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MULTIFAMILY OFFICES


The multifamily office advantage


Since 2000, the combination of private and public business innovations and strong economic conditions has supported the creation of significant new personal wealth. One byproduct of this growth is the emergence of family offices from the shadow of relative anonymity where they had stayed for decades, report Hannah Shaw Grove and Russ Alan Prince from Rothstein Kass Family Office.


I Figure 1: N = 638 investment advisory firms


n recent years, the increasing popularity of the multifamily office model among high-net-worth individuals (HNWIs) has increased understanding of the sector. Despite the broader interest, there is still


Motivations to Create a MFO Do a better job for families Be more profitable Be more competitive Attract wealthier clients Close business faster


a ‘wealth threshold’ that must be exceeded to warrant the complexity and expense of this business approach for service organizations and their affluent clients. As a result, the multifamily office structure – one that allows for the same philosophy and services while sharing the costs of expertise, infrastructure and experience among a larger number of families – has broadened in appeal, with wealthy investors moving away from large- scale banks and brokerages in favor of the objectivity and intimacy associated with the multifamily office approach. “Wealthy clients generally have


94.2% 85.9% 78.7% 69.1% 36.5%


Figure 2:


Placing Assets Taken from Primary Advisor


A multifamily office


An independent advisor A bank


A wirehouse advisor


40.0% 26.4% 20.0% 10.9%


Managed the funds themselves 9.1% Other


5.5% N = 110 high-net-worth investors 42 FAMILY OFFICE: ASIA TOMORROW


more complicated financial affairs that can benefit from an intricate combination of strategy, tactics and products,” said Brett Van Bortel, executive director at Van Kampen Investments. “The more tools at your disposal, the more likely it is that you can deliver the timely and effective solutions that will set you apart from the rest of the advisory industry.” Conceptually, the structure is an


extension of the ubiquitous wealth management model: a business that helps firms engage in fewer, deeper and more lasting relationships with affluent clients that are based on customized solutions, specialized expertise and responsive service. In reality, however, many kinds of companies identify themselves as multifamily offices, creating an expansive field of disparate contenders.


Trust undermined The top five reasons driving interest in the multifamily office structure are interconnected, with most firms anticipating that a broader platform of capabilities and a higher touch service model will allow for greater personalization. This will ultimately lead to stronger client satisfaction, higher profitability, greater competitiveness and more qualified referral prospects (Figure 1). One of the many difficult consequences of the recent


downturn is an unfortunate disconnect between HNWIs and their investment advisory professionals. The trust that is paramount to a long-term and mutually beneficial relationship has been undermined by the chaos in the financial services industry, leaving a wake of dissatisfied and disillusioned customers looking for the value and professionalism implicit in the family office construct. As evidence, multifamily offices were cited as the


provider of choice in a January 2009 survey of affluent investors who had moved part or all of their assets from one financial provider to another in the previous four months (Figure 2). Investors turned to a variety of organizations for assistance, but exhibited a clear bias for those that espouse the kind of service, solutions, stability and objectivity lacking in their previous relationships. (NOTE: Some respondents gave assets to more than one type of firm, causing the percentages in Figure 5 to total more than 100 per cent.) Multifamily offices offer their member families


several other attractive benefits as well. First and foremost is the opportunity for people with similar wealth, priorities and challenges to interact with and learn from one another. There is also the immediate leverage of resident experience and expertise to drive a meticulous and comprehensive planning process focused on results. “Although the asset management portion of the


business is the most lucrative, multifamily offices tend to be involved in all aspects of their clients’ lives, from estate planning to lifestyle concerns,” said Rick


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