4. The State of Play
Banks compete for business from family offices in a market environment with strong commoditising pressures upon even their most bespoke products and services. Banks also compete against private wealth management advisors, specialised law offices, and other independent advisors catering to family offices. Further, family offices retain the option of expanding their internal capabilities or extending their reliance upon external advisors to fulfil many of the needs that private banking is designed to meet. The flexibility of family offices contrasts the predominantly corporate structures of banks, which often sees family offices hiring former bank employees when bringing on key staff.
Family office approaches to banking vary as do their experiences and ability to negotiate for the best possible service across markets. One of the biggest difficulties for family offices optimising their banking relationships is directly comparing competing banks across products and prices. However, the fact remains that the higher the AUM, the more power that brings to the negotiating table and the more access to preferential services. Yet, all family offices benefit from forming strong banking relationships that increase trust and the flexibility of banks when creating service packages and lending terms. Trust and understanding are especially helpful if a family holds a large percentage of their assets in a business before an exit or has a similar asset structure.
The three most common in-house capabilities of family offices across size and type are strategic asset allocation, risk management, and financial accounting and reporting. These services form the backbone of family offices across their range of organisations. Other services most often completed internally include portfolio administration, accounting, philanthropy, and succession planning. The remainder of the services that banks provide in their private banking offerings overlaps with the comprehensive services of multi-family offices or a large single family office.
One consistent finding came through in our research across family office size, structure, and location: the best way to get the most out of banking relationships is to clearly identify needs and then determine each bank’s ability to meet those needs. This approach has led many family offices to transition from having banks closely integrated into their operations, to keeping them positioned as external service providers.
Taken from the perspective of one large multi-family office, they see themselves as agnostic to the banking products and platforms, providing guidance for client selection, but remaining willing to work with each family’s providers. This MFO’s primary banking needs are the ability to quickly complete transactions for their clients and efficient, consolidated reporting to smooth their operations. They also function as the first contact with banks and other service providers. If a family needs a service, they will go find it. Many MFOs see themselves as the bridge between banks and families.
“One problem is that private bankers have a boss that isn’t the family.” – Multi-family office relationship manager
Family offices need to find the right banking fit in terms of products, performance, values, and personnel. It is a balance of chemistry and competence, highlighting the continued personal character of private banking within a largely numbers-driven industry. After onboarding, consolidated reporting is one key to a productive ongoing partnership for most family offices, especially for large MFOs. The importance of effective digital processes rises with the number of clients and the complexity of the asset structure. Banks do not need to pioneer their own path and create their own technological solutions. There are key external technology providers with ideal solutions for family offices for banks to partner with to bring these services to their clients.
Other family office use cases highlight different experiences. For example, a small SFO with optimised office staff in high-value roles around investment strategy and wealth management paired with outsourced back-office administration is in an ideal position to make banks compete for their business. Many HNWIs and smaller SFOs work with relationship managers at local banks to develop partnerships that are responsive to a wealth level that may not be prioritised at a large global institution. This type of client needs a bank employee, a key contact empowered to advocate for them across the entire bank from bonds to lending who is not constrained by pre-formulated product offerings. When personal lending is important to HNWI and smaller SFOs, banks often require deposits to be collateralised, but lending flexibility is increased through building trusted partnerships.
“Banking is still a relationship between people.”– Family office advisor
Key satisfaction points:
- Tenure of relationship
- Breadth of services
- Worldwide reach
- Flexible credit line
- Responsiveness in listed trades
- Attentiveness to transaction needs
There are many inherent tensions in private banking relationships. Despite efforts by many banks to meet clients on their terms, banking culture, especially in their front offices, remain revenue-focused. One way that private banking clients may notice this most directly is when a bank has an interest in driving sales of a particular product or service. Their product funnel hurts the credibility of banks as neutral brokers to their clients. Commercial MFOs can step in between families and banks to balance personal and business interests. MFOs create margins by providing service for families, banks need volume for their shareholders.
“Competence, professionalism, flawless execution, a strong personal relationship built on trust, access to information, and services” are the keys to a banking relationship. – Single-family office principal
- Better reporting
- The highest level of cybersecurity
- Participation in Open Finance
- App-based payment approval
- Granular technology tools to export into tracking software
- Automatic exchange of information
- Improvements in transaction management