Private Banks vs. Multi-Family Offices: Which Wealth Management Solution is Right for You?
The choice between a private bank and a multi-family office ultimately depends on the specific needs and goals of the family. While both can provide essential financial services to wealthy clients, the approach and range of services offered by each differ significantly. It is important to assess the specific needs and goals of the family and select the option that best suits their requirements. Additionally, certain key functions could be outsourced to other expert providers to ensure that the family's wealth management needs are met in a comprehensive and tailored manner.
A private bank is essentially a financial institution that provides its clients with a variety of financial services such as deposit accounts, investment management, loans, and other financial goods. Private banks serve the wealthiest clients and often provide bespoke solutions suited to each client's specific financial objectives, which is a distinguishing feature of the private banking experience. They also give you access to their skilled network and financial counsellors. A multi-family office (MFO) is a wealth management organisation that serves numerous families or individuals, each with their own set of needs and goals. Investment management, tax and estate planning, charity, and administrative support are among services offered by multi-family offices. The MFOs also offer a more comprehensive suite of services than the typical private bank. This is because the MFO is designed to manage the broader set of needs of multiple families, not just one.
The primary distinction between a private bank and an MFO is that private banks provide certain products and services, but MFOs provide a more comprehensive approach to managing their clients' money. Private banks offer investment management advice and access to investment opportunities to their clients, whereas MFOs consider a larger variety of considerations that affect their clients' wealth, such as tax planning and philanthropic purposes. While there are variances in methodology and services provided, there is also a difference in the costs charged to clients by private banks and MFOs. Private banks often charge a fee based on the amount of assets managed, whereas MFOs may charge a flat fee or a combination of the two.
In some cases, a family may require both private banking and MFO services. In such circumstances, it is critical to ensure that the private bank and MFO are on the same page and have a clear grasp of the family's overall wealth management objectives. Certain critical functions can be outsourced to other competent providers when it comes to outsourcing. A private bank or MFO, for example, may offer investment management services but may lack in-house competence in managing specific types of assets, such as real estate or private equity. In such circumstances, it may be more advantageous to outsource to a professional supplier who possesses the required skills and experience in handling those specific asset classes.
Outsourcing to a professional supplier who has the necessary skills and experience to handle specific asset classes can be more advantageous for a variety of reasons. Outsourcing to a professional provider may result in greater investment results. For example, if a family has a big allocation to real estate or private equity, it may be more advantageous to delegate asset management to a business that specialises in those
sectors. Such firms are more likely to understand the complexities of various asset classes and be better positioned to make well-informed investment decisions. As a result, the family's portfolio may be able to attain higher returns and better diversity.
Outsourcing has the potential to save the family money. To manage various asset classes, a private bank or MFO may need to engage new employees or form a new team. This can be costly in terms of both time and money. Outsourcing is a less expensive option because the provider will already have the infrastructure and resources in place to handle such assets. Professional suppliers often employ rigorous due diligence procedures to guarantee that they only invest in high-quality assets. Families can reduce the risk of investing in low-quality or illiquid assets by outsourcing to such providers. Furthermore, professional providers are usually well-versed in regulatory compliance, which can assist families in avoiding both legal and reputational issues.
Outsourcing can provide families access to a wider selection of financial options. Professional suppliers may have a broader network of contacts and be better positioned to find one-of-a-kind investment opportunities. This can assist families in improving portfolio diversification and potentially increasing profits. Outsourcing to a professional provider with the necessary skills and experience in dealing with specific asset classes can be more beneficial for families in terms of improved investment outcomes, cost savings, risk reduction, and access to a greater range of investment choices. When selecting a professional provider, families should look for one who has a proven track record and shares their financial goals and values.