Print this article

Gatekeeper concept is reviving — family office gets a second chance

A staff reporter

13 March 2005

A new wave of institutional family office launches appears to be underway, following a spate between 1998 and 2000 that received a mixed reception from clients and industry professionals alike. This time, senior management appears to be adopting a much more open approach to the business model of the institutional family office structure. Moreover, the banks are now hiring a range of seasoned senior professionals, some of whom have family connections in their own right, to steer a course in the top sector of private client wealth. Crucially, non-Swiss institutions are at the forefront of this new wave of family office ventures. Among the firms now considering new commitments to the family office are ABN AMRO, JP Morgan Private Bank, Rothschild Bank and HSBC Republic. The Swiss houses are meanwhile looking closely at their current strategies toward family offices and several are moving to integrate them within their advisory-driven business units. Banks aside, a number of wealthy families are also now considering a more committed move into this sector. In July, Scorpio Partnership received eight family office-related enquiries ranging from strategic assessments, business establishment, funds allocation strategies, competitor evaluation, recruiting to outsourcing. This represents a major increase in client-led enquiries. Could it be that many are now choosing to take greater control of their financial planning? If so, the strategic implications for the private banking industry are clear. Scorpio is aware of five new family office business entities that have been established in July, which have an accumulated wealth under management more than $2bn. Several US family office firms have announced their intention to export their services into Europe. One recent public statement came from the Pitcairn Family Office, while others are still in the planning and recruitment stage. The objective of the new wave family offices – either those run by banks or by the families – now appears to be much more focused on the provision of independent investment advisory services: i.e., the gatekeeper. Scorpio Partnership consultants are currently interviewing a collection of European family offices about their interaction with the financial community and in particular the private banking sector. The resounding response has been the requirement to have trusted impartial investment counsel. Ultra-wealthy investors have no objection to paying a fee for this type of service. In this context, firms such as Cambridge Associates, Edward Jewson, Mercer Investment Consulting, Marsh Private Client Services, The Capital Partnership and Allenbridge are all beginning to pick up significant business in the family sector. Hence, the new institutionalised family offices will have to focus on giving advice and identifying the ideal investment solutions for the client – both from within the bank group structure and in the open market. The issue will continue to be whether the banks are prepared for the long conversion time period for many of these accounts. Private bankers regularly state that opening a family office account of any kind can take 18 to 36 months. But if banks are able to be innovative in their fee structure and convince customers to pay for professional counsel ahead of any account opening, the costs may become more bearable.