‘Soft’ services galvanizing family offices

An increasing emphasis on family governance is having a galvanizing effect on the multifamily-office business.
JUN 18, 2007
NEW YORK — An increasing emphasis on family governance is having a galvanizing effect on the multifamily-office business. For some firms, the high cost of providing customized “soft side” services are contributing to industry consolidation. For others, these services are seen as a key differentiator in their bid to grow and remain independent. “Providing non-technical services likely will drive consolidation,” said John Benevides, president of the Chicago-based Family Office Exchange. “They are much more costly to provide, and margins are inherently smaller. The question is: At what scale are you able to provide them? There are a number of smaller firms who are not at that point and may consider linking with firms that can underwrite that cost.”
The Family Office Exchange plans to address the scale issue in a study set to be released next month on sustainability in the family wealth advisory business, Mr. Benevides said. Additionally, higher service-related costs will contribute to industry consolidation, said Tom Livergood, chief executive of The Family Wealth Alliance LLC of Wheaton, Ill. “We think you’ll see more mergers and acquisitions in the next few years,” he said. “The multiples are already very attractive, ranging between 12 to 15 times earnings before interest, taxes, depreciation and amortization, and may get bigger. It will be hard for smaller firms to walk away.” Top prices Indeed, the industry has been buzzing over the high prices paid in recent acquisitions, most notably Los Angeles-based City National Corp.’s purchase of Lydian Wealth Management Co. LLC of Rockville, Md., for a reported $225 million last month. But many multifamily offices are determined to stay in business, and say that providing services that help wealthy families deal with decision making, legacy and succession issues can help them do so. “We want to stay independent,” said Rhona Vogel, president of Vogel Consulting LLC, a multifamily office based in Brookfield, Wis. “You need to have a process for family decision making, as well as investment management. If the two don’t work together, there will be inertia. Working closely with the family is the foundation. It has to be there.” Succession planning and family legacies increasingly are valued by wealthy families, said Teddie Ussery, founder of Family Office Matters LLC, a consulting firm based in Columbus, Ga. “Advice is what most families are seeking these days. They are placing a higher value on it. To be a true [multifamily office], you have to have broad services,” Ms. Ussery said during a presentation at the Family Office Forum in Chicago this month. Providing soft-side services has become “a critical component” for multifamily offices, she said in an interview later. “It’s what makes you different,” Ms. Ussery said. The increase in the number of wealthy families also has made family-governance issues more important for multifamily offices, said Steve Braverman, Fort Lee, N.J.-based president of Harris myCFO Investment Advisory Services LLC of Chicago. “As more families are getting more money, many are facing these [governance] issues for the first time and are looking for guidance,” he said. But providing such services means a considerable investment in time, money and talent, according to family-office professionals. “You’re talking about a very high-touch deliverable, and you can’t scale it,” said Linda Mack, president of Chicago-based consulting and executive recruiting firm Mack International LLC. “The question is: Can the client pay for it? Can you raise your fee to the level of the service they want?” Relationship managers The sensitive nature of family-governance issues has made finding and keeping relationship managers critical, Ms. Vogel said. “You have to have the right people who can communicate in a way that’s not threatening.” Clients also need to be educated about services multifamily offices provide, said Rona Fingold, partner for Daytona Beach, Fla.-based Lexington Family Office Services LLC. “It’s a new field, and sometimes there has to be education to create the need and justify the fees,” she said. As an attorney, Ms. Fingold reviews various policies and plans to “simplify the process for the client.” But because many of her wealthy clients have run their own businesses successfully, she said, some “think they can do it themselves.” Nonetheless, demand for soft-side services is on the rise, according to Dennis Jaffe, principal of Relative Solutions LLC, a Cresskill, N.J.-based consulting firm specializing in family-governance issues. The firm has been swamped with business from multifamily offices since it opened a year ago, he said. “There’s a real need for this out there. It’s putting a rational process on top of an emotional volcano.”

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