So why aren't more advisers going after these clients?; 'very attractive investor class'
Family offices may control as much as $1 trillion in assets, according to a report issued today by Cerulli Associates Inc. report. At that size, asset managers should treat the market like a stand-alone sales channel, researchers said.
“It's a very attractive investor class for asset managers,” said Cerulli senior analyst Robert Testa, who wrote the report. “Once managers start getting some investment flows from family offices, it can be very rewarding.”
The family office market is typically broken down into three segments: single family offices, which cater to one wealthy family; multifamily offices, that serve more than one family; and commercial family offices, which serve larger numbers of families. They are typically owned by a larger financial institution that can bring greater resources and marketing muscle to the table.
It has been widely anticipated that single family offices were going the way of the dinosaur as costs increased and older heads of wealthy families passed on their wealth to the next generation. While Mr. Testa said that few SFOs are being founded now, there has been only a slight decline in their numbers. Commercial operations like GenSpring Family Offices LLC and Convergent Wealth Advisors are growing more rapidly than the rest of the industry, and are a significant threat to SFOs and wealth managers more broadly, he said.
The family office is a different animal. As an accredited investor, it is like an institutional investor in that it typically spreads its investments across a very wide range of assets, including private investments, mutual funds and insurance products. But like a retail investor, it is taxable. What's more, the types of services that family offices perform for their clients vary widely. Some do everything from walking the dogs to buying Arabian horses to selecting the best commodity fund managers. Others perform more limited investment management functions.
Either way, asset managers, looking to generate business with family offices that are outsourcing more of their investment management functions, would do well to organize teams specifically geared to the market, said Mr. Testa.
“Those firms with dedicated teams focused on the market tend to have more success,” he said.
It can be a risky venture, as landing the business often takes a lot of time and effort. The average time between initial contact with a family office operation and the awarding of an investment management mandate is 10.8 months, according to Mr. Testa's research. That's only slightly less than the typical 11.6 months it takes to land a contract with the average institutional investor. Many investment managers simply give up on the effort after months of trying, said Mr. Testa.
“It's a soft sale, and it can sometimes take years to develop a relationship with family offices,” he said. “It's a quirky segment of the market but it brings a lot of rewards to asset managers who figure it out.”
