Investments & Wealth Review — A Cautionary Tale

In the March/April 2025 edition of Investments & Wealth Review, author James “Jamie” McLaughlin addresses the idea that while advising ultra-wealthy clients is aspirational for many, the reality may be far more complex — and far less forgiving — than many professionals realize.

McLaughlin is the founder of J. H. McLaughlin, LLC. He has more than 30 years of experience in senior operating and client-facing roles in the ultra-high-net-worth and family-office segments of the industry. He earned a BA in history from Lafayette College and an MPA from Harvard Kennedy School.

A Cautionary Tale

THE CHALLENGES OF SERVING THE UHNW AND CENTIMILLIONAIRE CLIENT SEGMENTS

By James “Jamie” McLaughlin

THE WEALTH MANAGEMENT industry is at a crossroads. A profound shift in demand favors objective advice, but extremely challenging business economics leave most firms undercapitalized and under-resourced to meet the demands of wealthy families. This is particularly pronounced for advisors who prize or aspire to serve the more complex ultra-high-net worth (UHNW) [1] and "centimillionaire" [2] client segments where the economics can be perilous.

The demographics suggest a compelling opportunity [3], but the challenges of serving the UHNW client segment easily can outweigh the perceived opportunity. The UHNW and centimillionaire client segments are peculiar and idiosyncratic — they are dramatically different from affluent and even moderately high-net-worth clients. Most firms should stick to their knitting and be content serving client segments less than $25 million, where the services are more replicable and margins much higher.

Trends

Increasing Wealth and Complexity

According to Cerulli Associates [4], as of year end 2022, there were 129,665 households in the United States with more than $30 million in net worth, representing $15 trillion in wealth [5].

As the number of UHNW families continues to increase, so does the complexity associated with managing and administering that wealth. Private investment vehicles and alternative investments, particularly, add a tremendous amount of complexity—including monitoring, administration, and performance reporting on those assets. Advanced estate planning tactics result in structures that require annual tax reporting, accounting, and administration. With increasing wealth comes new assets including homes, planes, boats, and collections. With those assets come employees, maintenance, and risk management—placing and renewing property and casualty insurance in this current hard market being an example [6].

In addition to complexity, each family is different and almost every service provided must be customized to each family’s wishes. To serve these heterogeneous needs, many service requirements and associated work processes are non-replicable.

Alignment and Transparency

By operation of law [7], registered investment advisors are required to act in a fiduciary capacity and have a duty of loyalty to always put the interests of their clients first. Wirehouses and private banks provide many advisory services, but they are not subject to this strict standard.

But the larger issue is alignment, which is governed by demand. Families prefer their advisor to act as their agent. Should their advisor act as a principal with some economic self-interest, that conflict (the so-called "agency dilemma") must be disclosed.

Shift in Demand for Non-Investment Services

The most overarching trend is a generational shift from investment management models historically driven by supply and centered on product manufacturing and distribution to contemporaneous wealth management models driven by client demand and centered on delivering integrated advisory services and counseling across multiple disciplines.

The service matrix has expanded. Thirty years ago, no one would have imagined or expected that their investment advisor would provide counsel on such exogenous needs as, for instance, family dynamics, business consulting, philanthropy, and health and wellness.

But too many firms that aspire to serve more complex wealth segments do not fully understand the unsystematic needs of the segment, and their staff models are not deep enough to deliver on such promises without cannibalizing their margins.

In the absence of a disciplined service and related pricing model, these expanded services have systematically eroded firms’ margins. In spite of this warning, firms continue to invite complexity, and terms such as "holistic," "comprehensive," and "integrated" abound on firms’ websites. Many proffer "family office services," but the term is too often a hollow marketing tagline to attract UHNW and centimillionaire clients.

Consequently, margins of 15–25 percent for firms that serve these rarefied client segments are common compared to margins of 25–40 percent in the mass- affluent and high net-worth client segments.

Shift in Business Models

The UHNW client demand favors a professional services firm model centered on counseling across a wide spectrum of client needs as distinct from the traditional transactional product manufacturing and distribution model. The firm of the future will have a combination of scale and speed while maintaining client intimacy [8].

Firms Are Scaling

Through a combination of organic and inorganic growth, a category of 40–50 firms with $20 billion or more in assets under management (AUM) has emerged to focus on these uber client segments, with a handful now greater than $100 billion. Similarly, brokerage teams that serve the UHNW client segment and manage more than $5 billion in AUM are not uncommon.

The Challenges—Why Is It So Hard?

There are many "theaters of operation" for firms to consider when serving UHNW and centimillionaire families. And each of them is interdependent. I will posit summaries of a few that will underscore the increased degree of difficulty firms face when serving these segments.

Scale

As firms grow, there exists an inherent tension between scaling and maintaining client intimacy. As Andrew Schwedel of Bain & Co. articulated at The UHNW Institute’s recent Collegium [9]: "Growth introduces complexity, which can dilute focus and erode the benefits of both scale and the founder’s mentality. Sustainability requires maintaining clear mission alignment and strategic clarity."

Capital and Sustainability

Most firms that serve the UHNW client segments are registered investment advisors and independent trust companies formed as partnerships with no capital other than their free cash flow. Claiming "independence" as a firm’s identity and brand can be a hollow promise if they cannot reinvest in their people, resources, and business processes. But a surfeit of capital sponsors is now investing in the business in many variations. Some minority and strategic investors are providing capital for founders’ succession and for firms to exploit the compelling market opportunity to serve UHNW and centimillionaire clients.

Others are financial buyers who may dilute a firm’s ability to maintain the culture that made them attractive and may lead to a dilution of client intimacy.

Despite the array of capital options and the decade-long cascade of deal-making, a few winning firms will emerge that will have a virtuous capital structure that serves their owners, clients, and employees equally well. Those firms represent sustainable business models into the future.

Profitability

For wealth management firms broadly, profitability centers on people—their efficiency and configuration. There are fixed costs for nonclient-facing staff and business management and variable costs for revenue-bearing advisors and support staff.

The prime mover determining margins is the cost of staff (typically, 65–80 percent of a wealth management firm’s expense structure), which for UHNW and centimillionaire clients is at the higher end of that range where there tends to be lower capacity utilization per headcount. Further, the UHNW firm’s headcount has a higher unit price. In summary, it requires more expensive people to "carry the dialogue" who have lower realization rates because the needs of UHNW and centimillionaire clients are often idiosyncratic and customized. So, the profitability per client is inherently lower.

Creating economies of scale or operating leverage requires much more discipline in both the execution of the service agreement and related pricing model.

The Staff Model and Talent

The conversation has changed. Few professionals can carry the dialogue across the variegated demands of UHNW and centimillionaire clients. They either do not have the integrated competencies or do not have the innate attributes to counsel, listen, and provide clients a safe place to reveal themselves and express their needs. Whether expressed by the client or unexpressed and discerned or feathered out over time by advisors, there will remain unknowns.

Such client complexity implies an ensemble delivery [10] where the lead advisor or team acts as the equivalent of a general contractor assembling solutions internally and externally to achieve the desired client outcomes. Ownership of the client relationship requires both integrated solutions and collaboration among and between professionals. The ensemble model is better for clients and also for firms’ economics where they can more effectively manage their client-facing staff’s load management and capacity utilization.

McKinsey recently identified a looming talent shortage [11]. The challenge is industry-wide, but it is particularly acute for the advisors needed to serve UHNW and centimillionaire clients. At its root, the pathway to becoming a counselor to families of great wealth and complexity is misaligned. There is no early talent identification process. Firms react to what the market presents them, often cannibalizing their neighbor’s talent or accepting whatever the market produces. This is changing with some incipient academic programs, industry credentialling, and a few leading firms’ internal training initiatives, but there is no leading UHNW learning platform that prepares an aspiring advisor for the training needed to serve the complexity of great wealth.

In this void, The UHNW Institute’s seminal "Ten Domains" template offers a compelling rubric [12].

The Service Model

There are four primary service verticals:

 INTEGRATION AS A SERVICE. This is as much an orientation as it is a service itself but is highly dependent on the service model and available talent to deliver.

INVESTMENT MANAGEMENT. This includes investment strategy, investment vehicles, and the operational issues needed to support and administer the investment process.

ADVANCED PLANNING. This covers a host of different disciplines and services, where the advisor, team, or firm must coordinate multiple providers, some internal and some external.

INFORMATION MANAGEMENT OR DATA ASSIMILATION. This includes the data and metadata that can be used for various advisor and client needs such as investment reporting, budgeting, cost accounting, financial planning, and accounting.

These are not, per se, unlike the service needs of the mass-affluent and HNW client segments, but they are categorically different when the degree of client complexity is introduced.

Notable areas that are often dependent on external partners or where internal staff are under-resourced include: family counseling, business transition consulting, family household administration, and private investments. The staff complement for the latter, private investments, is often grossly under-resourced and extremely expensive to build. Alternative platforms, i.e., iCapital, CAIS, etc., are not the bespoke solution that clients demand. Although they offer operational efficiencies, they are largely distribution platforms.

Organic Growth/Client Acquisition

Organic growth has been tepid in a remarkable 15-year capital markets cycle. Demographic data indicates a pronounced growth in UHNW households; however, it is unclear that even the leading UHNW firms are capturing these mandates. Despite the costs to do-it-yourself, many subscale family offices are being created.

This can be partly attributed to poor client acquisition strategies and execution, but it is largely due to firms’ inability to demonstrate their value.

Pricing

Firms’ dependence on the traditional and convenient asset-based pricing model signals that their non-investment services are apparently "free" and, therefore, of negligible value. Firms must get off the asset-based pricing "treadmill" and resocialize clients to the "building blocks" of where their value is rendered [13].

Technology

The cloud computing revolution’s effect on the wealth management industry at large cannot be overstated. Ten years ago, most firms licensed SaaS applications on a point-solution basis. Today, integrated systems delivered via the cloud are available, delivering multi-functional solutions for both the advisor–client relationship and for the business with enhanced work-flow management. But firms’ legacy systems remain a millstone and a multi-functional, omni-platform for UHNW and family offices does not yet exist.

A potential future state is the separation of advice and counseling from operations entirely as omnibus platforms emerge, not unlike the business processing outsourcing trend of the 1990s [14].

Prescriptions

OWNERSHIP. Wide eligibility for ownership that transitions generation-one founders’ capital to next-generation owners is a best practice. The earlier an internal equity "recycling" process starts, the less need for a capital sponsor and potential loss of control.

IDEAL CLIENT PROFILE. Firms should define and stick to an ideal client profile. Identifying client segments where the firm can deliver the most value lowers a firm’s cost of acquisition and, while perhaps not replicable, ensures a more consistent and sustainable service delivery.

CLIENT ACQUISITION. Most centimillionaire clients, including family offices, maintain multiple professional advisors. Winning set pieces within large and complex families and expanding the mandate over time is a more practical approach than attempting to replace existing advisors outright.

PRICING [15]. Employ a mix of asset-based and non-asset-based pricing, the latter a retainer fee under a master service agreement (as opposed to an investment advisory agreement) updated annually based on the scope and complexity of services to be rendered. This protects against margin erosion due to scope creep, and it is also a defense against the loss of pricing power for investment management and an asset-based model’s vulnerability to capital market cycles.

SERVICE MODEL. A core-versus-adjacent approach that examines those services a firm can deliver profitably alongside a systematic partnering with external or adjacent firms for whatever reason is a best practice. There are many variations without the loss of client primacy.

STAFF MODEL. The ensemble staff model (lead advisors with support staff supported by specialized teams) is the primary determinant of a firm’s profitability. It improves the client experience by delivering the best thinking of the firm to all clients.

TALENT DEVELOPMENT. Firms will need to have early identification systems in place to identify and recruit talent. Personality assessment tools are part of the answer. Further, they will need to build academies and centers of learning to breed the next generations of advisors with an emphasis on client relationship delivery skills. Pirating advisors from other firms is not the solution and can beget cultural incompatibility and dilution.

TECHNOLOGY: The cloud-computing revolution is a tailwind. Although there is no omnibus UHNW or family office tech-stack platform, emerging SaaS alliances present an opportunity to rethink legacy systems.

Summary

Serving UHNW and centimillionaire clients presents firms with unique challenges due to their clients’ complex, customized needs, making traditional business models less viable.

For most firms, the service bar is too high and the economics too perilous. They should be cautioned to stay in their respective lanes, where the service complement is more replicable and the economics more predictable.

Key trends include a demand for counseling, an expansion in service expectations, a shift toward alignment, and increasing family complexity. However, many firms lack the depth, capital, and talent to serve this demand without eroding profitability. Scaling while maintaining client intimacy is particularly difficult.

The exemplars will assemble the right people in an ensemble staff configuration, develop their home-grown talent pipelines, manage their growth around a disciplined client acquisition strategy anchored to an ideal client profile, adhere to a disciplined service delineation that requires coordination and collaboration with outside professionals, and evolve beyond an asset-based pricing model where there is consideration commensurate with the value rendered.

ENDNOTES

1. There is no universal definition of "ultra-high net worth." The term emerged in the early 2000s with the rise of global wealth reports, most notably the Capgemini Merril Lynch Global Wealth Report, and coalesced around a threshold of $25 million–$30 million of a family’s net worth (balance sheet wealth) to define a UHNW family. Wealth-X, an Altrata company, defines an UHNW family as one with more than $30 million in net worth. Cerulli Associates defines UHNW as more than $20 million in investable assets.

2. Another, more rarified client segment is the segment of "centimillionaire"—families with more than $100 million net worth. This distinction is introduced to discriminate their peculiar needs and demands versus the merely UHNW family. Their needs tend to be much more complex and the burden and imperative of discerning the purpose of their wealth and legacy more acute.

3. All tubs are rising, but the wealthiest are getting wealthier per the Boston Consulting Group. Its 2019 Global Wealth Market Sizing Database projected the following five-year compound annual growth rates (see https://www.bcg.com/publications/2019/global-wealth-reigniting-radical-growth): • $1 million–$20 million – 5.7 percent • $20 million–100 million – 9.6 percent • $100 million – 6.7 percent

4. The Cerulli Report, "U.S. HNW and UHNW Markets 2023," p. 35.

www.cerulli.com.

5. Wealth-X (an Altrata company), "World Ultra Wealth Report 2023,"

https://altrata.com/reports/world-ultra-wealth-report-2023, p. 9.

6. P. Ferguson and J. McLaughlin, "Fees and Pricing for Ultra-High-Net-Worth Client Services," Schwab Advisor Family Office (December 2024), https://advisorservices.schwab.com/resource/fees-and-pricing-for-UHNW.

7. The governing statute is the Investment Advisers Act of 1940.

8. J. Allen, J. Root, and A. Schwedel, "The Firm of the Future," Bain & Co. (April 2017), https://www.bain.com/insights/firm-of-the-future.

9. Collegium VII: "Defining and Achieving Business Sustainability," The UHNW Institute, Chicago (October 2024), www.uhnwinstitute.org/wp- content/uploads/2024/12/UHNW_Whitepaper_Collegium-2.pdf.

10. For more context, see J. Grubman, D. T. Jaffe, and K. Keffeler, Wealth 3.0: The Future of Family Wealth Advising (Family Wealth Advising, 2023).

11. "The Looming Advisor Shortage in US Wealth Management," McKinsey & Co. (February 2025), https://www.mckinsey.com/industries/financial-services/our- insights/the-looming-advisor-shortage-in-us-wealth-management.

12. See "Ten Domains of Family Wealth," https://www.uhnwinstitute.org/our- thinking/.

13. For an extensive review of UHNW pricing, see endnote 6.

14. I first articulated this idea in the Family Wealth Alliance’s "State of the Family Wealth Industry," 2018 Report, p. 14, https://www.einpresswire.com/article/471050607/state-of-the-family-wealth-industry-report-released.

15. See the source at endnote 6.