Summary
- Family offices offer highly customized financial services, while wealth management offers a broad range of services across many wealth levels.
- A family office may be advised for those with an ultra-high net worth – think around $100 million or more.
- A family office may cost $1 to $2 million to operate annually, while a wealth advisory firm charges a percentage of assets under management (AUM).
- A financial advisor can help you evaluate the advantages and drawbacks of choosing wealth management vs. establishing a family office.
What is a family office?
A family office is a wealth management service dedicated to a family. They may have a wide variety of duties, including establishing and managing trust funds, investment advising, estate planning, tax planning and compliance, philanthropy, cash and credit management, and personal assistance.
It may be as small as a single person managing household affairs or as large as a full team of professionals. A family office is best for families with a net worth of $100 million or more, where dedicated employees can attend to the family's complex financial needs.
Some of the pros and cons include:
Pros
- Highly personalized services: Family offices tailor their services to the family's needs.
- Helps ensure family succession: A family office can plan better for business succession and intergenerational wealth
- More control and privacy: Family offices offer more control over decision-making and privacy
- Preserving family wealth: Family offices will likely be more proactive in planning and protecting it.
Cons
- High operating costs: Family offices may cost over $1 million to operate each year. For some, this number doesn’t make sense, but for those with a high net worth, this may save money.
- Employee turnover: When an employee leaves a family office, it can have a significant impact.
- Potential for conflict: There may be differences of opinion on how family businesses and legacies should be operated. There may be generational conflict, infighting, and disagreements over succession.
What is wealth management?
Wealth management offers comprehensive financial services for clients. It may include investment services, estate planning, tax planning, risk management, asset protection, and other services. You’ll find wealth management from banks, financial institutions, and investment advisory firms.
Pros
- Wide variety of services: Many services fall under the umbrella of wealth management, each with its own expert.
- Lower cost: Wealth services generally cost less than establishing and operating a family office.
- Expertise and tailored advice: You’ll generally find competent and experienced financial advisors and other professionals who tailor your financial plans to your individual goals.
- Saves time and money: Compared with managing finances yourself, working with a pro can help you save time and put you on a better financial path to reach your goals.
Cons
- Traditional investment strategies: Investment strategies tend to be more traditional with less customization.
- Fees: You’ll likely pay a fee based on assets under management (AUM). It may feel frustrating to pay a percentage of your assets in fees every year.
- Conflicts of interest: You may encounter potential conflicts of interest, especially when commissions are involved.
- Serve many customers: Wealth management firms serve many customers, so that you won’t see dedicated services.
What are the key differences between a family office and wealth management?
Some key differences between a family office and wealth management include the following:
- Comprehensive services: A family office can offer more customized and comprehensive services. A wealth management firm offers a limited set of services, and your financial plan will need to fit within those parameters.
- Cost: A family office is expensive to operate. With all the different experts you’ll need on staff, it makes better sense at higher income levels, such as those above 100 million. A wealth management firm can provide services more affordably.
- Succession: A family office can offer better multi-generational and succession planning because it serves only one family.
- Clients: Many family offices are dedicated to one family. Wealth management firms serve the needs of many clients.
A summary of the differences between a family office and wealth management services is outlined in the chart below:
| Family Office | Wealth Management | |
|---|---|---|
| Clients | Serves a single family. | Serves many clients. |
| Cost structure | Fixed fees or retainer-based; the cost of operating an office can be high. | Typically, a fee based on AUM. |
| Services | Financial, administrative, lifestyle, and other services are created for the benefit of the family. | Typically, financial services, estate planning, tax, and legal services are provided by various expert providers. |
| Customization | Highly customized solutions. | Typically, standard solutions with some personalization. |
| Privacy and security | Teams dedicated to a single family offer full control and privacy. | Higher risk of info leakage, but larger offices may be able to dedicate more resources to security. |
| Lifestyle management | May have lifestyle and administrative services for the family. | Typically none. |
| Family legacy | Comprehensive multi-generational and succession planning. | Offers estate planning services. |
| Advisors | Dedicated to one family. | It can serve many families and clients. |
| Strategies and goals | May take a more comprehensive, customizable approach that includes direct investments, alternative assets, real estate investing, and more. | Typically focus on market-based investment strategies. |
Is a family office or wealth management right for you?
Cost is often a deciding factor when choosing wealth management services or establishing a family office. The complexity of family finances and generational wealth are also reasons to look into establishing a family office.
Choose wealth management if you;
- Have a net worth under $60 without complex investments.
- Can’t justify the cost of a family office.
- Want traditional, structured investing and financial planning.
- Want advice tailored to your situation.
Choose organizing a family office if you;
- Have a net worth of over $60 million.
- Have a complex financial situation.
- Need dedicated advisors.
- Would like services catered to your unique needs.
- Would like to be more involved with decisions.
- Desire more privacy.
Bottom line
Operating a family office takes some planning, but if you’re in the ultra-high-net-worth camp and would like more control over your complex finances, it’s worth considering. You’ll have professionals dedicated to your family, finances, and legacy.
If you need the expertise of a professional, Unbiased can connect you to a financial advisor who can walk you through your options.
Click here, and Unbiased can match you with a financial advisor today.