The family wealth community in North America has been on a roll for some time now. The client-centric model that took hold in the 1980s with the advent of fee-only financial planning has spread like wildfire to encompass the entire food chain, from single family offices advising billionaires, multifamily offices advising “mid-market” families of tens to hundreds of millions, and financial advisers advising millionaires. The ecosystem of family wealth includes tens of trillions of assets from more than 100,000 North American private households, yet it is served by only several thousand firms at most. It remains a highly fragmented and confusing landscape, with no one provider approaching a 10 percent market share.
Amid ever-changing global events and a dynamic competitive environment, it is important to keep in mind long-term drivers when attempting to spot trends. First, we’ll look at how the industry has shifted in the aftermath of COVID.
Pre-COVID, the supply of high-net-worth private families and demand for best-in-class firms felt more balanced. Now, demand from private families exceeds the available supply. We’ve heard from many firms struggling to keep up with the increase in new business; some are choosing to place new clients in onboarding queues that may last months. Fifteen years ago, firms relied on client referrals for 85 percent to 90 percent of their new clients. Now, clients increasingly seek out firms on their own, often based on digital presence. (Consequently, the smartest firms are spending more resources on digital marketing in channels that wouldn’t have been a priority 10 years ago.)
In fact, growth is no longer firms’ top concern. Instead, it is managing that accelerated growth. Maintaining firm culture through turbulent times is difficult — even more so when firms are over capacity and desperate to fill talent gaps.
The problem of finding and retaining talent, while always frustrating, has become acute during this perfect storm. Remote work has altered employee expectations of flexibility and autonomy and offered previously inaccessible career opportunities elsewhere. In many cases, working from home is keeping new hires and junior staff from participating in critical mentoring and shadowing opportunities. M&A has increased the number of extra-large firms in the landscape who can offer more generous compensation structures and steeper career tracks. While a boon overall, accelerated growth is forcing firms to place higher demands on new and existing staff while they hurry to fill workforce gaps.
Better news is that the necessity of working remotely helped firms figure out scalability and technology issues that seemed insurmountable only a few years ago. Previous margin pressure from travel expenses has been redirected (at least in the short term) to funding talent acquisition and retention.
Other client-side drivers include a deluge of liquidity amid unprecedented domestic and global upheaval. Above-average uncertainty in the minds of private clients has always favored client-centric family wealth firms; in trying times, clients crave security and fly to quality. And a few years of time at home has led to an uptick in more than just home improvement projects. “Honey, let’s clean out the basement, remodel the kitchen, and finally hire that family wealth firm!” Private families’ sense of urgency is higher than ever before.
It has been remarkable to witness the level of client acceptance to do business virtually and heartening to know next-gen clients may finally be able to look forward to a family wealth client experience on par with other exceptional consumer experiences they have grown to expect. As firms discover thus far unknown scalability and desirability on the client side, they would do well to translate their learnings to the pursuit of talent.
Where will all of this take us? The biggest prediction we have for the future of family wealth is that firms will begin to separate over the next three to five years into the “haves” and “have nots.” What will separate them isn’t size but savviness in these key areas: talent recruitment and development, client attraction, technology integration, client experience, and sustainability. This last area encompasses transition planning, a sound capital structure, and alignment between ownership, management, employees, and clients. The first two areas necessitate more advanced digital marketing strategies and the elevation of firms’ digital presence.
That will be particularly important if our second prediction plays out: private families will continue to get more proactive and self-directed in their search and selection process. They will find a provider using the channels available to them rather than wait for an organic referral. If it happens that the best-in-class firms aren’t active in those channels, so be it. We see the same trend at play among the talent base. The remaining independent family wealth firms will need to up their game to compete, but they do have an ace up their sleeve — independence is worth flaunting.
Opportunities abound to capitalize on these trends. First and foremost, family wealth firms should spend as many or more resources attracting talent as they do clients. For example, among firms that have devoted any resources to their digital presence, their entire focus is often on the client experience. We rarely see any mention of the employee experience or work culture.
Basic microeconomics tells us that when demand exceeds supply, prices rise. Now is a terrific time for firms to raise fees and shore up margins, especially since most are skittish about this practice and are probably overdue for a fee bump.
As the percentage of independent firms dwindles, those that resist private equity and corporate marginalization will have an edge. Those already owned by a major institution will need to do everything in their power to sell the advantages of additional resources while philosophically separating themselves from their parent companies.
Lastly, now is the time for firms to listen closely to the voices of their clients and employees. Firms know nothing replaces deep understanding of what their stakeholders most value, and yet best practices such as regular client and employee feedback surveys are often only implemented at the largest of firms. Even when the competitive landscape is relatively calm, assumptions in this area can be problematic; in the current environment, they may well be disastrous. In a crowded and cannibalistic market, the family wealth firms that survive will do so by getting laser-focused on who they best serve, having the courage to turn away poor-fit engagements, and building their messaging, client experience, and employee experience around their unique philosophy.
As we’ve witnessed in times of turbulence, the flight to quality has been the main driver of private clients landing in the watchful and caring hands of best-in-class family wealth firms. Yet, this alone is not a guarantee of long-term success. To sustain, the savviest firms must figure out a viable, compelling attraction strategy for both talent and clients, continue to be early adopters and integrate technology solutions that best serve their clients, and always base their offerings and processes on the voice of their clients as they craft an optimal and bespoke client experience. The combination of these efforts will, in our view, separate the “haves” from the “have nots.”
At the end of the day, as it should be, the clients end up as the winners.
Thomas Livergood is founder and CEO of The Family Wealth Alliance and its sister company, Bespoke Advocate.