What the growing family office sphere means for wealth managers

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When Joe Reilly started working in the family office world around 20 years ago, it held far less cachet as a potential employer for top talent in financial services. 

“Twenty years ago, they weren’t viewed as a career path. It was viewed as getting off the highway,” Reilly, the CEO and founder of family office consulting firm Circulus Group, said of family offices in an interview. “You didn’t go from Goldman to a family office,” Reilly said. “Generally it was folks who were working in private trust companies, or maybe it was a family’s lawyer, or maybe it was somebody who was more mature in their career.

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Joseph “Joe” Reilly, the CEO and founder of Circulus Group.

Joe Reilly

“But that, of course, has all changed dramatically.” 

READ MORE: Apollo Global hires BlackRock veteran Moreno in U.S. family office push

Today, the growth of family offices has made them difficult to ignore, both as potential employers and as high-end clients to serve. These powerful entities represent the financial interests of the world’s richest people. In two short decades, they have grown to become large, stellar bodies in the universe of wealth management, exerting a massive gravitational pull upon the entire industry. 

“Family offices are getting to the point where they’re trying to compete with talent,” Reilly said. 

In general, a family office is a wealth management firm that exists to provide for the entire financial needs of an ultrahigh net worth family. The entry point to establish such a business is a family with at least $100 million of investable assets, putting these families on the highest end of the ultrahigh net worth spectrum. 

The family office bandwagon 
Today, family offices oversee what one researcher estimates to be $10 trillion of assets under management. By comparison, the entire retail wealth management industry encompasses $26.9 trillion of AUM, according to Cerulli Associates — meaning family offices are a force whose scale surpasses a third of the traditional retail wealth management marketplace. 

“It’s been growing at a very fast pace over the last 10 years. There’s a significant level of new wealth,” Brien Biondi, the CEO of family office networking and research group Campden Wealth, North America and the Institute for Private Investors, said of family offices in an interview. Globally, KPMG estimated this year that around 20,000 family offices exist

Given the rapid growth of family offices in recent years, big players in the wealth management industry are paying attention — with moves in recent years by the likes of JPMorgan Chase and Morgan Stanley to establish new units serving such clients. 

READ MORE: J.P. Morgan Private Bank unveils new U.S. family office unit in UHNW power grab

“We hear a lot of banks are trying to chase that ultrahigh net worth client, building out internal bank-owned family offices,” Chayce Horton, a senior analyst on the wealth management team at industry research firm Cerulli Associates, said in an interview. 

Among many wealth management firms, “we’ve noticed a huge growth” in recent years in the level and number of perks that they offer such families, Horton said. From bill pay to concierge services to private banks, many institutions and RIAs are attempting to court their business, he said. 

Still, family offices continue to be somewhat of an unknown in their scale and presence.

“I don’t really think it’s sunk in just how much private wealth there is now in family offices,” Reilly said. “There’s 16,000 families globally who have over $100 million in assets. And once you get up to $100 million, your life becomes complicated enough that you need more than just an accountant and a lawyer to manage it.” 

Wealth management firms that figure out how to cater more to family offices could profit handsomely in coming years. The advisors who join or create them could find stability and satisfaction if they understand how to succeed in a radically different working environment. And firms that are family offices themselves, to establish lasting generational wealth, will have to keep up with peers in key areas, especially talent, according to several experts who spoke to Financial Planning for this story. 

The talent question 
Most family offices serve families in their first generation of ultra wealth, Reilly said, which creates a prime opportunity for enterprising firms and financial advisors to do business with them. They also have the money to compete on the talent market for top performers, meaning wealth management firms and those in adjacent industries — such as tax and estate law — need to work all the more to retain their own advisors and staff. 

“You can’t run a family office on a shoestring. You have to pay the kind of salaries that the street pays or at least find other ways of compensating people in order to attract the kind of talent that you need to do private equity or to run in-house portfolios,” Reilly said some family office firms had realized in recent years. 

Compensation-wise, on average, a typical American single-family office supports around 14 staff members, eight households and around 20 family members, as well as around 59 entities — including foundations or nonprofits, business entities and individual trusts, according to a report on single family office compensation trends published in September by Morgan Stanley. 

The report polled 406 single-family offices between late 2022 and January 2023. In particular, the report noted, markets in which a family office had to pay more for talent this past year — in the face of rising competition after such workers moved out of high-tax states during the pandemic — included Florida, Nevada and Wyoming. 

Family offices “now require staff with more sophisticated skill sets,” the report said, adding that in particular, top investment managers are in high demand. The median pay for a chief investment officer at a family office in the study, reflecting the highest tier of employee compensation, came in at $926,497 — still below, but nearly on par with pay for a producer at a wirehouse who generates at least $2 million in annual revenue

READ MORE: U.S. family offices lead pay ranks with $1 million CIO salaries

However, not every firm has kept up with the times, according to Ilias Georgopoulos, the global head of private and institutional asset owners at IQ-EQ, an investor services group. 

“They are now competing with larger groups (and must learn) how to grow, how to pay these employees,” he said of some family offices, adding that to be competitive, a family office must not only pay wages and bonuses but also offer incentives like co-investment opportunities.  

Most of all, employees need “a stimulating work environment.” 

COVID changed the nature of employment for family office employees, with many working at home more or in a hybrid setting — preferable to some, with its improved work-life balance, but for other professionals, a loss of development opportunities. 

“They need role models, or to be role models,” Georgopoulos said of family office workers. Although family offices are becoming increasingly professionalized, some still don’t offer a clear path to growth and consistent advancement within the company, he said. 

The easiest talent to find at the moment is executives, who usually take three to six months to identify, he said, adding that layoffs at many investment banks in the past year flooded the global talent markets with qualified candidates. Entry-level workers are also somewhat easy to source. 

However, it’s in middle management that recruiting is hardest, Georgopoulos said. Ideal candidates are often already trained by a big bank, consulting firm or asset manager. 

“This is the level that everybody in the industry wants,” he said.

To be successful in staffing, especially for those in-demand roles, family offices should lean into what the banks or other large firms might not have, Georgopoulos said. “Personalized compensation, perspective on career beyond classical hierarchical growth. And it’s challenging — you’re working with a super successful person.” 

Family offices can be wildly different in terms of work culture, investing strategies, and taxes and estates. There’s a popular industry joke that “if you’ve seen one family office, you’ve seen one family office,” Biondi said. But they all share the opportunity for an advisor to focus on a smaller pool of clients and develop deeper relationships with one family in the case of a single-family office, or several families in the case of a multifamily office.   

It takes a unique personality to work at a family office, though. It’s not only the hard numbers of working a portfolio that must be accounted for, but also the soft skills and chemistry of getting along with all the members of a family, Reilly said. 

“It’s very hard for somebody who is a CIO in a family office who has a lot on their plate, who’s dealing with all of the families, their residences, their trusts, their tax issues, often their philanthropic pursuits,” he said. “They’re dealing with household staff. They’re trying to fix a leak in the roof at the ski house. All of these things are on their plate, and they’re also trying to develop deal flow.” 

Forgetting the essentials?

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Hannes Hofmann, the global head of the global family office group at Citi Private Bank.

Citi

With all that on their plates, family offices still have to consider certain succession issues. In particular, they must plan for what will happen after the family founder or head dies, and how to steer the family along through governance —  a clear system that families can use to guide their decision-making and wealth transmission. 

Hannes Hofmann, the global head of the global family office group at Citi Private Bank, said in an interview that research earlier this year by Citi suggested family offices had deprioritized governance as their top focus area, even as they continued to fret over whether their heirs were ready to handle the family business. Globally, especially for the smaller family offices in the story, the top priority was adapting to changing market conditions.

READ MORE: Family offices are overlooking governance in 2023: Citi report

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“Family offices still realize that at one point they need to deal with the soft aspects, because we’ve also seen in the survey that the families themselves, they still want to think about how you educate the next generation,” Hofmann said.  “But it’s taken a bit of a backseat this year, which … makes sense in the bigger scheme of things.”  

Jay Goetschius, the managing director and head of Florida at multifamily office Pitcairn, said in an interview that in particular, those first-generation or “G-1” founders are “as concerned about saving taxes and maintaining lifestyle and being able to transition their financial assets to the next generation, as (about) how is their legacy going be maintained. How will their children be stewards of that capital?” 

READ MORE: How rich American families engage in philanthropy: report

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Here again is where firms partnering with family offices can add significant value, according to Daniel J. DiBiasio, the head of Morgan Stanley Family Office. DiBlasio believes that firms in this new environment, facing the rise of more family offices, can offer structure to help with governance and also bring families together to learn from each other. 

“There’s a lot of benefit to having this community ring-fenced in a way that we can really begin to curate experiences that families are finding to be incredibly valuable,” he said. 

Happy families 
Ultrarich families’ desire to come together and learn from each other is a major recent industry trend, according to Chelsea Smith, the senior national director of family office services at Bernstein Private Wealth Management. “Families of wealth, size and scale are craving to talk to other people who are in their situation,” Smith said, citing the isolating effects of great wealth. 

On a related note, therapy and addiction services are some of the biggest new support services a wealth manager can offer a family office. 

“The biggest change in the last year has been the desire for families to have connectivity on the physical and mental health side of things,” Aaron Bates, the head of ultrahigh net worth and growth strategies at Bernstein Private Wealth Management, said in an interview. 

The demand has been driven by younger Gen Z clients exhibiting a generational shift in attitudes toward mental health from ignoring it to centering it, Bates said. COVID also likely played a role in the rise of this new need, adding that health concierges have also become more popular

“As an advisor to these families, it is our duty, our job to understand what those complexities are,” Bates said. “Because getting that right is as important, if not more important, than getting the asset allocation or asset location right.” 

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