If anyone needed more proof that the obscenely wealthy were pulling away from the supremely wealthy, who are pulling away from the merely wealthy — asset growth under management by multifamily office (MFO) advisors provides a clue.
Assets gathered by MFOs grew at a compounded annual growth rate of 13 percent over the three-year period ending in 2015, surpassing growth among fast-growing registered investment advisors (RIA), according to Cerulli Associates.
RIAs reported three-year compound annual growth of 12.1 percent, just ahead of wirehouses with 11.8 percent growth, bank trusts (6.1 percent), direct providers (5.8 percent) and private banks (4.9 percent), Cerulli reported in May.
Broker-dealers were the fastest-growing channel with a three-year compound annual growth rate of 17.7 percent.
MFOs cater to the high-net-worth segment with $5 million or more in investable assets. They often grow out of accounting and estate planning firms, RIAs moving upmarket and broker teams breaking away from wirehouses or independent broker-dealers, Cerulli said.
The main goal of MFOs is to provide independent unconflicted advice, cater to specialty areas such as wealth transfer, charitable giving and tax treatment, manage client portfolios in a holistic way, and execute with extreme high touch.
The survey found that 56 percent of MFOs plan on presenting more services to their clients during the next year, Cerulli said.
So Few With So Much
MFOs deal with a tiny fraction of households, but a sliver that has done extraordinarily well over the past 30 years as wealth becomes still more concentrated in the hands of fewer people.
High-net-worth households, those with $5 to $20 million in investable assets, represent 0.73 percent of all U.S. households, Cerulli calculated.
Ultra-high-net-worth investors, those with more than $20 million, represent 0.07 percent of all U.S. households.
Combined, these high-net-worth segments control 35 percent of all investable assets in the U.S. and significant portions of those assets will be inherited in the next decade as baby boomers age and leave what they own to heirs, Cerulli said.
The top in-house service provided by MFOs is consolidated and performance reporting (76 percent), charitable/philanthropic planning (67 percent), cash management (57 percent), family counseling and planning (57 percent), and foundation management (40 percent).
For all the wealth tied up in the high-net-worth segment, a major issue facing MFOs remains the lack of financial education facing next-generation wealth transfer, Cerulli said.
To combat financial illiteracy, many MFOs are offering educational services to teach clients about the importance of basic financial literacy – courses which includes savings, lending, credit management and investing, Cerulli said.
Sometimes those services are offered by outside consultants and other experts hired by the MFO, the researchers said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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