must consider the needs of every generation within a family. Many RIAs struggle to have conversations with subsequent generations within their client set. More than $68 trillion is likely to be passed on from baby boomers to millennials by 2030. Advisors need to think about how they are coordinating decisions across generations, and better incorporate technology and new investment approaches to the needs of these families.
In the end, high-net-worth clients deserve advisors who take a different view of wealth, beyond simply the accumulation of assets. Family offices have done it right for decades. So why should clients expect anything less?