Over three-quarters of financial advisors are interested in the multifamily office model, according to a new Rothstein Kass report, due to a belief it can deliver higher revenues.

Over three-quarters of financial advisors are interested in some form of the multi-family office model, according to a new report from Rothstein Kass’ Family Office Group, due to a belief it can help attract new and wealthier clients, build stronger relationships and, ultimately, deliver higher revenues.

Specifically, 61 per cent of the study’s sample group (477 advisors) said they are interested in delivering MFO services to “select wealthy clients,” 17 per cent are interested in delivering “a comprehensive platform,” and 17 per cent are not interested in the model. The research also found there was a link between the success of the financial advisor – in terms of income – and interest in the model.

However, the report also raises the many challenges a transfer to the model entails. For example, the 292 advisors who answered that they are interested in delivering MFO services to select wealthy clients have fewer than four wealthy clients on average, the survey found.

One model which addresses the “common scenario” of having a handful of very wealthy clients dispersed among many less wealthy clients, is to focus on providing exceptional service to the best clients, the report says. To do so successfully, a good starting point is â€śidentifying a few key relationships” as well as the needs of these clients and the similarities between these needs, said Richard Flynn, principal and head of the Family Office Group.

This challenge highlights the difficulties around the multi-family office over issues such as cost, as well as the boundaries around it: when does an advisory firm become a multi-family office, and how firm are those boundaries? In an ongoing poll on Family Wealth Report, 64 per cent of respondents said “yes” when asked whether the model was “too vague and increasingly indistinct from wealth management firm.”

For purposes of the study, the array of family office services covers the wealth management side (investment management, advanced planning and private investment banking) and support services (such as administrative and lifestyle).

In the Rothstein Kass study, of those advisors that have at some stage implemented family office services, only 17.9 per cent felt they had been successful, while over half felt they had been “somewhat successful” and just over a quarter felt the move had been unsuccessful.

What are the barriers?

Of the advisors who indicated no interest in the model (a total of 104) over three-quarters said they simply did not see the benefit. Other popular answers were that clients weren’t interested, that the advisors themselves weren’t interested in delivering non-financial services, and that these services were either too costly or complicated to implement.

These negative opinions regarding the model are “partly a function of experience,” says the report, as more than half of the firms answering in this way had tried unsuccessfully within the past five years to offer such services.

“However, from our findings, it’s safe to conclude that many of these advisors recognized innate potential but did not have enough wealthy clients from the onset. As a result, some of these early adapters introduced products and services that offered little value to existing clients and were not consistent with the expectations of the ultra-wealthy individuals they were hoping to attract,” said Alan Kufeld, a principal in the Rothstein Kass Family Office Group.

The outsourcing question

One of the difficult questions advisors considering expanding their services need to consider is which services it will be more efficient to outsource, says Rothstein Kass. A simple starting point for this analysis, the report proposes, is the number of high net worth clients, as the greater number of clients wealthy enough to afford MFO services an advisor has, the stronger the argument for adding in-house services.

For most financial advisors, however, “a more effective method” of delivering additional services will be to bring in specialists as and when needed, sharing revenues where appropriate, according to the report – establishing a so-called “virtual multifamily office” on a variable-cost basis.

As the key to this approach is selectivity, the report recommends starting any change in business strategy with evaluating and profiling current clients so as to identify potential opportunities. The report lays out a system called the “whole client model” to do this, which entails understanding wealthy clients from many perspectives: from their age, gender and profession to their interests, important relationships, the sources and nature of their assets and liabilities, and their goals and objectives.