The private wealth management industry for the ultra-wealthy has become extremely congested over the past few decades with trillions of dollars being managed by family offices and wealth managers across the globe. However, the terms are increasingly being used interchangeably, offering sometimes very distinct and dissimilar services. Hence, it is imperative that readers understand the difference between multi-family offices and wealth managers before making the decision about which is right for them.
What is a multi-family office and a wealth manager?
A multi-family office offers holistic wealth management services either to a closed group of families (private multi-family offices) or to any UHNW family who might be willing to acquire their services (commercial multi-family offices). Their fundamental goal is not only to manage and grow upon the wealth of the present family generation by building and managing carefully curated portfolios but also to preserve that wealth for future generations.
Wealth managers, on the other hand, can also provide many of the services provided by family offices including financial planning advice for their clients combining disciplines like finance, investments, and accounting. However, there are some key differences that set the two apart.
What is the difference?
Spotting the difference between a full-fledged family office and a wealth management firm can be critical for the ultra-wealthy with a massive wealth pool at stake.
Personal attention and operational independence
Multi-family offices serve a small number of ultra-high-net-worth, generally allied, families whereas in wealth management firms generally tend to serve a much larger client base. Multi-family offices can offer each client independent advice with dedicated experts that serve them exclusively. This level of personal attention allows multi-family offices to forge much stronger relationships with their clients. This builds trust and grants multi-family offices a better insight into their client’s family dynamics, vision, mission, and values which are often reflected in the portfolios that they curate.
This is not always true for wealth management institutions. They generally do not have access to the talent pool of multi-family offices and also tend to have high staff turnover numbers. This can often create conflicts of interest with existing clients. This can put a dent in business-client relationships which is often a dealbreaker for most UHNWs.
Operational control
Multi-family offices offer greater control – both internal, as well as external – than wealth managers. Since clients are their primary stakeholders, multi-family offices do not have a fiduciary obligation to anyone to obtain more assets under management under their umbrellas. This means that, internally, multi-family offices can enforce rigorous performance control measures and ensure that corrective measures are taken at the earliest. Externally, multifamily offices allow their clients to set operational priorities to suit their own specific needs. For example, let’s say that a family is going to go through a key period of generational wealth transfer. They can set this as a priority service that their family office must not compromise at any cost.
Again, wealth management firms cannot achieve the same level of operational control since they are always going to be answerable to their financial stakeholders.
Scope and cost of services on offer
While wealth management firms offer some very important financial management services like asset and risk management, tax planning, estate planning, governance, etc., their scope of services cannot be compared to that of a full-fledged family office. A multi-family office, in essence, provides holistic wealth management services to every single one of its clients. This not only includes financial management, but also ancillary services like philanthropy, concierge, generational wealth planning and more.
Multi-family offices also provide tailor-made solutions for each family. This is important because two UHNW families will rarely have the same set of priorities and needs from their wealth managers. On the other hand, wealth management firms can only offer existing investment plans to their clients with little room for personalisation.
However, this does come at the cost of higher service charges in the case of multi-family offices due to the significantly higher operational expenses. A 2022 Citibank report suggested that the minimum cost to operate a family office with $155 million worth of assets under its management would be $1.5 – $3.1 million annually! This number would be far greater for a multi-family office with multiple clients under its belt.
Access to direct deals
Multi-family offices generally have access to higher-quality deal pipelines than private asset managers. This is due to the fact that family offices, in general, have access to some of the best talents in the industry, each with their own set of personal connections. This allows family offices to provide their clients with access to exclusive deals before the competition. For UHNWs, this is often one of the key reasons that they prefer family offices as their preferred wealth management vehicle.
It is very clear that while the goals of wealth managers and family offices often align, their scope of services doesn’t. Family offices are essentially wealth managers with many more holistic wealth management services on offer. Most UHNW families would be better off acquiring the services of a multi-family office rather than that of a wealth management firm, the only major deterrent being the annual service costs.