In the search for the optimum wealth management model for serving ultra-high net worth individuals and families, getting to the desired destination is far from easy. Practitioners recently thrashed out these issues at an FWR conference in NYC.

Wealth management industry figures recently gathered at a summit organized by Family Wealth Report to thrash out matters such as considering the “full balance sheet” of clients’ lives. Among the discussion points was the question of whether there is an “ideal” business model for ultra-high net worth clients and families. Needless to say, this topic sparked lively discussion at the event (see full details here). 

In a report and commentary on the panel, Steve Prostano, founder and managing partner of SPI Partners, and a previous commentator in these pages, pens the following thoughts. FWR appreciates Steve’s contribution and invites readers to respond. Email tom.burroughes@wealthbriefing.com 

It is clear that the needs of UHNW families and family offices are unique and dramatically different from the needs of affluent clients.  Their lives are extremely complex and they require the most comprehensive set of financial and non-financial services, a fully integrated approach, objective advice and best-in-class products.  Unfortunately, for many firms satisfying these needs is easier said than done.

The recent Family Office Summit, held on November 1 in New York City, brought together a “Who’s Who” of thought leaders in the UHNW and family office space, including Charles Lowenhaupt, Michael Sonnenfeldt, Mel Lagomasino, Joe Calabrese and Bill Woodson, among many others.

These leaders, who have had decades of experience advising these client segments and operating wealth management businesses, shared their latest thinking on the needs and what it really means to “integrate the full balance sheet”.  Our concluding panel, moderated by Jamie McLaughlin, focused on the wealth management options available to the UHNW and family offices and the current state of the industry. Topics discussed included:    

-- Business models available; 

-- Challenges and benefits of each model; 

-- Where the industry is evolving; and 

-- What we need to do as fiduciaries.

Despite the number of options available to clients today, the panel’s conclusion was that there is no single business model that can fully satisfy the needs of UHNW families and family offices, but there is a dire need for education and transparency.  According to Mel Lagomasino, managing partner and chief executive of WE Family Offices: “The key is that clients need to understand the differences in each model, so they can make informed decisions for their families”.

Other panelists echoed these sentiments when they were asked what their key takeaways were. An example of this came from Jamie McLaughlin, chief executive of JH McLaughlin & Co, when he responded that: “US wealth management business models vary widely, and clients remain completely confused. Client acquisition remains largely client-by-client and most are not informed buyers; rather they are sold by a given firm or advisor. Firms don’t make it easy either. They either fail to demonstrate their distinctive attributes or differentiation or make hollow or misleading service promises that are not backed up by a cohesive staff configuration or the human talent who have the professional expertise to carry the dialogue for increasingly complex families.” 

Similarly, Joe Calabrese, national head of investments at Key Private Bank said: “Often the music and the lyrics don’t match in our industry, which creates confusion. Having different business models subject to vastly different standards (e.g. suitability vs fiduciary) is fine if disclosures are appropriate and there is transparency. The biggest issue for clients is that most firms in the marketplace present themselves in the same way, even though there are material differences in their approach - fee and compensation models, product distribution incentives, investment strategies – and it can be confusing.”

Today, “families have the burden of cutting through the clutter to understand the business models and the implications each of these models have for them. The probability of a good match between the family and the provider are slim,” according to WE Family Offices’ Lagomasino. 

Lastly, all panelists agreed that our industry and the regulators must do a better job of educating the public and ensuring transparency.  As fiduciaries, it is our obligation!

Where is the industry evolving?
Unfortunately the industry is not evolving as rapidly as we would like. A multitude of hybrid business models will continue to exist for decades and today the majority of clients lack the information they need to make informed decisions in the short term and over the long term for multiple generations.  

The panel did share a number of trends and predictions for the future, including:

Technology is an important tool for empowering advisors
Key Private Bank’s Calabrese shared his observation that technology is empowering advisors in his organization to shift from the time they spend each day on administrative and regulatory tasks to focus on higher value-added client-facing activities. 

“Advisors are increasingly called upon to help clients with value-added advice such as how to best structure philanthropic activities, how to structure a family office and how to set up governance practices to ensure that family legacy goals and values are as successfully transitioned to future generations – and technology allows them the time and resources to accomplish these requests.” 

Objective and transparent advice is in demand by families
The panel also has seen a trend among a subset of the UHNW and family offices area – those who have educated themselves and are more enlightened about the industry.  These families are migrating towards independent, well-capitalized firms, focused on providing objective advice, who they believe are transparent and not conflicted by the financial products they sell. In fact, Lagomasino indicated “that she finally created a firm, WE Family Offices, that can be exclusively on the side of families and help them protect their capital”.

According to McLaughlin, the future “will be entirely about transparent and integrated advice across a wide spectrum of services.  In this era of the “primacy of advice,” manufacturers and distributors of products will lose their pricing power.  Pricing will consequently move from an asset-based fee model to a negotiated fee-for-service model”.

The winners will have the best people who can provide integrated objective advice serving both their clients’ needs and their firms’ economic objectives in a virtuous equilibrium.” In the interim, however, “the need for transparency and education for the UHNW has never been higher”, according to Bill Woodson, managing director at Citi Private Bank.

Where do we go from here? 
In conclusion, the panel committed to working with this publication to educate UHNW families and family offices through the creation of a new educational initiative to address the confusion and help clients make better decisions. 

A dedicated team of experts will launch this initiative through articles, webcasts and events. Our primary goal will be to enhance understanding of what each business model provides today as well as relevant trends, the challenges they face and how you can address the gaps and issues you encounter. Stay tuned for more information on this exciting initiative in the weeks to come. 

To read the previous article in Steve's guest article series, please click here.