Family office vs wealth management: what are the differences?
Are you a high-net-wealth individual looking for a company to manage your family’s finances? Would a family office or a wealth management firm be more suitable for your needs? We explain how both work and their pros and cons.
Some ultra-high-net-wealth families are moving away from having their finances managed by wealth management firms and banking institutions, preferring to use family offices.
These are companies specifically set up to help wealthy families run their finances and other administrative tasks.
A family office provides personalised legal, financial and lifestyle-related advice and administration services to ultra-high-net-worth families.
Wealth management firms focus on providing investment, retirement and tax planning advice and portfolio services.
Both a family office and a wealth management firm have the expertise to provide investment services to high-net-worth families.
However, families with more complex administrative, philanthropic and lifestyle-related needs may prefer to use the services of a family office.
What is a family office?
A family office is a company that has been set up solely to manage the affairs of ultra-high-net-worth families.
It focuses on providing specialised financial and lifestyle-related assistance on a holistic basis to wealthy families.
What is a wealth management firm?
In contrast, a wealth management firm services affluent and high-net-wealth clients - usually individuals rather than specifically families.
They provide investment and retirement advice, tax planning services and manage investment portfolios.
How do a family office and a wealth management firm differ?
Wealth management firms tend to focus solely on financial affairs, such as investments, financial risk management, retirement and tax planning.
Instead, family office firms extend their offering beyond financial matters, also providing services such as aviation management and lifestyle-related assistance, such as concierge services.
Meanwhile, their financial services are more likely to encompass legacy management, legal assistance and wealth management across the different family generations.
Wealth management firms tend to be backed by banks or financial institutions and often have numerous individual clients.
However, family offices tend to be separate from banking institutions, and rather than having individual clients, may cater to multiple family clients, while others are set up to work for just one family.
Here's a summary table of the key differences:
| Wealth management firm | Family office | |
|---|---|---|
| Primary focus | Solely financial matters like investments and tax planning. | Extends beyond finance to lifestyle and aviation management. |
| Financial services | Focuses on individual financial risk and retirement planning. | Encompasses legacy management and multi-generational wealth. |
| Client base | Numerous individual clients. | Caters to one or multiple family clients, not individuals. |
| Backing | Often backed by large banks or financial institutions. | Typically independent and separate from banking institutions. |
Learn more: Receiving an inheritance in the UK
What kinds of investments do family offices and wealth management firms offer?
Family offices may be able to provide different types of investment opportunities to ultra-high-net-wealth families, such as direct investments, real estate and alternative investments, such as wine or collectables.
Their focus is to maintain and grow wealth for the family’s continued generations.
They also focus more on the transition of wealth between the different family generations, such as educating the younger generations of the family on financial administration and governance, as well as building structured succession or inheritance plans.
Wealth management firms are more likely to offer stock market-based investments and passive funds tailored to the family’s needs, rather than more direct and alternative investments.
Their investment advice will be less personalised and more likely to be scalable, so it can be applied to other clients’ needs.
What are the pros and cons of using a family office or wealth management firm?
A family office servicing one or more high-net-wealth families is likely to charge higher fees than a wealth management firm. Setting up an individual family office can also cost tens of millions of pounds.
In contrast, a wealth management company, which services other clients, is more likely to be able to offer more cost-effective financial advice as it is more likely to charge an annual management fee instead.
However, if you and your family require and have the budget for more specialised, tailored assistance and need help with more than just investments, a family office may be more suitable for your needs.
Make sure to ask your family office or wealth management about their level of experience, the availability of in-house expertise and their due diligence process.
| Pros | Cons | |
|---|---|---|
| Family office | Ideal for families looking for more control over their investments | Likely to be a much more expensive service |
| Best suited for families looking for other services besides investment advice | Families could find themselves overwhelmed with decision-making | |
| Wealth management firm | Idea for families wanting a more hands-off approach to their investments | Investments likely to be less individually tailored to the family |
| Fees likely to be less expensive than those of a family office | Won’t offer other services, such as lifestyle or administrative services |
Should I choose a family office or a wealth management firm to manage my affairs?
Deciding whether to select a family office or wealth management company to manage your and your family’s finances will depend entirely on the type of services you require.
If you simply need help running your investment portfolio and with retirement advice and tax planning services, it may be more cost-effective to find a suitable wealth management company.
However, if you have a substantial budget and need additional help with lifestyle and administrative matters relating to the family, as well as investment advice, a family office may be of more use to you.
This is because it may be able to provide all of these services on a retainer or fixed-price basis.
A family office is also more likely to be able to supply you with a dedicated team to help you and your family with your financial and lifestyle-related affairs.
Get expert financial advice
Finding the right firm or adviser to help you manage your family’s investment portfolio and financial interests is vital.
Whether you’re starting on your investment journey or want to rebalance your portfolio, Unbiased can quickly connect you with the right financial adviser to help you manage your family’s financial affairs.
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