The trend risks degrading private banks to indirect partners and service providers for the uber-wealthy. 

In finance, it is often the case that what comes around, goes around. You can say much the same thing about the now firmly ensconced global banking discipline of wealth management. 

For example, when looking back, we might even make an argument that some of the Huguenots fleeing France for Geneva in the 17th and 18th centuries practiced an early predecessor of what many might acknowledge as a present-day family office.

Start of an Industry

Although many of them were subsequently superseded by unlimited private banking partnerships, some of which survive to the present day – that time also signaled the start of an era marking an ever-widening panoply of private banks, and in the latter part of the 20th century, a bourgeoning wealth management industry.

Now, however, things look as if they are turning full circle. In other words, the family office is becoming the new private bank, at least for ultra-high-net-worth individuals.

Prevailing Majority

A Capgemini survey released Wednesday, the key facets of which have been previously reported by finews.asia, shows that 93 percent, or almost all of HWNIs, are already using family offices for value-added services, particularly for those that don't have pure financial characteristics.

In the non-financial realm, concierge services came first, followed by networking opportunities, legal consulting, lifestyle advice, and aggregated views of investments across multiple jurisdictions. The consultants also set them alongside pure financial services, with investment management leading the way, followed by inheritance advice, tax planning, retirement planning, and real estate investment advice.

No Gifts or Hospitality

But if you put the two lists together, a few things become clear. Medium and large-scale wealth managers, encumbered by internal processes, as well as gifts and hospitality regulation in many jurisdictions, are always going to be challenged in the concierge and lifestyle space. 

They will also never be able to provide an aggregated view of investments across multiple jurisdictions unless the UHWNI books everything with one specific institution, something that is always going to remain highly unlikely for pure diversification and risk management reasons. Such clients would have to make full, substantiated disclosures during regular portfolio reviews, not just at onboarding, and possibly arrange for regular reporting of portfolio and asset changes, a mechanism that would be cumbersome and prone to error in the best of times.

Much Freer

Family offices, however, are much freer in those kinds of respects, with Capgemini indicating that they use third-party platforms, as an example, to secure access to concierge services.

One can only imagine the rigmarole, not to mention the faint cries coming from the COO team at any nominal private bank if they tried to do the same. It would be a long and difficult task, should it even be deemed possible, to shepherd that same company or platform as an outsourced service provider through the regulatory hoops of the likes of a Hong Kong and Singapore regulator.

Consolidated Views

When it comes to an aggregated view of wealth, family offices also have an insuperable advantage, Capgemini maintains. 

They are frequently a step ahead of banks when it comes to generalized wealth, particularly non-bankable assets, and they can feed in-house portfolio management tools with data from multiple banks to help get the much-wanted consolidated view, something most in the traditional industry would again be extremely challenged with.

In Search of Wallets

But all is not lost, or not completely. UHNWIs say they still like to have the incumbents manage the pure financial variables and are still in a prime position to offer custody, as well as access to a wide range of investment and investment-related services.

«But there are expectations beyond investment opportunities; UHNWIs are turning to different providers to meet separate needs. Amid increasing competition it is challenging for incumbent WM firms to retain wallet share without providing a full suite of services,» Capgemini indicates.

High Fluctuation

But all this is not without its risks. UHNWIs are traditionally far more mobile and flexible than their HNWI counterparts, something that is also visible in the survey.

According to the consultancy, about 78 percent of UHNWIs are likely to switch their wealth management provider this year, which shows that the latter currently struggle to deliver the range and quality of services desired. 

No Direct Interaction

«With their diverse operating model fully aligned with the objectives of the families they serve, family offices are becoming more visible and challenging traditional WM firms,» Capgemini said.

Given these current trends, wealth managers are «slowly but surely» losing visibility and the ability to directly interact with those kinds of clients.

No Easy Way Out

In effect, that reduces them to little more than generic service providers for what has traditionally been seen as a key market segment. 

For any senior wealth management executive and relationship manager, that doesn’t augur for a particularly easy future.