Once slow to switch financial service providers, ultrarich families have been replacing vendors that provide support services at a quick pace since the financial crisis.
U.S. family offices — private wealth management entities that number a few thousand and account for more than $1 trillion of assets — are switching out investments, risk management, performance reporting and trust service providers in reaction to the market crash of 2008, said Robert Casey, research chief at Family Wealth Alliance, a Wheaton, Ill., consultancy to rich families.
Tim Hartzell of Sequent Asset Management is benefiting from this movement. His Houston firm, founded in September 2008, serves about 35 ultra-high-net-worth families, most led by first-generation entrepreneurs.
Hartzell said the downturn "has been very good business" as families look for investment advisers who can help them manage the growing complexity of wealth ownership in the face of volatile markets, a shaky economy and an uncertain federal tax regime.
By one measure, U.S. millionaires lost 30% of their wealth in 2008. Though the stock market has been clawing back lost ground for three years, the shock of the crash — and the financial company collapses, bailouts and mergers that accompanied it — have pushed families to take a hard look at their service providers.
First on the block, and for obvious reasons, were investment managers, Casey said. Next, in a bid to become better wealth stewards and risk managers, families focused on understanding their holdings through more accessible and comprehensive performance reporting. Banks came in for scrutiny from families in search of better deals on trust services, or when they felt annoyed about stingy lending policies.
A similar phenomenon is occurring in Europe, where 70% of family offices replaced a service provider last year, according to Campden Media of London. Nearly a third of them changed banks.
This sort of churn is unprecedented, said David Bain, Campden's head of wealth management research. Before the financial crisis, ultra-high-net-worth families were "glued to their banking relationships."
