September 24, 2014 Article, originally published at Forbes
Family Offices: Boutiques And Big Banks Vie For $46T In Assets
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, that’s 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.