In Practice September 29, 2008

Celent Examines Future of Servicing Nation's Wealthiest

The family office delivery method to service America’s wealthiest clients has been on the wealth management scene for a while, and is here to stay, according to research from Celent.
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The “family office” is a breed of investment and wealth management that caters to providing wealth coupled with social influence for ongoing generations of a family. According to a study from Celent, although specific families might fall in and out of the spotlight and wealth might diminish, the family office delivery channel as a whole will continue—and will be a continued opportunity for the financial services industry.

According to a release from financial research and consulting firm Celent, family offices come in two distinct and very different models: the single family office (SFO), serving one family of extraordinary wealth, and the multi-family office (MFO), which utilizes its infrastructure to help families of slightly less-stratospheric degrees of wealth.

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What differentiates the family office from any other type of investment manager or wealth manager is the focus on multi-generational aspects of wealth, Celent says. This focus is achieved by:

  • ensuring that wealth is available to support the economic and philanthropic aspirations of ongoing generations—not just those of the immediate family of the wealth creator;
  • supporting an abiding interest in non-financial aspects of wealth, including philanthropy and social policy;
  • understanding and directing the entirety of the wealth—not just investments but also real estate, yachts, planes and other non-liquid elements of a top-tier lifestyle.

“While investment management may be the main focus, it is not the only reason for the family office,” said Robert Ellis, senior vice president of Celent’s Wealth Management group and author of the report, in the release. “Family offices stay relevant by instilling the family with a sense of pride and mission—from the first founder through multiple generations. The causes the family adopts and espouses, the political positions the family takes, and the arts and sciences the family supports all become integrated with the family office.’

The family office channel in the U.S. consists of somewhere between 500 and 1,000 SFOs and 2,500 and 3,000 MFOs, according to data from Celent. While that might not be a high proportion of American families, the family offices are estimated to control more than $1 trillion in assets (approximately 20% of all ultra-high-net-worth households’ assets).

Celent notes that major changes in the family office space revolve around technology. Automation capabilities are becoming more demanded. While most vendors in the asset management and wealth management spaces are candidates to offer solutions, Celent says, the demand for customization and Internet security from family offices can cause an entry barrier for technology vendors.

Celent expects the number of wealthy families seeking MFOs to increase—as will the competition in the space, as wirehouses, trust companies, private banks, and registered investment advisers (RIA) seek to get into the business.

The full report is US Family Offices: Best Practices in Providing Financial Services to America’s Most Privileged Households.

Compliance September 29, 2008

FPA Releases Standards about Role of Fiduciary Adviser

The Financial Planning Association released a Standard of Care, which clarifies the role of a fiduciary adviser in financial planning situations.
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A press release said the standard clarifies the role of a fiduciary adviser under the Investment Advisers Act of 1940 and when providing material elements of financial planning services under the CFP Board’s recently revised Standards of Professional Conduct. The FPA said the Standard of Care was adopted by the FPA Board of Directors after receiving input earlier this year from members in response to recommendations made by the FPA Fiduciary Task Force in 2007.

The Standard of Care said all financial planning services should be delivered in accordance with the following standards:

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  • put the client’s best interests first;
  • act with due care and in utmost good faith;
  • do not mislead clients;
  • provide full and fair disclosure of all material facts;
  • disclose and fairly manage all material conflicts of interest.

“In these turbulent times when consumers are often confused and frustrated in their search for ethical, objective, client-centered advice in the marketplace, the Standard of Care offers a clear and succinct guidepost to the public as to what it should expect from a financial planning professional,’ said Mark Johannessen, president of FPA, in the release. “The Standard of Care reflects FPA’s belief that those of us delivering financial planning services are fiduciaries, regardless of our business model, method of compensation, or professional designations.’

Earlier this year, FPA created a Best Practices Task Force that is developing additional guidance and interpretation for members on how to live to a fiduciary standard in a variety of financial planning situations. Task force recommendations are expected in December, prior to the effective date of CFP Board’s Rules of Professional Conduct on January 1, 2009, according to the release.


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