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Wirehouses, Big RIAs Muscle Into Family-Office Space

By Murray Coleman January 12, 2015

A couple who had just sold their manufacturing company for $15 million recently approached advisor Tom Bullitt about protecting their newfound wealth from future estate taxes. To figure out the best plan, the head of Ballentine Partners’ high-net-worth team in Waltham, Mass., turned to experts in the RIA’s multifamily office.

The firm, which manages $5 billion, typically makes its family-office practitioners available to clients with investable assets of $20 million or more. Over the past several years, though, Ballentine has begun tiering services so that clients with smaller portfolios can take advantage of the MFO’s legal and accounting staff. “We’re seeing more people in the $10 million to $20 million range needing help with some of the same complex issues as our family-office clients,” says Bullitt. His entrepreneur couple, for example, created a philanthropic plan that included setting up a series of trusts and gifting $5 million to heirs.

The lines are blurring between what kinds of services the upper and lower ends of the ultra-high-net-worth market receive, say experts. On the one hand, MFOs are moving downstream to capture more of the nouveau riche. At the same time, the large brokerages and RIAs that serve some of America’s wealthiest families are broadening their product offerings for millionaires with eight-digit portfolios.

Perhaps predictably, not everyone in the advice industry is thrilled about the trend. Three executives of WE Family Offices in Miami — including CEO Maria Elena Lagomasino, former head of JPMorgan Private Bank — have warned UHNW clients not to be fooled by ersatz family offices.

Tom Bullitt

“The term ‘family office’ has been co-opted by the traditional financial-services industry in its marketing and positioning efforts,” wrote the advisors in the Journal of Wealth Management last fall. A true family office, they argue, offers a fundamentally different experience from what clients receive in a traditional advice relationship — not least because family-office practitioners generally don’t have investment discretion over client portfolios. Traditional wealth managers, according to the article, always have an economic interest in what does or does not happen to client portfolios. A family office operates on a different business model.

The big brokerage firms maintain the distinction while strategically bringing family-office-style services downmarket. For instance, UBS Financial formed UBS Private Wealth Management in 2007, targeting clients with $10 million and up. The bank already had a family-office unit with an asset minimum of $100 million. But growing demand from UHNW clients below that level made the move necessary, according to John Mathews, who runs the newer group from New York.

“We’re not going to walk someone’s dog, pay their bills or hire staff to maintain a property,” he says. “What we can do is take advantage of our family-office expertise to help people with $10 million or more in areas like alternative investments, handling of complicated trusts and sophisticated philanthropic strategies.”

None of the firms FA-IQ spoke to would discuss fees for family-office-type services, beyond saying clients are charged over and above what they pay for plain-vanilla investment management and financial planning.

A La Carte

Merrill Lynch has done away with asset minimums above $10 million, extending family-office resources on an à la carte basis to clients with that much or more. “We’re finding that most of the people we work with at some point run into specific problems that our family office can help us solve,” says Phil Sieg, the New York-based head of the firm’s Ultra-High-Net-Worth Client Segment, which serves those with $10 million-plus in assets. He says usage by Merrill FAs has been growing rapidly in recent years.

The higher-tiered services include “boot camps” held on college campuses, where UHNW clients can get training on financial topics like philanthropy and portfolio theory in a few days. FAs can also turn to Merrill’s family office for help in moderating family meetings and drafting “mission statements” to define wealthy clients’ core values.

At Ballentine Partners, Bullitt finds access to family-office resources differentiates his practice from local competitors. Just last week, a physician and his telecom-executive wife came in looking for pointers about selling off parts of their $13 million investment portfolio to give to charity. Noticing a number of large positions in master limited partnerships, which are taxed differently from other securities, Bullitt consulted an accounting specialist from Ballentine’s MFO. “We were able to quickly see that giving MLPs to charities was a terrible idea for this family because of the tax complexities involved,” Bullitt says. The prospects have asked him to take over management of their portfolio.