The quest for sustained profitability is a constant aspect of any business, particularly in the wealth management industry.
According to Capgemini’s recent World Wealth Report, the highly concentrated ultra-high-net-worth segment—defined as individuals with more than $30 million in investable assets—represents a lucrative opportunity for wealth managers.
However, reaching this demographic is not without challenges. The study, which surveyed over 1,300 UHNWIs across 26 international markets, states that family offices may be better positioned to handle the multigenerational and multijurisdictional needs of this demanding population with their relatively one-stop-shop model. So, the game is on to determine who can best provide the all-in-one service suite needed to best serve the ultra-wealthy.
One area where many wealth management firms lag family offices is in their multigenerational offerings. Concern about the much-ballyhooed great wealth transfer—$36 trillion by 2045 will pass to Gen X, millennials and Gen Z—isn’t limited to advisors. UHNW families are keenly aware of the support they’re going to need in navigating regulatory and tax barriers in particular. As such, 77% of surveyed UHNWIs count on their wealth management firms to support them in their intergenerational wealth transfer needs.
“For UHNWIs, prioritizing wealth management with a multigenerational focus holds paramount importance,” said Yann Galet, MFO founder and family officer at G Consult Finances in France. “We emphasize heavily on education and tailored solutions geared toward multigenerational wealth management. It is crucial to develop a comprehensive understanding and address the unique needs of multiple generations within families to ensure the preservation and growth of wealth across lifetimes.”
According to the survey, HNWIs want non-financial value-added resources, with concierge services at the top of the list. Half of UHNWI respondents said family offices excel at providing their top four non-financial value-added services—concierge, networking opportunities, legal consultation and lifestyle advice. And 93% of surveyed UHNWIs use family offices as an orchestrator for one or more value-added services. The family office’s closeness to the family also gives it a leg-up in understanding their goals and identifying potential problems.
However, it’s not all doom and gloom for wealth managers. UHNWIs still prefer incumbent wealth management firms for financial management, though the number is slipping as the family office footprint increases (the number of single-family offices worldwide increased by over 200% in the past decade, according to the study).
Ultimately, the study found UHNWIs view the advantages of working with a wealth manager as stability, balance sheets, regulation and licensing, global presence and access to club deals. On the other hand, family offices are attractive because of their transparency, personalization, independence, consolidated view and education across generations.
The study posits that wealth management firms will need to strengthen their one-stop-shop ecosystems to compete in the future, particularly given the increasing fragmentation of providers across the wealth management spectrum.
According to Geert Rose, head of client services and business development for Belgian bank Degroof Petercam, “To successfully engage UHNWIs, the true differentiator lies in bespoke services and the client’s connection to their relationship manager. Discerning clients scrutinize the additional services you provide that others don’t offer.”
Direct competition is but one option, however. Collaborating on services is another, and there’s more room for it than it would initially seem.
According to Campden research, only 14% of family offices in North America provide all services in-house, and 4% act as sole orchestrators with external support. On the other hand, 82% used a mixed approach, combining in-house capability with third-party support. So, for firms either unwilling or unable to expand their various non-financial value-added services, forging relationships with family offices that already provide them but outsource some or all their financial management could be a viable path forward.
Ultimately, wealth firms that strike a competitive and collaborative balance with family offices can forge revenue-gathering business partnerships supporting family firms.