In his blog post last week, Brooks Hamner covered a topic we’re hearing more about from RIA clients all the time: using AI to improve the efficiency of client service and operations. This week, I’m going to pivot to another common topic/strategy/aspiration in the wealth management space: family office services.

In the ever-evolving wealth management sector, we see RIAs exploring ways to bolster their competitive edge, long-term sustainability, margin, and valuation. An increasingly common strategy involves integrating family office services, which extend core asset management to include comprehensive tax optimization, estate planning, philanthropy coordination, and lifestyle management. This often manifests as a multi-family office (MFO) model, serving multiple ultra-high-net-worth (UHNW) clients under RIA regulatory frameworks.

While this approach can enhance client retention, it isn’t necessarily accretive to RIA margins. Industry data suggests that family office services may foster longer client relationships but often come with lower profitability compared to traditional wealth management operations. There may even be a halo effect to providing career management to sports figures or private aviation services to clients who don’t like flying commercial (all of us!). But the jury is still out as to whether the margin tradeoff is worth it.

Advantages of Adding Family Office Services

Expanding into family office services is thought to offer RIAs certain strategic benefits, particularly in client retention and revenue diversification. It strengthens client loyalty by providing a holistic, “one-stop shop” experience tailored to UHNW individuals who prioritize integrated solutions.

MFOs become embedded in the lives of their clients

MFOs become embedded in the lives of their clients, rather than just serving as a money management vendor. These clients are more likely to remain with the firm for extended durations, as the embedded nature of services like succession planning and concierge support creates high switching costs. Recent studies indicate MFO retention rates far surpassing industry averages for more typical RIAs, due to the multigenerational and personalized engagement they provide.

This improved retention translates to stable, recurring revenue, which can indirectly support margins and, consequently, valuation. By attracting larger clients, RIAs can achieve economies of scale, sharing costs across a concentrated base while charging premium fees for customized services. Diversification beyond assets under management (AUM) fees — through flat fees for planning or project-based charges — helps mitigate fee compression in core advisory work.

MFO hybrids often report that these add-ons contribute to organic growth, driving AUM increases that bolster overall profitability. Typical RIA margins range from 25% to 35%, and firms with family office integrations hope to maintain or even approach the higher end by leveraging client stickiness to fuel efficient expansion.

Moreover, these services position RIAs to capture referrals from satisfied UHNW families, accelerating client acquisition and further enhancing revenue stability. In a market where client expectations for exclusivity and privacy are rising, this model aligns with demand, potentially sustaining margins through long-term relationship value.

Drawbacks and Risks of Going MFO

However, the integration of family office services introduces challenges that can pressure RIA margins, often rendering these add-ons less profitable than core wealth management activities. High implementation and operational costs are a primary concern: recruiting specialized professionals — tax experts, estate attorneys, and operational staff — along with investing in advanced compliance and technology infrastructure, can significantly elevate expenses. For mid-sized RIAs, these outlays may outpace revenue gains initially, straining resources and thinning margins.

Family office services often involve labor-intensive, non-recurring work that yields lower returns

Profitability disparities are stark: while core wealth management benefits from scalable AUM-based fees with relatively low marginal costs, family office services often involve labor-intensive, non-recurring work that yields lower returns. Many family office practices underperform, with margins compressed by the need for customization and the handling of complex, low-volume client needs. Regulatory complexities add to this burden; operating as an MFO under RIA oversight heightens compliance demands, potentially leading to inefficiencies and further margin erosion if not managed carefully.

Revenue volatility compounds these issues. Unlike predictable AUM income, family office fees can be lumpy — tied to episodic projects or performance metrics — making it harder to forecast and stabilize earnings. For RIAs without a strong UHNW focus, this pivot risks diluting core operations, alienating existing clients, or stretching resources, ultimately undermining the high-margin foundation of traditional advisory services.

A Calculated Expansion for Margin Resilience

Incorporating family office services can fortify RIA margins by promoting superior client retention and revenue diversification, but only if the lower inherent profitability of these services is mitigated through strategic implementation. For RIAs serving the very wealthy, this model aligns with market trends, leveraging longer client tenures to sustain healthy margins despite elevated costs. Smaller firms may fare better with outsourced partnerships or gradual rollouts to preserve core efficiencies.

As the industry consolidates, RIAs must evaluate their operational readiness and cost structures to ensure this expansion enhances, rather than erodes, profitability. A thorough margin analysis, factoring in retention projections, is essential for informed decision-making in this dynamic landscape.

The overall impact on RIA margins depends on balancing retention benefits against the profitability drag of family office services. Enhanced client longevity can offset lower per-service margins by extending lifetime value, supporting sustainable 25-35% firm-wide margins through increased AUM and referral-driven growth. Firms that integrate these services effectively — perhaps via cost-sharing in MFO structures — report stabilized or improved economics, as loyal UHNW clients generate higher average revenue per relationship.

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We are a valuation firm that is organized according to industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to a client base consisting of asset managers, wealth managers, independent trust companies, broker-dealers, and alternative asset managers.