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Business Models Serving UHNW Families: Who Delivers A Full Balance Sheet?

Steve Prostano, October 1, 2018

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Helping clients across the full "balance sheet" of their financial lives is important, but what sort of advisors and institutions deliver this most effectively?

The following commentary comes from Steve Prostano, founder and managing partner, SPI Partners. Steve has written before for this publication, and has extensive experience in North America's wealth management sector. (See an example of a previous article here.) This news service is holding a conference in New York on November 1, and a theme running through that event is how advisors must consider the full "balance sheet" of clients' lives. But what are the best institutions to understand and deliver this point? Steve considers some of the arguments. 

Ultra-high net worth families have broad needs and complex lives that often include multiple generations, legal entities, family businesses, family offices, family foundations and multiple residences scattered across the globe. These families are seeking holistic advice and the integration of a comprehensive set of financial and non-financial services to address their needs and simplify their lives. Unfortunately, they are confused and don’t know where to turn. 

At the upcoming FWR conference, we will examine specific wealth strategies that families and family offices can deploy to ensure their financial and emotional well being, in the fullest sense and across generations. Additionally, and as part of an ongoing series of articles, our concluding panel of thought leaders will have a frank discussion on the various wealth management business models available to the UHNW family, as they seek to fulfill their needs, as well as the challenges that these models face today.

The client need
As many of you know, the adage “shirtsleeves to shirtsleeves in three generations” is still a harsh reality for many UHNW families today. Even the most well-crafted estate plan is useless if it fails to address a family’s qualitative goals and their heirs are unprepared to receive and manage their inheritance successfully.

-- 70 per cent failure rate in the transfers of wealth from one generation to the next (source: John Ward, Keeping the family Business Healthy: How to Plan for Continuing Growth, Profitability and Family Leadership); 

-- Only 30 per cent of family businesses survive through the second generation (Source: Williams and Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values).

Only 13 per cent of family businesses survive through the third generation. (Source: Family Wealth Alliance,July 2018).

UHNW families need strategic family enterprise planning and wealth management professionals to proactively utilize an integrated multi-generational approach to set them up for success in the future.  The planning needs to seamlessly integrate not only quantitative financial services such as tax, estate, financial, investment and insurance planning, but also provide the qualitative (non-financial) advisory services such as family dynamics, governance, education and philanthropy.

Challenges
For a number of reasons, most, if not all, of the wealth management business models out there today are falling short when it comes to helping families sustain their wealth for multiple generations. These models include private banks, wealth manager/RIAs, external chief investment officer/RIAs, trust companies, broker-dealers, accounting and family office service providers and single-family offices. 

The challenges and issues that affect them including: the regulatory environment, being a public vs. a private company, their governance or ownership structure, consolidation, the lack of a continuity/succession plan, available capital, the cost of talent and fee compression (to name a few) have significantly affected the ability of each business model listed above to deliver the value needed for families in the short term, which in turn impacts the sustainability of their family enterprise for the long term.

The bright future
We are excited to explore each of these business models in more depth with you in the coming months through a series of articles and in conversation with some of the most prominent industry experts in this field at at the November 1 conference. 

Our goal is to support families and family offices in their understanding of what each business model can realistically provide for them today, how to strategically address the issues they uncover in these models and where we see the industry going, in the hope of preparing them for what is to come in the future.  

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