Family wealth management has witnessed remarkable transformations in recent years, driven by shifts in client needs, technological advancements, and the competitive landscape. The strategies and services that wealth management firms offer have had to adapt and grow to meet the changing demands of ultra-high-net-worth (UHNW) families. In this article, we'll explore the key trends in family wealth management based on a conversation we had with industry experts, Rick Higgins, CEO of Risclarity, and Paul Ferguson, Managing Director, Schwab Advisor Family Office.
Understanding the Landscape
Paul began our conversation on trends by shedding some light on the challenges facing wealth management firms today. In his experience, there are two types of firms that are coming to Paul for help. First are the aspiring multi-family offices, that are really a mass affluent Registered Investment Advisory firm (RIA), with a handful of UHNW clients, and then there are true multi-family offices (MFOs), who almost exclusively serve UHNW families.
For the aspiring MFOs the main questions they ask are:
- How do I keep these clients?
- How can I be competitive with what the MFOs can provide?
- What services do I need to add to avoid losing them?
- Of those services, what should I insource vs outsource?
- How should I charge for these new services?
For the aspiring MFOs Paul usually encourages them to look at outsourcing initially, until they reach a critical mass, around 15-30 clients. At which point they should consider providing the services internally. Outsourcing certain services can provide firms with access to specialized expertise and resources without the need for massive investments in people and technology. Strategic partnerships with external providers can also help firms deliver a broader array of services, particularly when they lack the critical mass required to handle everything in-house.
Established MFOs ask questions related to:
- What is the competition providing, and how do I better compete?
- What technology should we be using to be more efficient and better serve clients?
- What other services should we be offering to provide unique experiences and value?
It makes sense that established MFOs are focusing on technology to enhance efficiency and offer better client experiences. Because managing a significant number of relationships means these firms need technology solutions that streamline their operations and make their services more effective. Technology adoption, including AI (Artificial Intelligence), data analysis, and automation, is vital to keeping up with the increasing complexities of managing wealth for demanding clients.
The Importance of Segmentation when Adding Services
Both types of family wealth management firms wonder about services they should add to better compete and to offer more value to clients. The first step to understanding what services make sense is segmenting your client base. Segmenting helps firms allocate resources efficiently, offer targeted solutions, and provide personalized experiences. This involves understanding the specific requirements of different client segments and tailoring services to meet those needs.
Segmenting clients based on factors such as family structure, industry focus, and wealth goals allow for more targeted and effective service delivery. For example, you may have a group of clients that have teenage children. For that segment your family office could offer a workshop on preparing the next generation for inheriting wealth with a focus on philanthropy. You may also have a segment of clients that have a family-owned business. In that case you might bring in a speaker and run a seminar on proper succession planning.
One of the most common services MFOs consider adding is bill payment. Offering bill payment services has become a valuable consideration for both types of firms, because UHNW clients value their time above all else. These clients typically have generational wealth, and they don't have to worry about significantly increasing their wealth going forward, but if we can save them time that adds a lot of value. Bill payment services provide a convenient way to save time and simplify financial management. It also makes your relationship with the family “stickier” to help prevent losing them to another firm.
Paul urges caution in adding services just for the sake of adding them to a list of services. “Many firms are adding bill payment services just to add it to their website, in that case it’s not the right solution. Firms need to go to their end clients and ask who wants that service and are they willing to pay for it, before jumping in and building it.” This is another reason that understanding your client base and segmentation are vital. It’s important to note that you don’t need to make all your services available to every client.
Rick also agrees with the need for segmentation before adding services and the technology to support them. “When it comes to technology, there's a kind of an inherent segmentation that I think a lot of firms struggle with as they're moving from being an RIA to a true family office. The two firms require different systems. A system to provide portfolio accounting on 20,000 accounts if they're a sizable RIA is very different from a system for managing a family office or even managing those family office assets. The firms that are doing it well on the RIA side have a lot of model portfolios, and a high volume. Family offices are the opposite. It's not a model portfolio and it's not high volume. In fact, a lot of the investments we're seeing up to 50% - 60% are in private equity alternatives, real estate, other things where you don't get that data feed and you don't need a staff, an operation staff to process all of this information.”
When firms that are trying to transition from an RIA to MFO they often ask Rick about how their technology and systems need to change. He recommends not throwing out “the baby with the bathwater”. He suggests augmenting their existing systems with the new capabilities they need.
One example Rick shared involved a firm that had a client that is on a portfolio accounting system that's not multi-currency. The firm got a great opportunity overseas in Europe, and another one with a client in Canada. The firm struggled with how to support that client without replacing their technology platform. Rick talked to them about augmenting their reporting and ended up “building new reports to look very similar to the old ones, with full multi-currency. We also wired together two different platforms. That was really a much better solution than saying, ‘We're going to replace our entire platform so that we can support these two clients.’ Or the flip side of that is, ‘We're just going to keep doing Excel spreadsheets for this one client. We're just going to throw bodies at it.’ And I see that a lot.”
Outsourcing Services Risk vs Reward
Later in our discussion Rick had a question for Paul about the perceived risk of outsourcing. “I see a lot of firms that are hesitant or reluctant to outsource, because of the business risk of putting somebody else in front of their client who could make a mistake. Bill pay is a great example. You make a mistake in bill pay and it's far more impactful than if your returns go down, because you picked the wrong stock or you picked the wrong mutual fund. How would you convince them that it's okay to take this risk or to find that partner that is going to do this better than you anyways?"
Paul thinks that the trend in family wealth management is moving towards more outsourcing, because just as a single-family office can't hire enough professionals to cover all the issues they have, the same is true for an RIA or a small MFO. “They don’t have the scale, or the capital to be able to do everything in-house. I also think more outsourced providers are getting smarter and realizing ‘we don't have to be the face’ and they're white labeling more and more. So, we're seeing more white labeling where the MFO is the true first call for the client and the MFO is the one that is really the face of that service. This approach gives the MFO more comfort because they're still controlling that client relationship. There is always a risk when you outsource, and you need good partners.”
AI Technology
The buzz around AI technology seems to be increasing every day. We asked Rick to share his thoughts on the hype, and its impact on family wealth management firms. “I think there’s some technology that's absolutely phenomenal and could be game changing. I don't think it's going to be as game changing in this industry, the way we would expect it to be for the broader economy or the average user. I think that some of the things that we're going to be able to coax out of this technology are going to be mind-boggling like how we can use it to mine our own data, write better reports, write better code, and how to understand our clients a little bit better. I don't have anything to pinpoint yet, but it’s going to be a game changer.”
Convergence of the Single and Multi-Family Office Model
Paul took a different approach to the question, by highlighting a big trend toward the convergence of the single and multi-family business models. Paul states, “Yeah, I think AI is an opportunity from an existing trend that we know, which is this complexity. I think if you looked at a family that went through a $300 million dollar liquidity event 10 years ago, at the time they would do this analysis, ‘Do I create my own single-family office or do I outsource to a multi-family office?’ And it was always an either, or proposition. I think that's changing. I think I see this convergence of the two business models, and again, it's because of the complexity. Because single-family offices no longer have enough capital to hire enough talent with the right experience inside the single-family office, so they need partners, they need to outsource”.
Paul clarifies, “I don't see this just as an outsourcing trend, I see this as a trend of the convergence of the single and multi-family office model. So we're seeing it almost every day where single family offices are outsourcing to multi-family offices. And I think that's going to be a big change in our industry because most RIAs do not have the capability and understanding of that single family office market and they're going to miss out. They don't know how to target those clients, sell to those clients, provide services to those clients. I think there's some unique opportunities that are going to come there.”
As we’ve covered, family wealth management is undergoing significant changes driven by complexity, technological advancements, and evolving client expectations. As firms strive to remain competitive and meet the unique needs of ultra-high net worth families, they must embrace strategic outsourcing, technology integration, personalized client experiences, and collaboration within the industry. The convergence of single and multi-family offices further highlights the need for adaptable strategies that offer holistic solutions to meet the multifaceted demands of modern wealth management.
About Risclarity:
Since 1997, Rick and his team at Risclarity have focused on the integration and rounding out of the ecosystem for wealth managers, specifically family offices. This includes supporting their infrastructure, their reporting needs and partnering with firms like Schwab to help family offices handle the complexity involved in serving UHNW families.
Specifically, they work with firms to integrate all of their off-the -shelf software products such as, portfolio accounting, general ledger, bill pay, CRM, document management, and complex reporting, to create a data model that is built for these discerning clients. They use a lot of the firm's existing building blocks to create a custom configured application.
About Schwab Advisor Family Office:
Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Charles Schwab & Co., Inc. Independent investment advisors are not owned by, affiliated with or supervised by Schwab.AdvisorServices.Schwab.com
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