The search for sustainable profitability is a constant aspect of any business, especially in the wealth management industry.
According to Capgemini's latest World Wealth Report, the highly concentrated 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 in 26 international markets, points out that family offices may be better positioned to address the multi-generational and multi-jurisdictional needs of this demanding population with their relatively one-stop-shop model. So the game is wide open to determine who can best provide the all-in-one package of services needed to best serve the ultra-rich.
One area where many wealth management firms have lagged behind family offices is their multi-generational offerings. Concern about the massive transfer of mass wealth — $36 trillion by 2045 will go to Gen X, Millennials and Gen Z — isn't limited to advisors. UHNW families are acutely aware of the support they will need in navigating regulatory and tax barriers in particular. As such, 77% of UHNWIs surveyed rely on their wealth management firms to support them in their intergenerational wealth transfer needs.
“For UHNWIs, prioritizing wealth management with a multi-generational focus is of great importance,” said Yann Galet, founder of MFO and family officer at G Consult Finances in France. “We put a lot of emphasis on education and tailored solutions geared towards multi-generational wealth management. It is essential to develop a comprehensive understanding and address the unique needs of multiple generations within families to ensure the preservation and growth of wealth throughout life.”
According to the survey, HNWIs want value-added non-financial resources, with concierge services at the top of the list. Half of UHNWI respondents said family offices excel in providing their four main non-financial value-added services – concierge, networking opportunities, legal consultation and lifestyle advice. And 93% of UHNWIs surveyed use family offices as orchestrators for one or more value-added services. The family office's proximity to the family also gives it a leg up on understanding their goals and identifying potential problems.
However, it's not all doom and gloom for wealth managers. UHNWIs still prefer existing wealth management firms for financial management, although the number is slipping as the footprint of family offices grows (the number of single family offices worldwide grew by over 200% in the last decade, according to the study ).
Ultimately, the study found that UHNWIs see 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 intergenerational education.
The study posits that wealth management firms will need to strengthen their one-stop ecosystems to compete in the future, especially 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 real differentiator lies in bespoke services and connecting the client with their relationship manager. Savvy customers look carefully at the extra services you offer that others don't.”
However, direct competition is only one option. Collaboration in services is another, and there is more room for it than it might first appear.
According to Campden research, only 14% of family offices in North America provide all services in-house and 4% operate as sole orchestrators with outsourced support. On the other hand, 82% used a blended approach, combining in-house capability with third-party support. So, for firms that are either unwilling or unable to expand their various non-financial value-added services, establishing relationships with family offices that already provide them but outsource part or all of the management their financial, may be a sustainable way forward.
Ultimately, wealth firms that achieve a competitive and collaborative balance with family offices can create business partnerships to raise revenue while supporting family firms.