Our US correspondent gets into the details of the multi-family office's strategy in the wake of an acquisition that took its assets under management north of $100 billion. How does Pathstone position itself in a market seeing continued M&A and change, without losing the sort of "white glove" approach of UHNW services? This article seeks some answers.

Well, no one can accuse Pathstone of not aiming high. Very high. 

After 15 acquisitions in 14 years, most recently the addition of $45 billion Hall Capital Partners, New Jersey-based Pathstone, now flush with about $160 billion in assets under advisement and $100 billion in assets under management (AuM), wants to be nothing less than the “leading national brand in the [US] ultra-high net worth market (UHNW),” according to CEO Matt Fleissig.

With the RIA market still “incredibly fragmented” and private banks and wire-houses still focusing on financial investments for wealthy families, Fleissig is betting that the “230,000 families with more than $30 million” in the US will be attracted to a national multi-family office with a brand name that specializes in what Jim Coutre, who heads the firm’s family office division, calls “the human side of wealth.”

To be sure, Pathstone has its work cut out. Goldman Sachs, Merrill Lynch, Northern Trust, Morgan Stanley, Citibank, JP Morgan Chase, UBS and other global banking powerhouses still dominate the UHNW market. 

Well capitalized US RIAs with multi-family offices such as AlTi Tiedemann Global, ICONIQ, Tolleson Wealth Management, LNW and Rockefeller Capital Management are also formidable competitors, making an aggressive push to attract wealthy clients and families.

“The UHNW space is hot”
The asset-rich multi-family office (MFO) market itself continues to attract new entrants.

“The UHNW space is hot, and we expect it to remain so for the mid-term,” said David DeVoe, CEO of his eponymous RIA M&A strategic consulting firm. “Forty per cent of the largest firms in the industry are focused on this market. We’re receiving inbound calls from UHNW firms and multi-family offices every few weeks.”

Underscoring his point, Los Angeles-based Lido Advisors, a $24 billion Los Angeles-based RIA, snapped up Pegasus Partners, a $3.4 billion Wisconsin-based multi-family office catering to UHNW clients earlier this week.

Odds of success
Can Pathstone achieve its lofty goal? While the fast growing MFO has a lot going for it, say industry observers, it also faces serious challenges. 

“If anyone can do it, Matt Fleissig can,” industry veteran Brian Hughes, a longtime consultant who is now president of Eaton Advisors Group, said. “The firm’s [employee and private equity-based] ownership structure is a huge positive for attracting and keeping talent. But after adding 15 firms with 23 offices, can they offer a consistent client service experience? The big banks can do it because they’re top down. But if you’re trying to integrate from the bottom up, it’s much more difficult.”

Acquiring Hall, a San Francisco Bay Area stalwart, was certainly a big step toward creating a national brand. While that may attract some wealthy families, “many will prefer firms that are more focused on families with characteristics similar to theirs and offer a more intimate client experience,” according to another veteran industry executive with broad experience in the UHNW market.

Other observers believe that Pathstone is well positioned to capitalize on its growth momentum.

“Pathstone is a leading candidate to become the dominant UHNW platform in the RIA space,” DeVoe asserted. M&A  consultant Allen Darby, CEO of Alaris Acquisitions, applauded Pathstone for its “entrepreneurial spirit” in taking on the Hall deal and “attempting national scale in that client segment.”  

MFO issues
But the UHNW market is also “hyper-competitive” Darby added. “Frankly, most firms we evaluate in that space don't have great economics,” he said. “They have a lot of fancy people and designations with razor-thin margins.”

The MFO market is indeed notorious for less than robust margins resulting from pricing pressure and “service creep.” Other longstanding issues include lack of differentiation, scale, business development, state of the art technology and capitalization.

Under the hood
Pathstone’s non-investment services and ownership structure are the firm’s calling cards, Fleissig said.

What Pathstone calls “a preferred life solution” gives wealthy clients with a net worth of more than $25 million an array of lifestyle services that can range from simulating mock trials to delivering gold bars, Fleissig said.

Moreover, as investments and asset management have become commoditized, wealthy clients now value a firm that can help them achieve non-material goals, become self-actualized, deal with family dynamics and “live a preferred life,” according to Jim Coutre, who has headed Pathstone’s wealth planning group for the past year since leaving Fidelity Family Office Services.

Pathstone’s model focuses on a family’s legacy and relationships as well as human and social capital, Coutre said. Conferences, education and connecting the younger generation of wealthy client families throughout the country will be a major initiative in 2025. 

While non-investment services are certainly an industry-wide trend, Pathstone’s commitment to keeping  those services in house with a staff of 150 employees “sends a powerful message that we care about this stuff,” in contrast to firms that outsource, Coutre said.

Fleissig credits Pathstone’s ownership structure, divided approximately in thirds between employees and private equity firms Lovell Minnick and Kelso & Co, for giving the firm a stable structure and steady liquidity via recapitalization. Offering equity also addresses one of the UNNW industry’s biggest challenges, Fleissig said: “finding people who know how to serve $100 million families.” 

Where does growth lead?
Pathstone’s beefed up size, which has vaulted the RIA into the top ranks of  other growth-minded strategic acquirers including Creative Planning, Captrust, Hightower, Mariner Wealth Advisors, Mercer Advisors, Cerity Partners and Wealth Enhancement Group, begs the question of whether Pathstone won’t be tempted to stray from its UHNW roots and seek out mass affluent clients in search of down-market growth.

Fleissig says no, pointing out that clients  with less than $25 million in net worth make up less than 10 per cent of Pathstone’s assets, many of whom, he adds, “have grown into family office clients.”

Acquiring Hall was “a strategic move that goes beyond AUM,” according to DeVoe. “The transaction expands Pathstone's footprint into new geographic markets, while enhancing its investment capabilities. With its current momentum, I don't see a gravitational force moving Pathstone towards taking on smaller clients in the near term.”

Darby isn’t so sure. “While Pathstone focuses on the UHNW space,” he said, “I would be surprised if they can't support high net worth and mass affluent clients as well. Rich people also have friends and family.”

“There is no reason for Pathstone to over diversify by going downmarket,” said Mark Tibergien, the former CEO of Pershing Advisor Solutions who is now an industry consultant and a member of Pathstone’s board. “It requires considerable resources to become one of the leading firms in any market, so the moment a firm dilutes its brand and weakens its offer, is the moment they lose their mojo.”

Indeed, while Pathstone may aspire to be a national brand, it isn’t one yet, lacking critical mass in their current locations and even a physical presence in some key wealth producing markets.

Fleissig’s goal explained
“When Matt says he envisions a national brand, that doesn’t mean Pathstone needs to be bigger than Goldman Sachs,” Tibergien said. “It means their goal is to be among the top firms considered when high and ultra-high net worth clients are seeking guidance and expertise to navigate their financial choices. Boutique local firms may have a strong local presence or even a niche presence, but do not always get considered by the families they want to reach.”

Factors such as reputation, capability, market presence, capacity to take in new business, and having experienced service teams influence which firms clients select, Tibergien said. “Some degree of heft is helpful, but by itself does not mean better.”