What Multifamily Offices Need Now
Sometimes, even double-digit growth isn't enough.
While a new report on multifamily offices finds big growth industrywide -- nearly 10% asset growth in 2011, the last year cited -- family office executives said a "primary growth constraint" was the ability to hire dedicated business development professionals. That was especially true at midsize and smaller firms with less than $1 billion in assets, according to the Family Wealth Alliances Multifamily Office Study 2012, released this week.
Youre seeing a lot of restructuring, says Robert Casey, senior managing director of research for the Family Wealth Alliance. In the past, portfolio managers or client relationship managers brought in business. Traditionally, there wasnt any dedicated business development staff. Firms leaned against it. But thats wearing down, because its too important not to get new business.
The lack of marketplace differentiation is the main business development challenge faced by multifamily offices, according to the study. The misuse and overuse of the term family office for marketing purposes has confused the marketplace, says one industry executive who participated in the study. This requires further prospective client education and slows down the sales process.
Stacey Haefele, president and chief executive of HNW, a relationship marketing firm specializing in financial services, agrees. Its an odd paradox, Haefele says. The term family office is both overused and misunderstood at the same time. What value does a family office bring? What distinguishes it? The industry either needs to think about a better definition or a new terminology.
DISCOMFORT WITH SALES CULTURE
The increasing focus on business development i.e. sales also presents a cultural conflict for many multifamily office firms. As one executive who participated in the study put it: Not having business development officers is part of our culture and we like it that way, but it also presents growth challenges.
Multifamily offices were traditionally a service culture, not a sales culture, Casey says. Its still a big issue, but its evolving. Youre seeing more separation of functions so firms can be more efficient, have economies of scale and be more profitable.
Other constraints on multifamily office growth included sourcing and closing new clients, inefficient client-service processes, growing competition and brand recognition, the report found.
Multifamily offices registered solid gains in 2011, the year data was gathered for the 2012 study. Assets under advisement for the 51 firms who participated in the study rose nearly 10% over 2011 (while the S&P 500 was virtually flat), and revenues for the firms rose 11.3% for the same period.
Although the group is still collecting data for 2012, the S&Ps 13% gain for the year bodes well for the industry, and executives surveyed expressed strong confidence in the future, with nearly nine out of 10 saying their firms enjoyed a stronger competitive position today compared with three years ago.
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