From the outside looking in, many RIA’s see the multi-family office model as one they wish they had. To have just a few clients with higher profit margins is the dream.
However, it is not easy to be successful in this space. It is all about maximizing a holistic business model that solidifies the relationship, to be the hero and make it easy to do as much as possible. Although it often looks like any financial advisor can create and manage a multifamily office practice, the key to success is providing services and products that are not the core expertise of the RIA by outsourcing to other professionals and providers. This is easily said, but needs serious planning and management to implement well.
A MFO’s clients typically have an average of $50 million AUM, but it can range from a minimum of $10 million to multi-billions. Because the MFO evolved from the family office model, (where all services are centered and customized around the needs of the owner), there is a need to replicate much of that experience within the MFO. That means responding to clients in creative ways with customized services, capabilities and best-in-class product solutions.
The total client experience, with you and the different specialists, needs to be seamless. The financial advisor must have visibility over all the various professionals and other providers so they can provide the integrated view that is necessary.
To be successful with ultra-wealthy clients an MFO must meet a lot of client needs. The Quarterback analogy is often used when describing the MFO and we all know the number of people, and technology, it takes to support a QB in a football team. An MFO needs something similar, a way a team of talented individuals can work together using the same playbook, communicate seamlessly and deliver to the client’s expectations.
This from RIABiz on July1 2018 sets out another driver to transform. “The RIA business is about 30 years old, has 28,000 firms, and very few of them are owned by anyone other than the founder. Mark Tibergien, CEO of Pershing Advisor Solutions said. “It’s a one-generation business, and very few make it to the second generation.” Also, very few firms make it to critical mass; only about 650 firms manage more than $1 billion. That’s fewer than the number of RIAs founded in 2017 — 750. That said, demographics and economics are coming to bear. “Consolidation is starting to take root,” he says. Since 2008, the industry has declined by 1,400 broker-dealers and 40,000 financial advisors.”
So, an MFO could also be a way to build a more saleable business, with succession and continuity built into the business model. The SEC regulator has also issued a proposed rule that would require regulated firms to adopt and implement transition plans.
The inherent service orientation of an MFO means that it is relationship-intensive and requires a personal approach by advisors to gain an understanding of how to best serve the client. The challenge is how to deliver the services listed below in a consistent and efficient way.
Most successful MFOs feature the following:
- Objective Financial Advice with conflicts of interest.
- Creative Solutions to Financial Problems. The MFO teams must be knowledgeable about a broad array of sophisticated strategies to ensure the best solutions for the financial problems of their clients. This means that the MFO team must have access to skilled professionals with experience across many technical disciplines including tax, legal, investment, and risk management.
- Consistent Delivery of Complex Services. The MFO must have the ability to deliver a high quality of service in a consistent manner to a growing number of clients. This requires the team to work together to solve these unique, complex issues for the client. It also means there must be a sophisticated system that can keep track of details and report.
- Long-Term View of Relationship Building. Most financial firms realize that working with clients in a comprehensive manner leads to deeper relationships and lower attrition rates.
The MFO array of services goes well beyond what an RIA offers and below is a bit of a laundry list:
- Financial Review
- Debt Management
- Guardian / Conservatorship
- Personalized Cash Reporting and Budgeting Analysis
- Retirement Planning
- Estate Planning and Wealth Transfer
- Family Foundations
- Family Governance and Legacy Planning
- Marital Agreements
- Multi-Generational Planning
- Trust, Wills, Powers of Attorney, Medical Directives, etc.
- Investment Advisory Services
- Account/Statement Review
- Asset Allocation Strategy
- Capital Markets Strategy
- Investment Manager / Custodian Contracts
- Investment Policy Design
- Investment Review and Analysis
- Manager Selection and Monitoring
- Non-Traditional Investments
- Performance Measurement
- Private Equity
- Trust Administration
- Beneficiary Education
- Fiduciary Best Practices
- Report and Notice Requirements
- Trustee Services
- Trustee Succession
- Individualized Counseling and Education
- Client advocate
- Family Group
- Document Storage and Management
- Record Inventory
- Family Communication
- Custodian of Family Legacy and Institutional Memory
- Family Meetings
- Administrative (Reporting and Recordkeeping)
- Act as Financial Reference and/or Agent for Clients
- Annual Activity Summary and Analysis
- Accounting Administration
- Consolidated Reporting
- Medical Records and Expenses
- Partnership and LLC Administration
- Senior Care Facilitation
- Philanthropic Services
- Donor Advised Funds
- Foundation Management and Compliance
- Non-Profit Evaluations
- Personal Giving
- Strategic Philanthropy
- Risk Management
- Conflict of Interest Avoidance
- Credit Report / Identity Theft Remediation
- Emergency and Crisis Management
- Insurance Review and Management
- International Resident Issues
- Security and Background Checks
- Billing Management
- Insurance Agents
- Investment Managers
- Other Third-Party Providers
- Business Consulting
- Business Strategy
- Business Transition Planning
- Merger and Acquisition Strategy
- Shareholder Value Creation
- Business / Family Meetings
- External and Internal Investment Reviews
- Meetings with Other Outside Providers at Client Request
- Minutes and Formal Recordkeeping
- Scheduling, Coordination, Preparation and Facilitation
- Service Provider Summits
- Cash Management
- Annual Exclusion Gifts
- Annual Minimum IRA Distributions
- Annual Withdrawals
- Balance Management
- Bill Paying
- Capital Calls
- Check Requests
- Deposit Processing
- Investment Manager Fees
- Income Distributions
- Services Co-ordination
- Business Agreements
- General Legal Review
- Real Estate Transactions
- Property Management
- Aircraft / Yacht
- Collectibles Inventory and Management
- Second Home / Ranch / Farm
- Staff Management
- Coordination of Taxes (outsourced)
- Annual Tax Planning
- Filing and Payments
- Personal, Trust, Real Estate, Gift, Foundation, Estate
- Concierge / Client Specific Projects
A typical way for an RIA to move to be an MFO is to internally use more people, often senior people, to meet the client needs. Why? – to guarantee proficiency and maintain consistency. This may work on one level, but it is not an approach that will increase margins, there is no single source of data for analysis and reporting, no way to build a firm-wide embedded knowledge-base, or make it easy to do as much as possible for the client.
The second typical problem is what was mentioned earlier where advisors and their clients rely on advice and information that is drawn from multiple sources. You need the QB approach that is based upon People+Platform and this approach will allow you to:
- Be proactive in a client relationship, not reactive, and anticipate needs
- Offer custom solutions to complex problems
- Make the implementation of custom solutions simpler to deal with by having a 360-degree view of the client
- Empower operations by using a platform with automated process and workflow to systemize/imbed what is repeatable
- Have senior people focus on the relationship and adding value, not checking if the data is correct or collating spreadsheets, by having a ‘single source of the truth’
- Maximize the client experience you provide to drive revenue and referrals
Investing in such a Platform allows the MFO to standardize operational processes and apply automation to core business functions and controls. This is key to reducing costs and operating risk, as well as enabling the business to scale.
- Linked to this is the use of this technology approach to aid and ensure best practices among financial advisors. It allows you to tie best practices to your value proposition, your brand positioning and ensuring advisor, middle and back-office efficiency
- Streamline the number of vendor relationships to improve cost efficiency and reduce operational risk
- Look at maintaining the quality and consistency of advice through more control and centralization. This positively impacts the potential for the business to scale, as well as compliance
The People+Platform strategy is where business processes, workflows are used to make core functions, (such as client on-boarding, CRM, portfolio management, etc., through to client report production, etc.) become very efficient, easily repeatable tasks that move out of people’s heads and become part of the “value” of the business.
This all goes back to the “Why?” section above, “… it is not easy to be successful in this space. It is all about maximizing a holistic business model that solidifies the relationship, to be the hero and make it easy to do as much as possible. “
A fully integrated platform from Eton Solutions (www.eton-solutions.com) can provide an RIA with the process and technology needed to move to an MFO.