Multifamily offices are gaining in popularity among the wealthy, who previously relied more on wirehouses and private banks for their financial services, according to Cerulli Associates.
The global research and consulting firm based in Boston says the lower costs and greater transparency that independent advisors in multifamily offices can offer are the factors pushing wealthy clients away from traditional advice sources.
Wealth managers controlled approximately $8.4 trillion in assets held by high-net-worth and ultra-high-net worth individuals and families at the end of 2016, an increase of 5 percent over 2015, Cerulli said.
Last year continued a growth trend that Cerulli says is expected to continue. In 2012, multifamily offices had 7.2 percent of the market share for high-net-worth and ultra-high-net-worth families. That number grew to an 8.3 percent market share last year, which translates into $694 billion in assets. Cerulli predicts multifamily offices will control $1.15 trillion in assets by 2021.
Cerulli reported its findings in “U.S. High-New-Worth and Ultra-High-Net-Worth Markets 2017: Emergent Product Trends for Sophisticated Investors,” a report that included 25 family offices. Cerulli defines high-net-worth as families and individuals with assets of $5 million to $20 million and ultra-high-net-worth as above $20 million.
Wirehouses and private banks have lost some marketshare over the same time period, sinking from 59.7 percent in 2012 to 57.8 percent last year.
Independent multifamily office firms “go beyond just managing clients’ investment portfolios,” said Donnie Ethier, director of Cerulli. “By acting as a cohesive wealth management solution, MFOs are better able to serve as a central source of information for an entire family's financial matters. MFOs are also able to reduce costs and gain proficiencies by providing a blend of in-house and outsourced investment solutions in one place.”
Multifamily offices have started outsourcing more services so their advisors can concentrate on nonfinancial areas of wealth. According to Cerulli, the most commonly outsourced services are trust administration (58 percent), tax planning (53 percent), bill pay (47 percent) and risk management (41 percent). Cerulli finds that rather than maintaining all services in-house, multifamily offices are increasingly relying on specialists for a wide range of investment management and administrative solutions.
Cerulli believes fee compression has been exaggerated. More than half of practices that focus on high-net-worth clients (56 percent) have not raised their fees over the past three years. Going back even further, only 13 percent of firms decreased their fees since 2010 and 28 percent increased fees.
“Family offices are increasingly looking for in-depth market analysis and advice from providers; therefore, asset managers can differentiate their firms from their rivals by sharing asset allocation and capital market insights that effectively help advisory teams better serve their HNW clients,” said Asher Cheses, a Cerulli analyst.
"The increased desire for transparent, unbiased advice, along with evolving preferences among the next generation of wealthy clients, indicates that the MFO model is well positioned to thrive for years to come," Cheses added.
