The views presented here do not necessarily represent those of Advisor Perspectives.
Advisors who want to grow a family office business need to make sure they have the expertise and resources to service the far-ranging needs of wealthy families.
"With breaking into the family office space, there are several components that someone must think about,” says Royce Ramey, co-CEO and CIO of Versant Capital Management. The multi-family office and wealth management firm has offices in Phoenix and Dallas.
First, advisors should consider who their target audience is compared to the high-net-worth or mass affluent individuals they are already serving. “The expectations on your time are very different,” when operating a family office, Ramey explained.
“The variation and the complexity of the types of issues you will deal with are much more nuanced and far reaching than under the traditional financial advisor model,” he said. Wealthy families may need everything from tax and estate planning services to alternative investment advice and general financial planning services, he added.
Some wealthy families are looking for a “one-stop solution — not only for [those services], but investment portfolio construction, bill payment, financial reporting, legacy planning with the next generation, strategic philanthropic planning and perhaps operating company advice,” said Ramey.
Alternatives on the rise
A recent UBS survey found that alternative investments made up more than half (54%) of U.S. family office portfolios. In comparison, 32% of U.S. portfolios were invested in equities, 9% in fixed income and 5% in cash. U.S. family offices with exposure to equity investments also had a significant portion of assets that were actively managed (47% of equity portfolios were managed actively), the UBS survey found.
Not only are family offices increasingly interested in alternative investments, which can be riskier or more complex than traditional investments, many also seek to collaborate with outside talent to help them oversee these sophisticated investments — particularly in private markets.
A BlackRock survey of global family offices found that 57% of respondents had gaps in their internal expertise around private market deal reporting, while 63% similarly noted in-house limitations in deal sourcing. The majority of respondents (75%) also said they could use help from external partners for private market analytics, the survey of 175 single-family offices found.
“Some of these families are like a small company,” Ramey said of clients’ needs. Furthermore, “no two families are alike.”
“How do you bring all of those services together?” Ramey said of the task ahead of advisors.
Not an overnight move
Advisors trying to move into the family office space may find it challenging to prove they are a fit for wealthy families, Ramey further shared.
“Because of the breadth and depth of the technical issues that come up, it is a much more team-oriented and collaborative approach across disciplines. And the challenge for someone saying [they] want to be in the family office market, is they should have the ability to deliver across that spectrum,” he said.
Clients need to feel comfortable that their advisors have the scale and expertise to fully support the family.
“If your average client [has liquid assets of] $3 million, the $100 million client may come in and feel you don’t have the scale and depth,” to provide the level of service they require, Ramey explained. “That would be the challenge of someone who says I’m trying to move from high-net-worth to ultra-high-net-worth. It’s about building that scale over time.”
At Versant, the firm ideally aims to develop young talent in-house for their family office business. Often that means hiring individuals just out of school, Ramey shared.
“This is not really a profession that is taught in school. There are a lot of really good financial planning programs that can put you on the right path, but we want to be able to help train and grow that next generation of advisors to work with that ultra-high-net-worth family,” he said.
Word-of-mouth referrals
Versant’s family office business primarily works with multi-generational families, entrepreneurs and women going through life transitions.
For advisors trying to network within the family office space and meet prospective clients, Ramey said that relationships are very often initiated via word-of-mouth referrals.
“Not everybody is spending their time with that level of clientele. I think it’s really word of mouth. It’s very much a referral network. It’s also much more about trusted advisors,” Ramey said.
Whether an M&A attorney, an estate attorney, or a tax advisor, it’s typically the myriad of professionals who work with wealthy families who connect or refer advisors to this clientele.
“Is it through this network that these types of connections arise,” Ramey said.
Danielle Walker is a freelance journalist with 15 years of business reporting experience. She previously worked at Business Insider and Pensions & Investments, among other business publications. Her work has been published in the Financial Times, Barron’s and Chief Investment Officer. Danielle is currently based in Norfolk, Virginia.
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The views presented here do not necessarily represent those of Advisor Perspectives.
