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High-touch Threshold heads east

Thomas Coyle

6 June 2005

Russell-owned multi-family office comes to New York. Multi-family office Threshold Group plans to open a New York office as a base of operations on the East Coast. The move comes about 18 months after Gig Harbor, Wash.-based Threshold, originally the family office of Russell Investment Group chairman emeritus George Russell, opened its doors to outsiders. Industry participants say Threshold’s expansion is in keeping with a trend among multi-generational, ultra-high-net-worth families to seek cost-savings and organizational efficiencies by outsourcing family-office functions.

Threshold targets families with liquid assets of at least $150 million, according to Edward Lazar, its president. That high minimum, and the Russell name, could go far to help Threshold make a mark on the highly competitive East Coast wealth-management scene, says Thomas Livergood, founder and CEO of the Family Wealth Alliance, an Oak Brook, Ill.-based consultancy to wealthy families. “They’ve got a great name behind them, and a strong point of differentiation in staking out families in the ultra-ultra category,” he says.

Sweep it up

Threshold serves five families from its Gig Harbor headquarters and a satellite office in Portland, Ore. Once the New York office is up and running, it plans to add another two or three families a year with the aim, ultimately, of serving 40 families nationwide, says Lazar. It now advises clients on total assets of about $1 billion. By conservative estimate, thirty-five more centa-millionaire families would put its advisory assets well over the $5-billion mark.

“This confirms to us that the single-family office is in decline, and that multi-family offices are there to catch that business,” says Livergood. “I can’t imagine they’d be making the move east if they didn’t see a lot of action for them there.”

Lazar confirms that. “George Russell has a lot of contacts ,” he says. “As we spoke to more families, it became clear that coming to New York was something we had to do.” And though he emphasizes that Threshold targets families that already have commercial wealth managers, not just those eager to close existing family offices, he agrees that some very wealthy families are looking for outsourced alternatives to in-house wealth management. “Two things are driving the trend,” he says. “The high costs of setting up and maintaining an office – which continue to go up – and succession issues.”

Help wanted

The Family Office Exchange , a Chicago-based consultancy to ultra-high-net-worth families, recently published a study that suggests single-family are indeed getting more expensive to operate, at least from the perspective of staffing. FOX’s 2004 Compensation and Benefits Report shows that base salaries for family-office professionals were 6.7% higher in 2003 and 2004 than in 2001 and 2002. Bonuses and other perquisites are on the rise as well, as some families react to uncertain markets by recruiting high-priced wealth and investment strategists from the financial service mainstream.

The “succession issues” Lazar mentions can come into play at when a hands-on family leader, perhaps the creator of the family’s wealth, dies or retires from day-to-day management of the family’s affairs. “If no one in the next generation is able or willing to step into that role, then the question for the family can be, ‘Do we split up or do we bring in outsiders?’” says Lazar.

One recent example is the Pillsbury family’s decision to merge Sargent Management Company, its forty-four-year-old family office, with the Sage Partnership, a multi-family office in suburban Minneapolis. In January 2005, Sargent spokesman Richard Townsend said the transition stemmed from the family’s recognition that “as the generations go on there's a dilution of wealth, a geographical dispersal of family members, and it gets more complicated” to run a stand-alone family office.

Not so fast

However well placed Threshold may be for success in the East, it’s still likely to encounter competition. Questions of quality aside, few claim there’s a shortage of wealth managers in the big centers stretching from Boston to southeastern Florida. And though the number of high-net-worth households continues to rise – those with at least $5 million increased 38% in 2004 to a record 740,000, according to a new study by the Spectrem Group – a recent survey by the Institute for Private Investors suggests that families in the $20 million-plus category aren’t in fact looking to acquire or replace advisors at anything like the rate seen as recently as four years ago.

Threshold also faces the challenge of coordinating team members spread across a continent, says Charles Lowenhaupt, a principal of Lowenhaupt & Chasnoff, a St. Louis, Mo.-based law firm and multi-family office that serves families around the country. “The work we do requires real teamwork and that is easiest to encourage if we are all together much of the time,” he says. “Each family's team has a weekly meeting to review all aspects of the family's business; and all the teams meet weekly to overview everything going on among all of our clients. We do have distant participation from time to time, but we have never had a situation where the team member is never in our St. Louis office.”

Threshold’s New York office will be headed by Lee Miller, a managing director of U.S. Trust, where she has worked for the past 18 years. She starts with Threshold in August. Lazar says he expects the New York office to be open for business early in 2006. –FWR