From technology and retail to healthcare and financial services, we’ve seen that as an industry matures it reaches a point where consolidation becomes inevitable. Reasons vary, with limited growth opportunity being a frequent cause, along with finding new efficiencies and reducing costs, but regardless of the motivation, most industries reach this stage in their life cycle and start to reflect the pattern of related activity.
As the family office industry experiences significant growth in both the number of new offices as well as its prominence within the financial industry, this consolidation trend has begun to emerge through a variety of forms, and like other industries, with varying motivations.
Some of the activity is noticeable in the growing move from single family offices (SFOs) to either join existing multi-family offices (MFOs) or bring on new clients and transition into one themselves. Both are being witnessed in high-growth areas like Singapore, where the rapid increase in the number of family offices has started to meet resistance factors. Regulatory hurdles, demands for customized solutions, access to deal flow and even trust concerns around working exclusively with a single banking provider have arisen as driving forces.
Such a transition or conversion approach is particularly attractive to newer, smaller SFOs that look to offset such challenges, but the family office industry has also seen some sizeable consolidation transactions over the last few years with other reasoning.
Growing Efficiencies Through Economies of Scale
Early last year saw a notable transaction, when New York MFO Tiedemann completed its acquisition of London-based MFO Alvarium, creating AlTi Global, which currently boasts over $49 billion in assets under advisem*nt. And within a few months of that, Lazard announced that it had acquired MFO Truvvo Partners to create a new entity, Lazard Family Office Partners, to specifically provide wealth management and advisory services to families.
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Chicago-based MFO Cresset has also been active, with recent consolidation transactions including mergers with Meristem Family Wealth in 2022 and TRUE asset management in May last year. Cresset’s current assets under management (AUM) now sit at over $40 billion.
These larger deals are somewhat driven by a desire to increase enterprise value and efficiencies gained from operating at scale, with the annuity cash flow nature of wealth management being a strong case for growing AUM through consolidation.
Delivering On Service Needs, And Culture
There are of course many considerations a family office needs to take into account when it comes to acquisition, including culture and fit. When Schroders Wealth Management acquired UK MFO Sandaire in 2020, the objective was to better service Sandaire clients’ wealth management ambitions through Schroders’ extended reach as a global enterprise, but at the same time retain a distinctively family business approach.
“Sandaire founder Alex Scott felt that Schroders was the perfect fit,” says Clare Anderson, UK Head Schroders Family Office Service, noting, “The firm is 43% controlled by the founding family, has truly global investment presence and combines the culture and service of an entrepreneurial boutique with the balance sheet of a thriving FTSE100 business.”
Solving Regulation Complications And Costs
Schroders has been an active participant in acquisitions of various formats within the family office sector and Anderson notes that other driving reasons for consolidation are the increasing administrative headaches and costs associated with regulation and compliance.
With tighter regulation across the financial industry and governments adding legislation to reduce money laundering risks, compliance costs and related challenges have increased. Family offices can even find their ability to access financial instruments reduced through such regulatory updates, motivating an acquisition.
“In one case, stricter lending standards meant family members and beneficiaries found it difficult to access lending secured against trust structures,” Anderson notes, “This was a major factor in the family office’s decision to move assets to Schroders, which with its own banking licence, has the ability to lend.”
Pooling Strategic Resources
Another recurring pain point spoken of within the family office industry is recruiting and retaining top talent, both which hamper the ability to offer a full spectrum of sophisticated services at expected levels.
Goose Rocks Wealth founder Jason Pinkham, who previously co-founded Dynasty Financial Partners in 2010, has noticed talent requirements and a need to build out service offering as common motivations for entities to pursue consolidation within the sector.
“Many acquisitions typically hinge around strategic assets like financial planning, legal and tax services,” says Pinkham, “But beyond adding capabilities, they can include reasons like expanding markets to reach new clients, or increasing size to maintain pricing.”
Lazard’s acquisition of Truvvo is an example of the pursuit of additional strategic resources. Danielle Roseman, Managing Director and Co-Head of Lazard Family Office Services, and Managing Director at Truvvo Partners before the acquisition, notes that the consolidation oriented around creating a more holistic offering for existing Truvvo clients, adding both investment and service capabilities.
“In leveraging Lazard’s expertise and resources, we are strengthening our platform and are able to better service our clients,” Roseman explains, “Through this merger, we have been able to position ourselves to fully serve families, helping them with their overall goals to build a lasting legacy.”
Delivering On Technology Expectations
The boom in WealthTech is also starting to significantly reshape real-time capabilities of wealth management for family offices and ultra-high-net-worth individuals, with expectations shifting for the various off-the-shelf platforms, in comparison to custom built alternatives.
There is of course a significant cost factor to the latter, which is less attractive to smaller scale family offices that mostly don’t have appetite to commission such solutions themselves, yet want to benefit from a personalized and powerful WealthTech solution.
Anderson notes that at Schroders they’ve seen this drive consolidation with entities that have already built their own such digital solutions. This solves their need for managing assets through the latest WealthTech, while simultaneously dealing with other technology-related challenges that start to add up quickly. “Families must be protected from online crime, so investment in cyber security is a must,” she adds, “Families that invest themselves will also have to think about their approach to AI if they want to maintain their investment edge. ”
Consolidation Across The Industry
It’s not only within traditional family office structures that we start to see more consolidation, and if anything, as new alternatives arise that are seen as attractive and complementary offerings, we could see they become drivers of momentum.
Compound Planning, created from the recent merger of digital family office Compound with registered investment advisor Alternativ, is one such example, and resulted in a new offering that combines the traditional personal advisory service with an enhanced digital experience, handling over $1 billion in AUM since inception.
In conversation with Christian Haigh, former CEO at Alternativ and now CEO at the combined entity Compound Planning, he noted the potential synergy through a merger was clear, with Alternativ being focused on back-office and Compound focused on client experience. The holistic value that the new company’s technology offering brings can provide a complete digital family office solution for the most complex needs, with technology enabling and supporting their growth trajectory and paving the way for more advisors to come onboard.
Looking across the industry and tracking the activity and motivations, it’s clear there will still be additional factors to motivate consolidation outside of those highlighted here. An ageing population of wealth advisors, with the average age north of 55, along with the shift in multi-generational wealth to a younger, technology-connected demographic, are two that are certain to play a role. Just how much these will affect the rate of mergers and acquisitions within the family office industry remains to be seen, but they’re certain to start influencing things, if they haven’t yet already.
