'Shared' family offices – the next competitor to private banks
The number of family and multi-family offices is steadily increasing thanks to technology developments and a desire for objective advice, say wealth management industry executives.
Rob Elliott joined Bessemer Trust 39 years ago to help the Phipps family open up their family office to become a multi-family office. In March, Elliott left his role as senior adviser at Bessemer to become vice-chairman of Market Street Trust, a shared family office owned by the Houghton family.
Elliott sees a new era of family offices that provide ultra-high-net-worth (UHNW) families with access to products and investment managers, while operating in a co-ownership structure.
At Market Street, families are shareholders in the overall organization as determined by the assets they have under management with the firm.
“There is still a profit motive, but that is not the core driver of Market Street," says Elliott. "Client family members may also be invited to be a director if they are interested and are a fit – they therefore may also have a voice in the governance.”
|Rob Elliott, vice-chairman
of Market Street Trust
He adds that it is a new model he believes might become more popular as the number of multi-family offices increases.
UHNW clients, the target for private banks, have yet to see conflicts of interest subside within the firms that service them. With pressure on revenues, private banks are still geared to pushing product and viewing clients as distribution channels.
UHNW clients are also being courted more directly in the US by investment managers, who are realizing their bread-and-butter state pension fund clients might not be the clients of the future.
The result of this is that families are opting to leave private banks and go it alone. To set up a family office requires some $150 million in assets to make it a viable venture, so multi-family offices are picking up traction. Serving more than one family also leads to sustainability of the business and provides a better career path for staff.
“Because of the dislocation in the private banks and wirehouses, you will see a proliferation of family offices and multi-family offices,” says Elliott. "Families want something more personal, and objective and trustworthy. They want access to high-quality product also and they can get that with transparency through a multi-family office."
Marv Pollack, at the Family Office Exchange – a peer-to-peer network for wealthy families – says there is still insufficient data that tracks the number of family offices and multi-family offices in the US, but he estimates there could be around 6,000 single family offices.
One consultant says he is confident that multi-family offices are growing as more independent advisers want to get into the space.
Elliott is charged with developing Market Street Trust’s New York City presence. The Houghton family founded glass-making company Corning, which is based in upstate New York.
From developing incandescent lamp envelopes for Thomas Edison, and producing mirror glass for the Hubble Telescope, Corning today specializes in glass and ceramics, as well as optical fibre for global communication networks.