Building scalable business models for Family Offices by going digital

Building scalable business models for Family Offices by going digital

Unlike startup models, the Family Offices’ business model is, by its nature, limited to a certain critical size. However, going digital allows Family Offices to evolve this model by creating an augmented officer, lightened administrative tasks and true conductor of wealthy clients.

What is a scalable business model?

In a scalable business model the more the activity grows, the greater the profitability is, in a non-linear way and without a threshold effect.

With a fixed cost base, revenues have the potential to grow exponentially and, as a result, this business model offers more profitability and huge growth opportunities.

The most significant example is Uber’s business model.

I drew on David Sacks’ schema and adapted by Stéphane Schultz to present this model:

Uber scalable business model

Uber scalable business model

In Uber’s business model, each increase in demand responds to an increase in supply, which in terms of transportation translates into better geographical (and temporal) coverage, which reduces the waiting time for users and increases its satisfaction: it is the virtuous circle that allows the initial demand to generate additional demand.

In addition, the increase in demand for drivers allows them to perform more races per day (or per hour), which allows Uber to lower unit rates per race and therefore increase demand.

The business model put in place by Uber creates a virtuous dual circle that increases profitability as the business grows.

Why the business model of a Family Office is not scalable

In order to meet the needs of wealthy clients, a Family Office must bring together all the skills needed to manage wealth. In addition, each client is unique: this requires the Family Office to offer customized and scalable solutions to capture opportunities, simplify and secure the lives of each client to create long-term value together.

However, the number of officers or the regulations in force impose significant costs and threshold effects. Training or hiring an advisor takes time and is expensive. As a result, services are slowly adapting to demand and have to anticipate responses to new demands well in advance (higher-frequency financial reporting, for example). In addition, the Family Offices remuneration model is based on advisory fees with relatively homogeneous rates charged from one structure to the other. The price depends on the complexity of the advice. It is therefore complicated to lower the price of the advice, under penalty of cutting the margin, or to increase the price of the advice without improving the quality of the advice.

The economic model of a Family Office is thus dimensioned by the rigidity of the offer as explained below:

Multi-Family-Office-non-scalable-business-model

Multi-Family-Office-non-scalable-business-model

All this leads to a model of adaptation “by saturation”: the increase of the demand does not find answer in term of supply of services because the number of advisers is limited, which degrades the perceived quality of the service (time waiting, less personalized advice). Saturation causes a decline in the quality of advice. In the end, dissatisfied customers who can end up have to switch to another competitor their structure. It is the vicious circle. The exact opposite of a scalable economic model.

Building scalable business models for Family Offices by going digital

The business model of a Family Office will never look like the one set up by Uber. However digital transformation can accompany Family Offices to change their business model. Indeed going digital allows to:

  • Capitalize over time on the mass of information available to the advisor to satisfy his client and customize the advice
  • Automate low value-added administrative tasks for the advisor to focus on its added value: the board
  • Lower the cost per advice with an officer focused on the analysis and no longer on the collection of information
  • Adapt rates more easily depending on the complexity of the advice or situation
Digital-Multi-Family-Office-scalable-business-model

Digital-Multi-Family-Office-scalable-business-model

In this way, digital technologies also improve the quality of tailor-made advice by adopting a global approach to supervise financial and non-financial assets, liabilities and with the chosen asset allocation and structure meeting families’ demands.

Mon Gérant Privé’s cloud solutions support Family Offices in the evolution of their business model

Taking into account the specific needs of the market in this dynamic environment, Mon Gérant Privé can help you build a digital platform adapted to your needs and your development strategy to offer additional high quality services to your customers.

Our approach focuses on your specific needs and constraints, in order to offer you a tailor-made solution, able to evolve with your requirements while guaranteeing a level of security adapted to the most stringent regulations.

Leave a Reply

Your email address will not be published.

top