With all of the many changes that have taken place across the financial services landscape in recent years, perhaps one of the most exciting for top-tier advisors is the rise of the multi-family office (MFO). The multi-family office was born out of the tradition of the single family office, which dates back to the 19th century when the likes of J.P. Morgan and the Rockefellers first hired individuals to manage their family finances. Today's MFOs are positioned to respond to the complex financial needs of affluent families — historically that has meant families with $25 million in assets, but more recently, MFOs have begun catering to those with as little as $5 million. With the global number of high-net-worth families expected to grow 10 percent per year, these offices will likely continue to gain in popularity. They are becoming the preferred alternative to private banks, which used to be the primary channel serving this elite group.

All MFOs share common characteristics, including:

  • Register with the SEC, charge fees instead of commissions, and cater to high-net-worth or ultra-high-net-worth clients.
  • Share similar target clients, business philosophy and service model.
  • Focus on objective advice, counsel and oversight.
  • Offer high-touch services and a specific focus on each family.
  • Offer integrated and customized solutions while overseeing a family's entire financial universe.
  • Offer access to best-in-class resources and thought leadership including money managers, hedge funds, private equity investments, banks, legal, tax and insurance services.
  • Often also offer access to concierge services such as bill-pay, philanthropy, and CPAs.
  • Offer access to institutional-type resources at reduced costs.
  • Coordinate investment, estate planning, tax, insurance, banking and other financial matters.
  • Use a collaborative team approach.
  • Allow advisors to become equity partners, so that they have a vested interest in success of the firm as well as dedication to a first-rate service model.

MFOs are not a mainstream solution for most financial advisors. They are reserved for top-tier producers with a true high-net-worth client base. It is the perfect opportunity for advisors who value equity ownership, want to charge fees for ancillary services to clients, and have more to contribute to an organization than just investment expertise or relationship management skills. While most MFOs are structured as RIAs, some are operated by a bank, law firm or accounting firm. And like other options in the independent space, there are creators — and then there are joiners.

MFO: A Case in Point

Take the recent example of Larry, an East Coast wirehouse advisor with $7 million in revenue on $1.5 billion in AUM — all of it fee-based. He's 46, hungry and highly client-service focused, with 75 clients, all with between $5 million and $25 million in assets. He has had a love/hate relationship with his firm for many years, and naturally, has been heavily courted by every wirehouse and boutique firm out there; he's gotten huge offers from all. But none of these deals has felt quite right. He has come away from each meeting feeling like the service model still puts the client needs after those of the firm.

Recently, Larry was introduced to a world-class, privately-owned MFO in his area, and he felt something click. The value to him of equity partnership far outweighed the significant deals the bigger firms were offering him: nearly $10 million in cash up front and another $11 million on the backend. Plus, the MFO he is looking to join has a valuation of approximately $100 million (according to a third-party firm) and conservative projections suggest that number will double in the next five to seven years. So Larry's equity in the firm ($3 million today) would double as well.

Some MFOs are backed by private equity dollars and have a high likelihood of becoming a public entity, thus creating an obvious liquidity event for the equity as well. Most, however, are looking to build sustainable high-quality firms, with a view toward selling equity to the “next generation,” and are fiercely committed to their independence. Very often, a recapitalization event will occur at some point in the future, thus creating a liquidity event for shareholders. Most shareholder agreements have liquidity options within them.

The MFO opportunity will continue to gain momentum as top tier advisors seek ways to join or create a firm that puts the client first.

WRITER'S BIO:

Mindy Diamond is president of Diamond Consultants of Chester, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.