copyright © 2010 family wealth alliance, llc. all rights reserved

Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.

Building Bridges

Landscape, Comparisons

& Implications


Competitive Landscape: Families & Firms

Fee Charging Alternatives

Outsourcing/Collaboration: Family Office Services

Three Take-a-Ways forYour Business


Executive Summary: Market Heft, Resilient MFOs, Hesitant SFOs

Family Office Market Has Heft in the North American Landscape Estimated 140 Multifamily Offices (MFOs) with Aggregate $375 billion AUAs Approximately 2,500 Single-Family Offices (SFOs) with Aggregate $1.5 trillion AUAs MFOs Average AUAs at $3.5 billion; SFOs only $450 million Total Pie of 50k Households > $30 million Estimated at $12 trillion; MFOs & SFOs: 15% Mkt.

MFOs Resilient in Face of Turmoil, Enjoy Scale & Recognition AUAs Down Only 9.2% (S&P down 37% in 2008)), Client Relationships Up 8%,

with Employee Headcount Up 9%, while Client Attrition Rates are Low at 2.6% Average Client Relationship is $51.5 Million Scale Advantage, Deeper Talent Pool, & Gaining Marketplace Recognition

SFOs Hesitant, Not Trusting Alternatives, Have Panache of Being Private Cite Challenge of Keeping Next Generation Onboard, Family Governance Issues Not as Willing to Outsource, Not Trusting Alternatives Available Panache Still There, Intimacy & Privacy, Multi-Gen. Skills Advantage

The Landscape is Changing

Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved. 4

Client Net

Worth

Complexity

Enhanced Financial

Planner

Multi- Family Office

External Chief

Investment Office

External Family Office

Enh. FP

MFO

SFO Ext. FO

Single Family Office

PrivateTrust

Company

PTC

CFO

Closed Family

Office

Virtual Family Office

VFO

JVO

Joint Venture Family Office

Ext. CIO

Degree of Delegation

Trust

What the Wealthy Want Is Not Changing

Objective Advice

Stability of Relationship Management

Stability of Ownership

Open Architecture for Implementation

Competency and Consistency of Delivery

Breadth of Service Offerings

5 Copyright © 2010 Family Wealth Alliance, LLC. All rights reserved.

Ten Family Office Services 1. Portfolio Management

2. Record Keeping & Reporting

3. Estate & Wealth Transfer

4. Comprehensive Financial Planning

5. Tax & Compliance Work

6. Risk Management

7. Trust Company Services

8. Life Management

9. Family Meetings & Education

10. Strategic Philanthropy & Adm.

ServicesMost Offered

ServicesLeast Offered


79 Firms Participating » Down from 83 Last

Year Median of 38 Client Relationships » Up

8.6% $286.3 Billion under Advisement » Down 9.2% $51.5 Million Mean Relationship Size Employee Headcount Up 8.6% Minimum Annual Fee (Mean) » $78,000, Up 11.4% Attrition Rates » 2.6% Clients » 1.7% Assets

2009 MFO Study at a Glance



Highlights of MFO Research

Storm Damage Appears Relatively Minor Firms Facing a New Competitive Landscape Surge in Hiring of Relationship Managers MFO Executives Remain Highly Optimistic Evidence of Fee Compression Margins also Compressed, Perhaps

Temporarily Merger Activity Is Picking Up Again Building Bridges with Single-Family Offices

A Shift from Asset-Based Fees to an Annual Retainer

Asset Based Fees

Percent of Net Worth

Annual Retainer

HourlyRate


2008 %∆ 2007Revenue per $ Assets (bps) 60 -3.2 62

Expense per $ Assets (bps) 57 35.7 42

Profit Margin (%) 13.1% -42.3 22.7%

Operating Ratios for MFOs


Your Top 3 Competitors, Today and 3 Years AgoRank Today Rank 3 Years Ago

Goldman Sachs 1 1

Bessemer Trust 2 4

GenSpring 2 8

Northern Trust 4 3

J.P. Morgan 5 6

U.S. Trust 15 2

Merrill Lynch 27 5

Morgan Stanley 29 9

New Competitive Landscape


30 Single-Family Offices Participating to

Date Range of Assets Supervised = $450,000 to $2B Chief Executive Is a Family Member at 44.8% Average of 2.5 Generations, 14 Households Served Family Households Not Served = 6.1% Median Age of Family Office = 12 Years Youngest = 1 Year, Oldest =100 Years One in Six (16.7%) Part of an Operating Business

2009 SFO Study Interim Report


An Overlay of Stress from Plunging Markets

Strong Underlying Concern about Sustainability

Single-Family Offices Inherently Unstable

Fighting the Reality of ‘Generational Decay’

You Are in a Scale Business, Like It or Not

Not Immune from Advisory Firm Economics

Recognition of Challenges They Face

Openness to Partnering & New Solutions

The View from 10,000 Feet



Top Challenges: SFOs & MFOsFor the MFOs:Human Capital

Business Development

Managing Growth

Technology, Client Reporting

Marketplace Awareness

Profitability

Managing Client Expectations

Economic Turmoil

Invest. Client Portfolios

Operational Efficiencies

For the SFOs:1. Gen./Family Relationships

2. Investments

3. Human Capital

4. Justifying Expenses/Budget

5. Sustainability & Strategy

6. Financial/Generational Plan.

7. Consolid. Reporting/Tech.

8. Liquidity & Cash Management

9. Compliance, Tax and Legal

10. Managing Growth


Of the MFOs:Advice on Private Equity

Trustee Services

Advice on Job Search

Property-Casualty Risk Review

Gold Investments

Partnership Accounting

Enhanced Tax Reporting

Foundation Consulting

Family Education

Rising Expectations:What Clients are Asking For Now

Of the SFOs: Aircraft Management

Managing Newly Acquired Business

Family Investment Partnership

More Family Communication

Estate Planning

Foundation Management

Family Education


Overall Strengths (S) & Achilles Heels (A) MFOs SFOs

1. Client Trust/Office Integrity S S

2. Financial Planning S A

3. Scale S A

4. Investment Management S A

5. Fiduciary Management A S

6. Family Ed. & Communication A S

7. Client & Office Intimacy A S

8. Inter/Intra-Family Interaction A S

9. Consolidated Reporting. A A

10. Security A A

Complementary Skills


Comparison of Scalability: I

Mean Size of Participating MFOs

@ $3.8 Billion AUAs

Mean Size of Participating SFOs

@ $450 Million AUAs

MFO AUAs* SFO AUAs*

Tier Assets Per Employee Per Employee

I >$5B $182.6M $100.2M+

II $1B->$5B 94.1 83.4 - 100.2

III $0.5B-<$1B 90.3 54.3 - 83.4

IV <$0.5B 26.1 18.7

Comparisons of Scalability: II … but Research Is Inconclusive that Scale Translates into Efficiencies

* Sample From Participating MFOs & SFOs Only


Tier Assets________________________________

I >$1B 28.0 45.9

II $0.5B-<$1B 39.0 41.2

III $100M-<$0.5B 40.0-51.0 71.5

IV <$100 40.0-62.0 231.6

Mean MFO*Fees in BPs

Mean SFO*Costs in BPs

However, the Data Suggests MFOs Do Have the Early Advantage in Fees vs. Costs.

Comparisons of Scalability: III

* Sample From Participating MFOs & SFOs Only



Strategic Trends: I What are these Barriers to Collaboration?

1. Blurred Lines: Families & Their Advisors are Confused

2. Privacy & Control: “We Keep the Jet”

3. Family Indecision: Poor Communication & Governance

4. Lack of Culture Fit: Between SFOs & MFOs

5. No Def. of Success: MFO’s Profit vs. SFO’s Sustainability

6. Continued Human Capital Shortage: Especially RMs

7. Inefficiencies: MFOs & SF0s Dealing with Outsourcers


Strategic Trends: II

Key Drivers of Collaboration Will be the Following:

1. Scale Advantages2. Human Capital Requirements3. Demands of Family Members4. Complementary Nature of MFOs & SFOs5. Necessity of Sustainability


Implications of Current Landscape

MFOs Courting SFOs: Teenage Girls Not Yet

Dating Differences of Perspective & Def. Of Success

Not Yet Fully Understood MFOs Better Off Courting More Established

SFOs SFOs Largely in Denial, Not Trusting

Alternatives Outsource Providers Confused by Lack of

Courting Period of Transition Will Last for a While Will Necessities Overcome Mis-

Understandings? Will Venus & Mars Ever Hook-Up?

What Business are You In?

Source: Marketing Myopia by Theodore Leavitt © 1960 in Harvard Business Review

Your Firm

1. Manf. Trains & Track?

2. Railroading?

3. Transportation Biz?

4. Logistics, Warehousing& Delivery?

Be careful not to repeat the same mistake the railroad companies made in too narrowly defining their business!


Trends & ImplicationsCompensation Services Providers Threats

1970s Commissions Estate Planning Deregulation

1980s Technology

1990s Fee Only Complacency

2000s MFOs

2010s

Banks, Ins. Cos,& Wire Houses

Private Banks& Mutual Funds

Financial Planning

Financial Planners

Asset-BasedFees

Family Office

Annual Retainer

Trust & Scalability

Human Capital

Challenges/

Fee andCommissions

Investment Management

TheCollaborators

Family Wealth



Ten Crosscurrents in Family Wealth

1. More Choices for Families2. Renewed Focus on Family Gov.3. Nurturing Non-Financial Wealth4. Wanted: Objective Advice5. The Standards of Stewardship6. Concern: Sustainability of SFOs7. Turmoil: Traditional Providers8. Firms are Nat’ Driven by Scale9. Family Wealth is Going Global10. Families Remain Confused

1. Families: Confusion to Understanding2. Family Governance is More Practiced3. NextGen Remains an Enigma4. Deceit Remains & Fueled: Human Greed5. Commissions Become Extinct 6. Obj. Adv. the Norm, Best Advice Wins7. Savvy Competitors Learn to Collaborate8. Cycle Repeats of Consol. & Spins-Offs9. Prof. Desig. & Career Track in FW10. Global Is Common, Efficiencies Aren’t

GenSpring Family Office’s 20th Anniversary Compendium of Thought Leaders’ Views on Major Trends: The Alliance Authorship of the Above by Invitation

Current Landscape Landscape in 20 Years


Competitive Landscape: Families & Firms

Fee Charging Alternatives

Outsourcing/Collaboration: Family Office Services

Three Take-a-Ways forYour Business


Customized Consulting

Private FamiliesFirmsM&A Advisory

Involvement Offering At 3 Levels:

Executive Leader Advocate

Proprietary Research 6th Annual MFO Study 2nd Annual SFO Study 1st Private Client Survey

Unique Events40minus Leadership SummitThe Alliance Spring EventThe Alliance Fall ForumRegional Workshops


Building Bridges

Thank You!

copyright © 2010 family wealth alliance, llc. all rights reserved

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