Family Offices: Boutiques And Big

Banks Vie For $46T In Assets

by David Drake

Family office businesses are booming around the globe, largely in response to increased demand
from a growing demographic wealthy individuals with at least $1m in investable assets. That
demographic grew by over 9% in 2012, to 12 million individuals worldwide, according to a report
from Capgemini and RBC Wealth Management.
Nearly 85% of wealthy families today squander their fortunes by the third generation, according to
James Hughes, who has authored several works on wealth management. In the vast majority of
cases, Hughes attributes their decline to a lack of communication between family members that
keeps them from making important financial decisions as a family.
North America represents the largest growth in the number of millionaire investors an 11.5%
increase in 2012 to 3.73 million, thats nearly four million people with at least a million dollars to
invest, excluding their primary residence and other net worth assets. Total assets held by the

wealthy grew by 10% to $46 trillion, driven primarily by increased holdings among those with $30
million or more in assets.
Boutiques and Big Banks
Bloomberg Markets produced a ranking of the richest family offices in 2013, excluding single family
offices, which are not required to disclose personal data.
The two fastest growing firms were a boutique and a big bank, which exemplifies the current
struggle between two types of businesses vying to provide services to rich families. Big banks are
moving in on the estimated $46 trillion in worldwide assets by creating business units designed to
compete with boutiques, with small staff focused on providing everything from investment advice
to financial education, estate planning, art consulting and property management. These big bank
boutiques claim to advertise a combination of large institutional services with personalized
attention to customers. For example, Wells Fargo established Abbot Downing, which ranked
number eight on the Bloomberg list with assets of $22.2 billion.
Longtime advisors in boutiques criticize big banks as focused more on generating fees from the
sale of their own products instead of wealth preservation through innovative tax and investment
strategies boutiques have traditionally provided.
Big banks dominated Bloombergs list, however, with Hong Kong-based HSBC Private Wealth
Solutions (HSBA) taking the number one spot with $137.3 billion worth of assets under
management. That number represents an 11% increase in 2012, spread across 340 families. the
number two spot went to Northern Trust Corp. (NTRS), a Chicago based firm serving a whopping
3,457 families with assets of $112 billion, an increase of 23% in 2012.
Asset management services such as these are highly profitable in part because they can manage
$1 billion in assets with the same staff that would typically manage $100 million in public funds.
Different firms follow different approaches to generating profit. For example, U.S. Bancorp (USB)s
new unit, Ascent Private Capital Management, requires clients to pay fees of at least $200,000 a
year. Their model worked, and the new unit grew assets under management by 96% to $4.4
billion, the second fastest growing firm on Bloombergs list, even though some of its clients choose
to pay only for services and do not invest with the firm.

Some Firms to Watch

Ascent Private Capital Management focuses on people who have made new fortunes more than
half of its clients are first generation wealth creators and their families. To become a client,

investors must have at least $50 million in assets. Unlike many other firms, however, this figure
can include the value of businesses which are closely held. Their San Francisco office caters to a
region which spawns new wealth with every successful IPO in the tech sector. Unlike wealthy
people from other sectors, executives from companies such as Facebook are young and busy and
not yet ready to discuss retirement plans. Ascents CEO Michael Cole says that dealing with tech
billionaires is much like dealing with professional athletes.
CV Advisors LLC of Miami is the fastest growing family office firm in the Bloomberg rankings. This
firm focuses on wealthy people from Latin America. CV Advisors assets grew by 100% in 2012 to
reach $2.5 billion, doubling their portfolio with new money from just six families, all of whom were
referrals from existing clients. CEO Elliot Dornbusch, previously a real estate developer in
Venezuela, says that they spend plenty of time with each prospective client before taking them on
to make sure that they are a good fit. The firm concentrates on money management and most of
its investments are in short maturity investment grade corporate bonds to hedge against interest
rate increases.
CTC Consulting/Harris myCFO, based in Chicago an office in Palo Alto, has an edge over the
competition when it comes to Silicon Valley. It has been focusing on tech billionaires since 1999,
when Netscape co-founder Jim Clark also established myCFO. In 2002, Montreal based BMO
Financial Group (BMO) marged myCFO into its Harris Private Bank business unit. It has managed
to retain almost every one of the wealthy clients it originally acquired. It was ranked number 7 in
the Bloomberg list and increased assets by 6% in 2012.

The Future Outlook

All these firms have the same objective to help future generations avoid losing the family
fortune. Some of them, such as Ascent, use non-traditional techniques like employing historians to
help families come to terms with any skeletons from the family past, helping younger family
members obtain a positive point of view on their huge fortunes.
As the rich get richer and the ranks of the super rich grow, so too will their demand for both
investment and non-investment family office services.

Note: This article originally appeared on Forbes with this link http://thesoholoft.com/family-officesboutiques-and-big-banks-vie-for-46t-in-assets-by-david-drake/ on September 25, 2014.

Photo credit to metro.us

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New
York City-based family office, and The Soho Loft Media Group The Voice of Capital Formation
a global financial media company with three divisions: Victoria Global Corporate
Communications, Times Impact Publications, and The Soho Loft Conferences. You can reach him
directly at David@LDJCapital.com.