Why The "Enhanced" Family Office Model Will Dominate The UHNW Landscape - Optima Group

Harriet Davies

29 March 2012

The “enhanced” family office model will come to dominate the ultra-high-net-worth wealth management landscape, as the very wealthy remain shaken by the effects of the financial crisis, according to a new white paper from Optima Group.

“In the aftermath , a ‘new normal’ has taken hold. For the ultra affluent, it is characterized by heightened concerns over capital preservation, risk management and the responsibilities of wealth stewardship,” says the white paper. “And trust, transparency, clarity and fiduciary responsibility have become, now more than ever, the paramount drivers in choosing financial advisory relationships.”

In this environment, providers who fail to shift their business practices to accommodate market sentiment will lose market share, and “quality multi-family offices” stand to benefit in the near-to-intermediate term, says Optima.

“It is worth noting that formidable global entities such as HSBC, UBS, Citi and others, are also rapidly creating or expanding ‘family office service groups’ which market investment banking and other services to existing family offices,” the white paper says.

“This increased willingness by industry giants to participate in the growth of MFOs, even where these providers do not control the ‘end relationship,’ is further recognition of the growing popularity and potential of the family office market,” it continues.

The size of the market

Optima characterizes households with at least $30 million in investable assets as UHNW, and notes the small size of this market, accounting for fewer than 60,000 households in the US. At the $50 million threshold, it says there are some 10,000 households in the market.

“This makes for an intensely competitive marketplace where market differentiation and client satisfaction are critically important to continued viability,” says Optima.

Among some of the things the UHNW are demanding are:

1) True open architecture: encompassing an “end to any conflicts of interest in product selection or sales” and proprietary products competing only on a level playing field.

2) Real transparency: relating to both products and pricing, as well as full disclosure over investments.

3) Simple and practical solutions: clients want solutions they understand, rather than “black box” products; higher cost products in particular must be justified.

4) Effective risk management: ultra-wealthy clients want to understand their investment strategies and the risk management processes in place, which must account even for “black swan” events.