Multi-family offices and wealth advisors are enjoying growing profitability—and revenue.

That’s what we learned while conducting the 2014 FOX Multi-Family Office and Wealth Advisor Benchmarking Study Report, FOX’s best and most current thinking on the direction of the Ultra High Net Worth (UHNW) advisory business.

Overall, profit margins are growing at multi-family offices and wealth advisor firms, with median profit margins up by 5 percentage points (from 19% in 2012 to 24% in 2013). However, at the same time, we have noticed increasing divergence in profit margins and revenue growth. A few top firms are substantially outperforming their competition, with top quartile firms outperforming bottom quartile firms in profits by 3-to-1 (33% vs. 11% profit margins). That’s up from a rate of just over 2-to-1 the year before (29% vs. 13%). This increase in profitability is due to both growing revenues and well-managed costs.

Revenue is also up, rising 20% year-to-year at top quartile firms—compared to 6% at bottom quartile firms signaling both strong growth and increasing divergence between the top and bottom quartile performers. Firms experiencing positive operating leverage have improved cost controls, deployed new technology to their front lines, and experienced cost savings due to lack of available talent to fill open advisory roles.

The strategies for this exceptional success at top firms have varied, and are often based on a firm’s size. Many larger firms have programmatically bolstered growth by substantially increasing referrals from other lines of business within their organization. Smaller firms experience successful and sustainable growth when they stick to a specific set of criteria that indicate whether or not a potential client would benefit from the firm’s strengths and capabilities. Many successful firms are doing a great job deploying the right level of process and technology to their front lines while simultaneously managing costs.

Looking ahead, all firms will be dealing with the increasing cost and dwindling supply of talent as well as the inevitable slowdown in market returns that have boosted asset growth.

The FOX 2014 FOX Multi-Family Office and Wealth Advisor Benchmarking Study Report is available to FOX member firms that participated in the study, and represents an important part of the curriculum of the FOX Multi-Family Office Council and FOX Wealth Advisor Council.
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