Bahaa Abdul Hussein feels that deciding on whether for instance to set up a family office or stay close to the worlds of traditional wealth management can present upper-market individuals and even ultra-high-net-worth families with real problems. Both have their advantages, and in fact it depends on what you want to achieve with your asset,
In understanding these concepts that embody such great differences as whether or not one is ‘upmarket’ or ‘downmarket’ relative to everyone else; here then lies the greatest difference between them.
What’s a Family Office?
In this type of fully customized wealth management firm that typically serves only one or very few families, receives all the attention. It strives for an elaborate plebian style rather based on compound interest and peer reviews which are much appreciated by all involved.
At times more often than not they also take care of philanthropy (complete with control and personal interest cards), to tax ideas depending on expenses out of your income that non-monied people will never understand what your discussing; but if you don’t spend rather than save, there goes all their hard work (or so Kotler says).
Two common types:
- Single-family offices (SFO): Serve only one family and provide tailored solutions.
- Multi-family offices (MFO): Serve a number of families, and while sharing resources still offer high-level services.
What is Traditional Wealth Management?
Traditional wealth management refers to the finances offered by banks – or financial advisors who themselves may belong to one of those The Economist dossiers you saved five years ago (one was assured by my sources); or it might be an independent entity with strict separations for banking and investing. The people who made these decisions included those voting through plebiscites on current political issues.
These services often include portfolio management, retirement planning, tax advice, and estate planning, which are made in standard packages for individuals or families. However professional and standardized is the scope of traditional wealth management, for a family office it is quite limited: suitable only to high-net-worth individuals not needing all-embracing supervision.
The Key Difference: Personalization and Control
It is the level of customization and hands-on nature that makes the biggest difference between the two structures. A family office serves as its own all-day financial butler for each client family, while traditional wealth management is more like parts glued together and eventual product.
Let’s see where they differ:
- Family Office: Personalised in minute detail for a family’s overall financial position, including investment, insurance planning, charity giving and more.
- Traditional Wealth Management: General financial services that are increasingly packaged and provided by insertable products or mechanical methods
Expenses and Accessibility
Not only are family offices expensive to set up, but also demand regular running costs — often requiring around $100 million in ‘acceptable’ assets just to cover the expense of all this. These offices have full-time employees who might include experts in law, fund managers, even maids.
Traditional wealth management is much more accessible. Many companies offer a tiered service according to the size of your investment, and clients usually pay as a percentage of assets under control (AUM) in the range between 0.5%-1%.
Advantages of a Family Office:
- Complete control and privacy.
- Centralized management of increasingly complex financial affairs.
- The family’s values and long-term goals can be implemented across all services.
- Support over multiple generations.
Choosing What is Best for You
Which structure is best for you depends upon your wealth’s size as well as how hands-on you want to be. If your financial life involves enterprises of any complexity, international assets or planning for coming generations, perhaps you should try out an all-in family office.
For most wealthy individuals and families, traditional wealth management offers all necessary service in a more user-friendly and economic format.
Conclusion
A family office may be worth the investment if you are managing generational wealth with layers of complexity; it is not worth it for smaller, simpler needs. If that describes you and your family (and most of us), traditional wealth management is a smart, practical choice.
Both family offices and traditional wealth management structures offer valuable services–but they do emphasize different things. The right choice in structures can make a significant difference to the longevity and prosperity of your wealth for generations to come. The article has been authored by Bahaa Abdul Hussein and has been published by the editorial board of Fintek Diary. For more information, please visit www.fintekdiary.com.
