At the CFA Institute Wealth Management 2013 Conference held in Boston on March 21-22, Andrew Fay, a Senior VP at Fidelity Family Offices pointed out the current trends and challenges in the Multi-Family Office market.
Currently, there are about 5,000 Family Offices in the United States, responsible for about $1.5 Trillion in assets. Family Offices provide services ranging from investment management, wealth management and bespoke administrative needs to concierge and family management services. The Family Office provides a central administrative junction which helps the family with its financial affairs across generations. The number one concern for wealthy families is how to transfer wealth to children and educate them to be socially and financially responsible.
Mr. Fay notes that Family offices do not have the scale to offer everything their clients need and therefore outsource certain services. Multi-family offices allow for costs to be shared but face the challenge of balancing cost efficiencies against the ability to satisfy all the customized demands of families. Mr. Fay suggests that there is a growing preference for flat-fee arrangements which represent payments for services rendered but do not incentivize successful stewardship of assets with higher fees.
Some investment trends that Mr. Fay noted: moving against inflation by investing in asset classes that move up with inflation such as real estate and other such commodities; taking on more risk in fixed income or higher yields; Investing in asset classes such as micro caps, small caps and emerging market stocks; laddering cash management instead of using money market funds.
Overall, Mr. Fay notes that although Family Offices “fly under the radar” – without definitive data on the number of offices – their importance should not be ignored. Family Offices and Multi-family offices are handling trillions in assets and are therefore an integral and influential industry in the world economy.
