Richest family offices seeing fastest growth as firms oust banks

Pint-size Millionaires

Lintz kicked off her money camp three years ago. She hired a retired math teacher to design the curriculum for the pint- size millionaires -- sons and daughters of beer-brewing executives, Internet entrepreneurs and the athletes.

Much of this care and feeding comes out of the 30 to 70 basis points against assets that the firm charges the 140 families who utilize its services. A basis point is 0.01 percentage point.

FMP sometimes charges extra for extraordinary services. Lintz’s profit margins are 20 percent, well below the 40 percent she says traditional asset managers aim to earn.

“Multifamily offices have been trying to figure out a profitable business model for a couple of decades,” says John Davis, chair of the Families in Business program at Harvard Business School, who studies the firms. “They are seeing the limits of providing a lot of services.”

Demanding Clients

Clients can be demanding. One whose assets are overseen by Signature schedules weekly meetings with its staff, founder Susan Colpitts says. The firm manages the client’s money, buys and sells his real estate and helps hire household staff.

“We don’t walk the dogs, but we do pay the bills and help people with private aviation,” Colpitts says.

“The business of tax preparation and bill paying is a lousy business,” says G. Moffett Cochran, co-founder of Silvercrest Asset Management Group LLC, which ranked 18th, with $10.2 billion under advisement. “You can’t lever it up. We do it, but we insist we get paid for it properly.”

Low margins and all, the business is attracting savvy buyers. In July, Affiliated Managers Group Inc. purchased a stake in Veritable LP, a family office firm in Newtown Square, Pennsylvania, that oversees $10.3 billion for 193 hyper-rich families and that’s No. 17 in the ranking. AMG won’t say how much of Veritable it bought or how much it paid.

Fund Rollups

AMG normally buys mutual funds and hedge funds, which charge higher fees because they manage money directly. Family offices often farm out clients’ money to professional managers. AMG’s stakes in 27 managers generated $553.4 million for the firm in 2011.

“I really don’t care what the margin is,” AMG CEO Sean Healey says. “A lower-margin business that is stable is perfectly fine.”

Boutiques such as Signature and FMP are eating into a business that the banks rely on. Their middle-class clients are getting poorer. Median household net worth in the U.S. declined to $77,300 in 2010, the lowest since 1992, according to a June study by the U.S. Federal Reserve. New laws designed to prevent a replay of the 2008 credit crisis have made trading less lucrative too.

That makes banking for the wealthiest more attractive than ever. To take in more family cash, many big institutions are trying to look smaller -- and more blue-blooded. In April, Wells Fargo & Co. set up a unit called Abbot Downing to court family clans with $50 million or more.

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