How can advisors differentiate themselves?

The number of ultra-high-net-worth (UHNW) individuals, those with assets worth more than $10 million, rose 5.2% in North America, according to Knight Frank’s annual Wealth Report. And the number of billionaires grew 8.8% year-over-year, according to a new report from UBS.

As the number of ultrawealthy people grows faster than the number of specialists who can serve them, many asset management and wealth advisory firms are swooping in to fill the void. In fact, research from Deloitte Private estimates that the number of firms calling themselves “family offices” worldwide will have grown by 75% by the end of this decade.

But what are the new family offices offering? Just providing asset management and investment advisory is table stakes. I’ve found the vast majority aren’t providing three of the most important services valued by wealthy families:

1. Estate planning
2. Wealth transfer planning
3. Charitable giving advice

According to the aforementioned Deloitte report, family offices, on average, spend more than half of their time (52%) on portfolio management and direct investing. They spend almost one-fifth on administration and compliance duties (19%) and 15% on supporting the operating business. This leaves just 7% for next-generation training and 7% for philanthropy, researchers found.

These ratios need to change.

Three Types

Let’s start with the three types of family offices.

Single-family office. A traditional SFO is a unique family business designed to serve multiple generations of a single wealthy family, who often have complex lives. The SFO provides a comprehensive range of services, from accounting and investments to philanthropy, across multiple generations, while promoting and preserving the family’s identity, unity and values. The SFO often takes on concierge duties for the family, as well as hiring and managing household staff, purchasing the cars and boats and booking all of their travel.

Multi-family office. Next on the hierarchy is the MFO, in which a small number of UHNW families share the cost of managing their entire wealth picture through tax and estate planning, risk management, investment management, trusteeship, lifestyle and concierge services, coordination of other financial professionals and philanthropic strategy. Even so, an MFO is still pretty expensive and best used by the eight-figure net worth crowd.

Virtual family office. Next, there is the fast-growing category of VFOs. These tend to be heavy users of technology to serve affluent families remotely by using outsourced experts and digital platforms instead in-house staff. Sounds great, but without the estate planning and planned giving component, a VFO just means you’re a wealth advisory firm that can serve clients in any state, because you’re only available remotely. That can be a barrier for the UHNW who prefer face-to-face interaction when discussing sensitive, confidential money matters.

Charitable Giving

Let’s start with charitable giving. It’s best to break giving into two fundamental questions:

1. What vehicles do clients use for giving?
2. To whom do they give, and how do they give?

Also, who initiates the conversation regarding charitable giving? As this U.S. Trust study found, there’s a huge gap between the number of UHNW people who feel they must initiate philanthropic conversations with their advisors and the number of advisors who feel they’re the ones initiating philanthropic conversations with clients. Meanwhile, a CEG Insights study found significant gaps between the number of affluent investors who wanted help with estate and charitable planning and the number of advisors who felt they were delivering that advice to their clients.

Real World Example

One of our client families was very active in various charities. The husband and wife were board presidents of different organizations and had made significant pledges to their respective charities. However, they hadn’tconsidered how they were going to fulfill those commitments. Prior to our planning, they were preparing to write very big checks ($1 million for each organization). But after working with us, we were able to incorporate their charitable commitments into their overall wealth planning design. This allowed them simply to post collateral in exchange for the cash they planned to give away. The bottom line is they kept their capital at work, held on to the interest and dividend income and still fulfilled their pledges.

As part of this conversation, we also learned that the couple’s three adult children had no idea why their parents were so incredibly charitable. Ultimately, we began family conversations about what drove the parents’ deep personal commitment to their community, and the kids started to see the light and got more involved in giving.

It all comes down to how clients own what they own and how the wealth is going to transition from Generation One to Generation Two to Generation Three. The structure for intra-family wealth transfers is often lacking from the planning we see. Due to the increasing number of Baby Boomer retirements and changing market dynamics, there are fewer and fewer experts in this arena. However, it is still surprising how many UHNW families have little to no planning in place. For advisors who do, it’s a true differentiator.

Getting Better Educated

Again, there’s nothing wrong with the SFO, MFO or VFO models. Our firm works with all of them. Just know that if you’re a VFO, you must think carefully about which services you’ll offer to differentiate yourself from the firm down the street that’s also calling itself a VFO. Estate and charitable planning remains a huge gap in the service offerings of many VFOs, making it a great place to get up to speed.

As mentioned earlier, FOX is a global community of wealthy families and their advisors, pursuing best practices for optimal family legacy wealth management. FOX offers a variety of e-learning and in-person training programs, including the “Family Advisor Training Program.”

Also, more universities are offering programs designed for family office professionals and wealth managers. For instance, Harvard Business School offers a program on “Building a Legacy: Family Office Wealth Management,” the Wharton School of the University of Pennsylvania offers an executive education program in “Family Wealth Management: Advanced Financial Strategies,” and Indiana University’s Lilly Family School of Philanthropy, established 2013, is the world’s first school dedicated solely to the study and teaching of philanthropy.

Beyond the CFP or CFA, you can pursue a Certificate in Family Business Advising, which provides specialized training in managing family-owned enterprises and governance, or a Chartered Wealth Manager, which focuses on long-term wealth preservation and legacy planning.

True family offices must offer more than investment management. Estate planning, wealth transfer and charitable giving are no longer nice-to-haves; they are must-haves. If you’re calling any kind of “FO,” invest in the expertise to deliver on that promise or hire the right experts to help you.