Spurred by need for scale ultra-wealth firms pushed hard for growth in 2006. Investing in infrastructure and staff -- and an apparent hike in fees -- benefited multifamily offices in 2006, according to a report to be published later this month by the Family Wealth Alliance (FWA). The 80 family-wealth firms in the latest FWA family-office survey saw their collective assets under advisory increase 20.4% to $305.2 billion last year.

The previous FWA survey revealed a 15.3% increase in assets under advisory to $226.5 billion for the 68 firms asked about their 2005 outcomes.

In 2006 "multifamily offices are accelerating their asset growth by working smarter via technology and outsourcing, and by increasing their staffs," says Thomas Livergood founder and CEO of the FWA, a Wheaton, Ill.-based consultancy to ultra-high-net-worth families.

Watch for crossed fingers

With merger activity on the rise last year -- and perhaps with a view to the unprecedented flows of venture capital into the wealth-management space -- many of the firms surveyed may have been sprucing themselves up to buy or be bought or were reaching for scale by improving their technology platforms and adding headcount.

"We therefore coach wealthy families to inquire about current ownership and future succession plans," says Livergood.

Multifamily offices provide integrated wealth-management services to families worth, typically, between $20 million and $200 million. Below that range, families are likely to go in for less high-touch (and less expensive) forms of wealth management on offer by banks, broker-dealers, financial-planning firms and investment advisories. Above it, families are apt to have their own offices of one form or another -- though the rising cost of running a single-family office is driving some centa-millionaires into the commercial multifamily-office realm or prompting them to form non-commercial groupings to help them manage their wealth.

In any event, this year's FWA study suggests that wealthy families are clamoring for high-touch service. Average minimum fees jumped 32% in 2006. The top minimum fee among the firms surveyed was $250,000.

Highlights from the study

Asset growth was lively for multifamily offices of all sizes. Firms with at least $5 billion in advisory assets, which accounted about two thirds of the participants, grew by 17.9% on average. A third of these firms posted an increase in assets of 25% or more. Multifamily offices with under $500 million in advisory assets saw a 32.6% jump; a third of them saw increases of 50% or more.
Investment-service outsourcing was on the rise. Nearly half -- 46.3% -- of the firms surveyed report that they offer outsourced equities management as against 39.1% in 2005. Similarly, more firms outsourced fixed-income management last year (43.8% v. 31.9% in 2005). Same goes for alternative strategies (48.8% in 2006 v. 40.6% the year before). It's worth noting that some firms have in-house and outsourced investment capabilities for the same asset categories.
One firm in particular gave pause. When multifamily-office managers look over their shoulders, they're apt to see Goldman Sachs. No fewer than 40 of the survey participants named the Wall Street behemoth as their most formidable rival.
Human-capital woes remained. Multifamily offices were beset by staffing problems in 2005. Last year, if anything, things got worse. Nearly a quarter of the firms surveyed said they were trying to fill at least one vacant spot at or near the top, up from 18.6% in 2005. Recruiters in the space couldn't have been complaining, however. A clear majority -- 72.2 % -- of multifamily offices with high-level vacancies hired a headhunter to conduct the search last year. In 2005 only 36.4% did.

Five biggest multifamily offices: $5b+ AUA

Firm
HQ
AUA 2006

Change  v. 2005

Bessemer Trust

New York

$48.3b

12.9%

Rockefeller & Co.
New York
$29.3b
60.1%

Northern Trust
Chicago
$28.0b
27.3%

U. S. Trust
New York
$28.0b
3.7%

Calibre
Philadelphia
$17.9b
12.6%Source: FWA

Five biggest multifamily offices:$5b- AUA

Five biggest multifamily offices: $5b- AUA

Firm
HQ
AUA 2006
Change v. 2005

Greycourt & Co.
Pittsburgh
$4.2b
20.0

The Lipson Group
Cleveland
$3.4b
-1.2

BBR Partners
New York
$3.4b
67.5

Sterling
Pepper Pike, Ohio
$3.1b
210.0

Vogel Consulting
Brookfield, Wisc.
$3.1b
10.7 Source: FWA

Only firms whose client bases consist mainly of multi-generational families can be included in the FWA's annual study of multifamily offices. They also need an extensive menu of family-office services.

The FWA will formally unveil its latest Multifamily Office Study at its MFO Forum in Chicago later this month. -FWR

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