Family offices in the US now play host
to collective assets of more than $1 trillion, a new report from US
consultancy Celent reveals, indicating the extent to which interest
in the industry has accelerated over the past decade. Single family
offices (SFOs) in the US have approximately $300 million in assets
under advisement, the report indicates, with multi-family offices
(MFOs) managing or guiding some $750 billion.

But the amount required
to make running an SFO practical has also risen sharply, with the
average estimate of such a figure now standing at $250 million –
far in excess of earlier estimates of $100 million.

Nonetheless, there are now between 500 and 1,000 SFOs and between
2,500 and 3,000 MFOs in the US, according to Celent. That compares
with the 2,000 MFOs that the consultancy believes there to be in
Europe. Celent also advises that there are over 500 SFOs worldwide
that cater to families with assets of more than $1 billion. It says
that the “major differentiator” for a family office, as opposed to
other wealth and investment managers, is its focus on
intergenerational wealth and willingness to advise and assist in
the management of non-financial or illiquid assets.

Yet with so many private banks now covering such space in an
attempt to increase client satisfaction and, perhaps, regain market
share from the family offices, such a distinction is far from
clear-cut. The report does go some way to acknowledging this:
Celent admits that “there is not a common definition as to which
RIA firms and private banks are truly mutli-family offices. For the
most part, the designation is a self-appellation by the firm.” This
is evidenced by the number of MFOs who now have no family ownership
connections.

The resurgence of interest in SFOs and MFOs was driven by the
technology boom seen at the turn of the century, Celent advises –
but technology is an area in which offices must invest further in
order to retain their competitive advantage.

 

Celent sees both SFOs and MFOs making greater use of data
aggregation services, such as UMA (Unlicensed Mobile Access) and
overlay technology, which can help with both diversification needs
and in organising relevant tax structures. A warning for the
future, however, comes in the shape of Celent’s suggestion that
MFOs, despite strong growth rates, are “on approval” in terms of
the long-term viability of their business model.

MFOs are inevitably more susceptible to competition, and must hone
their value propositions accordingly, but one report recommendation
may be less palatable to heads of family offices.

The value of the brand, says Celent, is key to future MFO success,
and “will become more important as wealthy families seek to find a
way to differentiate providers”.

One such example provided by the report is that of Goldman Sachs,
“mentioned most often as the potential competitor that firms fear
most”. But while the investment bank has managed to survive while
all but one of its Wall Street rivals fell by the wayside in 2008,
its own reputation is hardly unscathed.

That will inevitably provide opportunities for ultra high net worth
providers looking to position themselves as exclusive, established
and – now more than ever – stable.