Adam Malamed is the CEO of Sanctuary Wealth, a financial advisory firm that works with high-net-worth clients. He spoke with Crain Currency about what he calls the democratization of the family office and the need to become a “holistic life manager.”
You recently wrote about the democratization of the family office. What did you mean by that?
I started talking about it a couple of years ago and really leaned into it last year. You have to look at the macro environment that we’re in today, where there’s $50 trillion of investable assets in the U.S., and it’s expected to grow to $90 trillion. Huge asset growth that is going to happen over the next 10 years.
And at the same exact time, McKinsey is projecting that by the year 2030, the wealth management industry faces a shortfall of about 100,000 advisers. So you have a major surge in assets and fewer advisers to manage those assets, especially those that focus on the high-net-worth area of the market.
Where the democratization of the family comes in is as you look at changing demographics of investors, investors are demanding more from their financial advisers. They’re demanding differentiated services and tailored solutions. It’s similar to the democratization of alternative assets. Twenty-five years ago, alternative investments were only available to institutions and qualified purchasers. Through the evolution of the product, you started to see differentiated products available to high-net-worth people.
How do the next-gen members of family offices differ from their elders when it comes to seeking investment advice?
Think about the next generation of investors. You're going to transfer from the baby boomer or the older generation to the younger generation. And what's interesting is that the data shows that the younger generations are willing to pay more for advice. They'll pay more than their predecessor — they want a better experience, they want a personal experience, they want a technically advanced experience.
For people under the age of 43 years old, about 16% of their portfolio is allocated to alternative investments; as opposed to people above the age of 43 years old, who have anywhere between 2% and 4% of their investments in alternatives.
Financial advisers that are not equipped to have the conversation about digital assets and such alts, there is another adviser out there who will, and that could be something that stimulates client movement. It’s the same thing with services, if you’re not providing your client with all the services that they will be demanding. And that ties into your digital footprint and your digital agility in adopting strategies that are very much tailored and using the newest technologies that are out there while also providing the foundational elements of a business that provides family governance, tax advice, legal advice. It's more about becoming a holistic life manager.
As this great wealth transfer is happening, what impact does that have on the family offices in terms of governance, investing strategy, etc.?
I don't know if it has an effect on the family office but on the service provider that supports it. A financial adviser is mandated to be versed in complex estate planning. So will they [the family office] be more reliant upon the external expertise that can help them navigate the very complex world of estate planning? The high-net-worth folks are going to demand something like that. And the advisers that are going to answer that question will be the winners, versus those that are just going to sit there and rest their world on just being an investment professional and just focus on managing money. I believe people that focus on just managing money have significant client attrition risk in the future.
That role has changed a lot over the past few decades.
The industry has long talked about decompression — but I don't necessarily call it that. I call it service expansion. You're providing more services, more differentiated experiences, more talent solutions to your clients.