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Technology and the neglected millionaire

Thomas Coyle

16 June 2005

New tools narrow the service gap for the “mid-tier wealth band”. “Mid-tier” millionaires with complex and sometimes far-flung holdings are sick of having to manage their wealth managers. As a result they’re starting to demand coordinated wealth-management services traditionally associated with dedicated family offices. The challenge for wealth managers is to cull out technology platforms and service paradigms to help them meet that demand without squeezing their margins.

There are about 745,000 individuals worldwide with between $5 million and $30 million in investable assets – what the authors of the Merrill Lynch and Capgemini 2005 World Wealth Report call the “mid-tier wealth band.” Most of them are corporate executives or small- and medium-size business owners who have made their own fortunes. There are about 10 times as many people in the $1-million-to-$5-million category, and about 78,000 in the $30-million-plus bracket. The mid-tier population grew 7.9% last year versus growth rates of 7.2% for the lower band and 8.9% for the top tier.

Left out

The problem for the mid tier is that it’s caught between service models. People with between $1 million and $5 million face considerable challenges in managing their wealth, but “they have not achieved the level of wealth that triggers a geometric increase in the complexity of managing their assets and liabilities,” Petrina Dolby of Capgemini’s wealth management practice, says in a press release heralding this year’s Wealth Report. “At the other end of the spectrum, the ultra-high-net-worth set has access to, and can afford, the cost of running a family or private office to which they can comfortably delegate nearly all of their wealth management activities.”

Leslie Voth, director of wealth management services at Pitcairn Financial Group, a multi-family office based in Jenkintown, Pa., says the Wealth Report is right to emphasize the mid tier’s plight. “They’re needs aren’t being met,” she says. “A lot of the prospects we talk to in that category want they total package; they want advice and access to the services that ultra-high-net-worth clients enjoy.”

And their needs are real. An individual with a liquid net worth of, say, $20 million may face all the challenges of someone with twice or ten times as much. Those challenges include scattered investments, multiple trust accounts and insurance policies, as well as tax, philanthropic, business-succession and family-governance considerations. “ often turn to a fragmented group of specialist advisors instead of a single source, which presents significant challenges in managing their wealth.”

Mid-tier millionaires are in fact miles from being able to afford dedicated family offices, says Maarten van Hengel, a partner in New York and Boston-based multi-family office Highmount Capital. He figures it costs between $1.5 million and $2 million a year to run a “really good” single-family office. That makes it tough for a family with much less than $200 million to make a go of it, he says. “People used to say you need $100 million or $150 million, but the costs keep going up.”

A 2004 study by the Family Office Exchange (FOX), a Chicago-based consultancy to ultra-high-net-worth families, seems to bear that out. FOX’s 2004 Compensation and Benefits Report shows that base salaries for family-office professionals were 6.7% higher in 2003 and 2004 than in 2001 and 2002. Bonuses and other perquisites to family-office personnel are getting fatter too, as some families respond to uncertain markets by attempting to reel in high-priced strategists from the financial-service mainstream.

Fortunately, say Merrill and Capgemini, the gap between mid-tier millionaires’ service expectations and the market’s ability to meet those expectations is narrowing. “We believe that a new model of service will emerge over the next three to five years that will enable own office.”

Scully says he’s not aware of anyone having the technology needed to pull off such sophisticated online collaboration and real-time workflow. “We do video conferencing between our offices, but there’s a whole lot more to bringing multiple advisors in multiple locations together in an actual work environment than meets the eye,” he says.

Besides the technical limitations, van Hengel says that many clients, mid-tier or not, worry about the security of online collaboration. “Not everyone wants everything on the Internet,” he says. “There just isn’t a lot of demand for it from our clients.” Their preferred mode of online collaboration, he says, is secure email.

At root, van Hengel adds, high-net-worth clients are looking for “a trusted advisor to help them administer their wealth” more than they crave purely technological solutions.

Pitcairn’s Voth agrees. “We definitely collaborate with our clients’ other advisors – accountants, estate planners and asset managers as well as family governance consultants – that’s an extremely important part of what we do; but it’s hard to accomplish that just with technology,” she says. “This is really about forming and maintaining relationships, and acting as a project manager on the client’s behalf to make sure things get done.”

Click here to download a copy of the latest World Wealth Report (sign-in required). –FWR

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