Family Office

Can RIAs Crack The Multifamily Office Market?

Charles Paikert US Correspondent Philadelphia October 27, 2023

Can RIAs Crack The Multifamily Office Market?

This article delves into the fact that while many registered investment advisors might say they are MFOs, the reality is different. For those who genuinely do want to start such operations, what is the right way to proceed?

Lots of RIAs say they’re also a multifamily office, but few really are. Even more RIAs say they want to open a family office division and tap into what they think is the lucrative ultra-high net worth market. 

For those firms, top industry executives at Charles Schwab’s annual IMPACT conference have some advice: proceed with caution.

“You can’t play it as an adjacency,” said Jon Beatty, Schwab’s COO for Advisor Services, in an interview with Family Wealth Report. “Clients with more than $10 million have different and broader service needs, and you have to be sure you can deliver.”

The needs of wealthy families, which often include assistance with travel, security, governance and staff, can be complex and time consuming, Beatty cautioned. “It’s not a volume game,” he said. “It can take six to 12 months to onboard one family with multiple generations.”

New ballgame
“The family office business is a tough market,” said Tom Livergood, CEO of The Family Wealth Alliance, a peer-to-peer industry association that was acquired by Schwab this year. “Clients are more demanding.”

In addition to adding lifestyle services, RIAs hoping to compete in the multifamily space have to offer sophisticated capabilities in bill pay, alternatives, private placement, taxes and asset management, Livergood noted. 

RIA newcomers must also hire talent, be more selective when it comes to clients and price appropriately, using a mix of asset-based fees and a retainer.

Brand problems
What’s more, RIAs attempting to crack the market are starting with a big disadvantage: lack of brand recognition.

Only one retail advisory firm, Cresset Asset Management, was listed among the top MFO competitors in a survey of Family Wealth Alliance members. Heading the list were established brands including JP Morgan, Goldman Sachs, Bessemer Trust, Morgan Stanley and UBS.

Lack of brand equity was cited as one of the top reasons why MFOs lost prospects, along with clients judging the firm being too small and missing a key service.

Talent constraints
Finding quality talent, a perennial industry-wide problem, is even more challenging for RIAs just getting their feet wet in a legacy business that is very fraternal. This “constraint on capacity,” Livergood said, is a “storm cloud on the horizon” for the entire industry.

In fact, Schwab estimates that advisory firms will need 70,000 new advisors over the next five years, said Eddie Brown, head of Schwab Advisor family office division.

Where can firms that are intent on launching MFOs find new talent?

Word of mouth referrals, social media, LinkedIn and executive recruiters remain staples. Frustrated bank employees can be a rich resource pool, according to Beatty. Schwab’s training program for advisors can help bring existing staff up to speed, Brown added.

And since many candidates use the Internet to search for jobs, a firm’s website presence and digital ads are critical for recruiting, Livergood said.

Fitting in
Market level compensation is of course, a given, but the FWA survey found that cultural fit and being able to work with like-minded peers and a helpful mentor were just as important to younger job candidates.

A willingness to work with young entrepeneurs who haven’t yet made their fortunes is one advantage RIAs have over established multifamily offices when it comes to attracting wealthy clients, Livergood said. 

“A client who has been working with somebody from the beginning is less likely to go with a big name if they just try to swoop in for a liquidation event,” he explained.

Nonetheless, RIAs eyeing the MFO space clearly have their work cut out for them. “They need to build special teams, offer more customization and level up their capabilities,” Beatty said.

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