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Multifamily offices set to grow

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By Charles Paikert

February 21, 2005 6:01 am ET

LAS VEGAS - Multifamily offices, which in addition to traditional financial planning and portfolio management provide wealthy families with a wide range of concierge-style personalized services, look like the next big thing in wealth management. The services can include bill paying, making travel arrangements and negotiating car leases.

"It's very much a growth area, and the potential for future growth is substantial," said Thomas Livergood, a certified financial planner and president of Oak Brook, Ill.-based Family Office Management LLC, a research and consulting firm. It unveiled its inaugural study of the multifamily office market, conducted with Bloomberg Wealth Manager magazine, at the Next Step conference here early this month.

Not only is the MFO concept "emerging as an attractive business model in wealth management," the survey reported, it is also beginning to reach a "broader market" and "poised to become a distinct industry."

The number of advisers and planners entering the MFO market has definitely increased, said Joseph Kopczynski, chairman of Albuquerque, N.M.-based Universal Advisory Services Inc., which has been in the MFO business since 1989.

Big growth seen

"This is what customers are going to demand," said Mr. Kopczynski, whose MFO clients must have a net worth of at least $5 million. "The growth potential is immense."

The MFO business model of providing non-traditional services, which often includes charging clients a percentage of their net worth, has clearly gotten the attention of advisers and wealth managers.

John Jenkins, president and chief executive officer of San Diego-based Asset Preservation Strategies Inc., said he has seen more planners and asset managers either opening multifamily offices or expressing interest in doing so. As the number of affluent families continues to grow, he explained, "there is a clear direction for this kind of service."

According to Jeffrey Lauterbach, chairman, president and chief executive of The Capital Trust Company of Delaware in Wilmington, not only has the increase in the number of wealthy families fueled demand for MFOs, but there are now also more generations - and thus more members - of families who have accumulated wealth over the years. Capital Trust sponsored the Next Step conference.

"They want more services," Mr. Lauterbach said. "They want somebody who can concentrate on the needs that go along with their lifestyle, and that means a lot more than taking care of investment portfolios."

The growth of MFOs can be attributed to the "wave of dissatisfaction with institutional providers" who have traditionally catered to ultrahigh-net-worth clients, according to the Bloomberg/Family Office Management survey.

The survey, which was sent to 135 firms, of which about half were included in the final results for MFOs, found that 77% were registered investment advisers, 20% were trust companies or banks and 3% were certified public accountants or law firms.

While the upside for advisers is significant, Mr. Livergood said, they face serious challenges in the embryonic market.

By far, the biggest constraint is attracting, training and retaining good employees, he said. "The human capital area towered above the other concerns," Mr. Livergood said. "It really surprised us."

Mr. Kopczynski agrees.

"You have tremendous staffing needs," he explained. "You need bookkeepers, accountants, CPAs, [chartered financial analysts] and administrators. This is not something for a two- or three-man shop. A lot of people who are interested in the multifamily office business have second thoughts when they take a step back and look at what's involved."

Area of confusion

Another major concern for advisers and wealth managers getting into the MFO business is the relative newness of the field itself, and the resulting confusion in the marketplace.

"This is like financial planning 20 years ago," Mr. Livergood said. "No one has defined it yet."

As a result, the survey stated, "getting out one's story is a big issue in this highly fragmented marketplace," and "organizations that educate families to provide clarity offer objective advice and implementation, and exhibit stability, will lead the pack."

The multifamily office phenomenon also appears to be leading the way toward a shift away from the wealth manager's traditional charging of a percentage of assets under management. "We're moving to a different fee structure of percentage of net worth," Mr. Livergood said.

According to Mr. Lauterbach, the move underscores the "evolution" of financial planning from focusing on portfolios to more comprehensive services for clients. Charging a client a percentage of their net worth or an annual retainer, he said, allows advisers "not to concentrate solely on managing money. Advisers want to be paid by [clients] who want to be taken care of."

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