Building
Bridges
Landscape,
Comparisons
&
Implications
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
Three Take-a-Ways for
Your Business

Competitive Landscape: Families & Firms

Fee Charging Alternatives

Outsourcing/Collaboration: Family Office Services
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
Executive Summary:
Market Heft, Resilient MFOs, Hesitant SFOs
Family Office Market Has Heft in the North American Landscape

Estimated 140 Multifamily Offices (MFOs) with Aggregate $375 billion AUAs

Approximately 2,500 Single-Family Offices (SFOs) with Aggregate $1.5 trillion AUAs

MFOs Average AUAs at $3.5 billion; SFOs only $450 million

Total Pie of 50k Households > $30 million Estimated at $12 trillion; MFOs & SFOs: 15% Mkt.
MFOs Resilient in Face of Turmoil, Enjoy Scale & Recognition

AUAs Down Only 9.2% (S&P down 37% in 2008)), Client Relationships Up 8%,
with Employee Headcount Up 9%, while Client Attrition Rates are Low at 2.6%

Average Client Relationship is $51.5 Million

Scale Advantage, Deeper Talent Pool, & Gaining Marketplace Recognition
SFOs Hesitant, Not Trusting Alternatives, Have Panache of Being Private

Cite Challenge of Keeping Next Generation Onboard, Family Governance Issues

Not as Willing to Outsource, Not Trusting Alternatives Available

Panache Still There, Intimacy & Privacy, Multi-Gen. Skills Advantage
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
The Landscape is Changing
Client
Net
Worth
Trust
VFO
Ext.
CIO
MFO
PTC
Ext.
FO
CFO
SFO
JVO
Enh.
FP
Complexity
Enhanced Virtual External
MultiChief
Financial Family
Family
Investment
Planner
Office
Office
Office
Joint
Private External Closed Single Venture
Trust
Family Family Family Family
Company Office
Office Office Office
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
4
What the Wealthy Want
Is Not Changing
 Objective Advice
 Stability of Relationship Management
 Stability of Ownership
 Open Architecture for Implementation
 Competency and Consistency of Delivery
 Breadth of Service Offerings
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
5
Ten Family Office Services
Services
Most Offered
1. Portfolio Management
2. Record Keeping & Reporting
3. Estate & Wealth Transfer
4. Comprehensive Financial Planning
5. Tax & Compliance Work
6. Risk Management
7. Trust Company Services
8. Life Management
Services
Least Offered
9. Family Meetings & Education
10. Strategic Philanthropy & Adm.
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
6
2009 MFO Study at a Glance

79 Firms Participating » Down from 83 Last Year

Median of 38 Client Relationships » Up 8.6%

$286.3 Billion under Advisement » Down 9.2%

$51.5 Million Mean Relationship Size

Employee Headcount Up 8.6%

Minimum Annual Fee (Mean) » $78,000, Up 11.4%

Attrition Rates » 2.6% Clients » 1.7% Assets
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
7
Highlights of MFO Research

Storm Damage Appears Relatively Minor

Firms Facing a New Competitive Landscape

Surge in Hiring of Relationship Managers

MFO Executives Remain Highly Optimistic

Evidence of Fee Compression

Margins also Compressed, Perhaps Temporarily

Merger Activity Is Picking Up Again

Building Bridges with Single-Family Offices
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
8
A Shift from Asset-Based Fees
to an Annual Retainer
Asset
Based
Fees
Hourly
Rate
Percent of
Net Worth
Annual
Retainer
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
9
Operating Ratios for MFOs
Revenue per $ Assets (bps)
2008
60
%∆
-3.2
2007
62
Expense per $ Assets (bps)
57
35.7
42
13.1%
-42.3
22.7%
Profit Margin (%)
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
10
New Competitive Landscape
Your Top 3 Competitors, Today and 3 Years Ago
Rank Today
Rank 3 Years Ago
Goldman Sachs
1
1
Bessemer Trust
2
4
GenSpring
2
8
Northern Trust
4
3
J.P. Morgan
5
6
U.S. Trust
15
2
Merrill Lynch
27
5
Morgan Stanley
29
9
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
11
2009 SFO Study Interim Report

30 Single-Family Offices Participating to Date

Range of Assets Supervised = $450,000 to $2B

Chief Executive Is a Family Member at 44.8%

Average of 2.5 Generations, 14 Households Served

Family Households Not Served = 6.1%

Median Age of Family Office = 12 Years

Youngest = 1 Year, Oldest =100 Years

One in Six (16.7%) Part of an Operating Business
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
12
The View from 10,000 Feet

An Overlay of Stress from Plunging Markets

Strong Underlying Concern about Sustainability

Single-Family Offices Inherently Unstable

Fighting the Reality of ‘Generational Decay’

You Are in a Scale Business, Like It or Not

Not Immune from Advisory Firm Economics

Recognition of Challenges They Face

Openness to Partnering & New Solutions
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
13
Top Challenges: SFOs & MFOs
For the SFOs:
For the MFOs:
1. Gen./Family Relationships
Human Capital
2. Investments
Business Development
3. Human Capital
Managing Growth
4. Justifying Expenses/Budget
Technology, Client Reporting
5. Sustainability & Strategy
Marketplace Awareness
6. Financial/Generational Plan.
Profitability
7. Consolid. Reporting/Tech.
Managing Client Expectations
8. Liquidity & Cash Management
Economic Turmoil
9. Compliance, Tax and Legal
Invest. Client Portfolios
10. Managing Growth
Operational Efficiencies
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
14
Rising Expectations:
What Clients are Asking For Now
Of the MFOs:
Of the SFOs:
Advice on Private Equity
Aircraft Management
Trustee Services
Managing Newly Acquired Business
Advice on Job Search
Family Investment Partnership
Property-Casualty Risk Review
More Family Communication
Gold Investments
Estate Planning
Partnership Accounting
Foundation Management
Enhanced Tax Reporting
Family Education
Foundation Consulting
Family Education
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
15
Complementary Skills
Overall Strengths (S) & Achilles Heels (A)
MFOs
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
SFOs
Client Trust/Office Integrity
S
S
Financial Planning
S
A
Scale
S
A
Investment Management
S
A
Fiduciary Management
A
S
Family Ed. & Communication
A
S
Client & Office Intimacy
A
S
Inter/Intra-Family Interaction
A
S
Consolidated Reporting.
A
A
Security
A
A
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
16
Comparison of Scalability: I
Mean Size of
Participating MFOs
@ $3.8 Billion AUAs
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved .
Mean Size of
Participating SFOs
@ $450 Million AUAs
17
Comparisons of Scalability: II
… but Research Is Inconclusive that
Scale Translates into Efficiencies
Tier
Assets
MFO AUAs*
Per Employee
SFO AUAs*
Per Employee
I
>$5B
$182.6M
$100.2M+
II
$1B->$5B
94.1
83.4 - 100.2
III
$0.5B-<$1B
90.3
54.3 - 83.4
IV
<$0.5B
26.1
18.7
* Sample From Participating MFOs & SFOs Only
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
18
Comparisons of Scalability: III
However, the Data Suggests MFOs Do
Have the Early Advantage in Fees vs. Costs.
Tier
Mean MFO*
Mean SFO*
Fees in BPs
Costs in BPs
Assets________________________________
I
>$1B
28.0
45.9
II
$0.5B-<$1B
39.0
41.2
III
$100M-<$0.5B
IV
<$100
40.0-51.0
71.5
40.0-62.0
231.6
* Sample From Participating MFOs & SFOs Only
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
19
Strategic Trends: I
What are these Barriers to Collaboration?
1. Blurred Lines: Families & Their Advisors are Confused
2. Privacy & Control: “We Keep the Jet”
3. Family Indecision: Poor Communication & Governance
4. Lack of Culture Fit: Between SFOs & MFOs
5. No Def. of Success: MFO’s Profit vs. SFO’s Sustainability
6. Continued Human Capital Shortage: Especially RMs
7. Inefficiencies: MFOs & SF0s Dealing with Outsourcers
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
20
Strategic Trends: II
Key Drivers of Collaboration Will be the Following:
1.
2.
3.
4.
5.
Scale Advantages
Human Capital Requirements
Demands of Family Members
Complementary Nature of MFOs & SFOs
Necessity of Sustainability
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
21
Implications of Current Landscape

MFOs Courting SFOs: Teenage Girls Not Yet Dating

Differences of Perspective & Def. Of Success
Not Yet Fully Understood

MFOs Better Off Courting More Established SFOs

SFOs Largely in Denial, Not Trusting Alternatives

Outsource Providers Confused by Lack of Courting

Period of Transition Will Last for a While

Will Necessities Overcome Mis-Understandings?

Will Venus & Mars Ever Hook-Up?
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
22
What Business are You In?
Be careful not to repeat the same mistake the railroad
companies made in too narrowly defining their business!
1. Manf. Trains & Track?
4. Logistics,
Warehousing
& Delivery?
Your
Firm
2. Railroading?
3. Transportation Biz?
Source: Marketing Myopia
by Theodore Leavitt © 1960 in Harvard Business Review
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
23
Trends & Implications
Compensation
Services
Providers
Challenges/
Threats
1970s
Commissions
Estate Planning
Banks, Ins. Cos,
& Wire Houses
Deregulation
1980s
Fee and
Commissions
Investment
Management
Private Banks
& Mutual Funds
Technology
1990s
Fee Only
Financial
Planning
Financial
Planners
Complacency
2000s
Asset-Based
Fees
Family
Office
MFOs
Human
Capital
2010s
Annual
Retainer
Family
Wealth
The
Collaborators
Trust &
Scalability
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
24
Ten Crosscurrents in
Family Wealth
Current Landscape
1. More Choices for Families
2. Renewed Focus on Family Gov.
3. Nurturing Non-Financial Wealth
4. Wanted: Objective Advice
5. The Standards of Stewardship
6. Concern: Sustainability of SFOs
7. Turmoil: Traditional Providers
8. Firms are Nat’ Driven by Scale
9. Family Wealth is Going Global
10. Families Remain Confused
Landscape in 20 Years
1. Families: Confusion to Understanding
2. Family Governance is More Practiced
3. NextGen Remains an Enigma
4. Deceit Remains & Fueled: Human Greed
5. Commissions Become Extinct
6. Obj. Adv. the Norm, Best Advice Wins
7. Savvy Competitors Learn to Collaborate
8. Cycle Repeats of Consol. & Spins-Offs
9. Prof. Desig. & Career Track in FW
10. Global Is Common, Efficiencies Aren’t
GenSpring Family Office’s 20th Anniversary Compendium
of Thought Leaders’ Views on Major Trends:
The Alliance Authorship of the Above by Invitation
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
25
Three Take-a-Ways for
Your Business

Competitive Landscape: Families & Firms

Fee Charging Alternatives

Outsourcing/Collaboration: Family Office Services
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
Proprietary Research
6th Annual MFO Study
2nd Annual SFO Study
1st Private Client Survey
Unique Events
40minus Leadership Summit
The Alliance Spring Event
The Alliance Fall Forum
Regional Workshops
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.
Customized Consulting
Private Families
Firms
M&A Advisory
Involvement Offering
At 3 Levels:
Executive
Leader
Advocate
Building
Bridges
Thank
You!
Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.