I recently had the pleasure of speaking to a group of rising talent regarding my firm’s MFO offering. After discussing our model, strategy, focus on the client experience, as well as trends in the industry, I was hit with the unexpected question: “What is a family office?”
Being asked this question from this group shocked me and also tested my assumptions. I turned the question around to the group to test its proficiency. Not a soul in the room had a clue as to what I was talking about. The lexicon of the industry forgets that family offices are an amazingly acute portion of the population. I thought it would be fun to take a look at some Cerulli and Wealth-X data and consider just how small this subset is.
The recently released Wealth-X World Ultra Worth Report 2020 (which reflects 2019 data) does a nice job of quantifying the ultra-high-net-worth space, which is defined as individuals worth over $30 million. According to the report, there are 290,720 individuals in the world considered UHNW. Against 7.7 billion individuals on the planet last year, this represents .004% of the global population and is a terrific starting point for the MFO discussion. At this level of wealth, it is not realistic to hire individuals to manage your wealth, yet you need more than your average investment advisor or wealth planner.
The multifamily office is known for the breadth of its offering, a team based approach, low client/advisor ratio (due to more complex client financial profiles), and is typically offered in an inclusive fee environment. The client family often feels like the team serves as its personal family office at a fraction of the cost of a true single family office. At what point is it economical to move from the shared office (MFO) to enlisting your own personal team?
At $500 million a multifamily office would typically charge about 20 basis points on assets under management. At this level a family could use that $1 million to hire a few individuals to oversee investments, coordinate accounting needs and provide some basic lifestyle services. Some families prefer the control this brings as well as the opportunity to engage the family in the enterprise. Just how prevalent is this, according to Wealth-X?
The same report notes 8,040 individuals in the world with over $500 million in net worth. This represents .0001% of the population. Most estimates place the world count of single family offices at 10,000, which would be a bit below this line. However, I’ve seen many billionaires without family offices and I’ve run into many offices for families below that threshold. Regardless, the number of single family offices is growing, and they receive much attention in the media due to the amount of wealth they control.
Of course if we were to focus on a wealthy nation like the United States, we’d find a much higher percentage, correct? For example, the report notes that the United States has the largest number of UHNW individuals (over $30 million) in the world at 93,790. Against our 328 million population, the UHNW clique jumps to .03% (vs. .004% above). I estimate the over $500 million crowd in the United States to be 2,500, which puts it at .0008% (vs. .0001% above). Big whoop.
Perspective might help as .03% and .0008% of the population are hard to comprehend. The UHNW individual represents one out of every 3,500 U.S. citizens. Only one out of 130,000 have over $500 million. And if you assume 5,000 single family offices in the United States, then you’d find one for every 65,000 individuals.
The top 1% (one out 100) also receives a significant amount of press, starting at $10 million net worth. But it’s the top .03% that I refer to and expect everyone to understand the nomenclature. Those of us in the industry comprehend the needs of families with such wealth and why some hire their own professionals while others enlist the help of offices with capabilities to serve multiple families.
The next time I stood in front of a group of rising talent, I remembered that few shared my perspective regarding this important niche. So, “Who can tell me what a family office is …”
Joe Freeman is head of Family Office Services at Abbot Downing.
Abbot Downing, a Wells Fargo business, provides products and services through Wells Fargo Bank N.A. and its various affiliates and subsidiaries. Wells Fargo Bank is the banking affiliate of Wells Fargo & Company.