Ultra-Wealthy Investors Favor Boutique Firms Over Wall Street Brands - New Study

Eliane Chavagnon

6 September 2012

Investors with at least $5 million in assets and a minimum annual income of $200,000 prefer smaller boutiques as opposed to larger Wall Street firms, new research from the Luxury Institute demonstrates.

The New York firm’s Wealth Management Luxury Brand Status Index aggregates respondents’ evaluations - on a scale of one to 10 - of a number of brands' quality, exclusivity, social status and ability to deliver special client experiences.

Topping the index, Brown Brothers Harriman scored 7.01, ranking in top place on each of the four sub-categories. After Brown Brothers, respondents voted for Boston Private Bank and Trust, with a score of 6.37, followed by Neuberger Berman Private Asset Management and Bessemer Trust (6.3 and 6.27 respectively.)

According to the index, wealthy investors also displayed a “strong streak of independence” in their investing habits, with many saying that they would use Fidelity for future wealth management services. Meanwhile, 61 per cent of pentamillionaires said they would refer friends and family to Fidelity, while 32 per cent would recommend Goldman Sachs.

Respondents' average net worth was $15 million, with average income of $720,000.

Factors which help boutique firms stand out

“Reputations for honesty and superior client service are what make the smaller firms standouts in this survey,” said Luxury Institute chief executive Milton Pedraza. “This is demonstrated by revered brands Rockefeller and Glenmede, which barely missed the mark in attaining a statistical sample, but would have been in the top range otherwise.”

The findings from the survey add weight to the argument that, particularly in the wake of the financial crisis, smaller firms are becoming increasingly appealing to investors by virtue of greater perceived independence and client-centricity.

Bloomberg Markets recently released a list ranking family offices by assets under advisement. It found that firms dominating in terms of overall size were units of large banks, while smaller boutiques dominated growth (albeit from a lower base).

The overall efficiency with which a firm is run is also important. In February, research from Russell Investments, the US-based asset manager, found that larger firms are often slower to identify or react to issues. “For example, a boutique firm may have a flat reporting structure, so that reporting of a trade error to the CIO or CEO can be instantaneous, while the same issue at a large firm, where there are three or more layers of management, can take days, weeks or months,” the study said.

The firm also underlined how, despite various myths, the reality is that “increased size can bring increased complexity.” It also highlighted the misconception that investors can rely on the reputations of larger managers, arguing that larger firms actually face increased reputational risk.