Ellie Perlman, CEO of Blue Lake Capital Int’l LLC | Growing & Preserving Wealth With Multifamily Investments | Podcast Host: REady2Scale.
As someone who has worked closely with family offices over the years, as well as being part of one, I’ve seen firsthand the value they can bring to high-net-worth families and individuals. Whether it’s preserving generational wealth, creating a legacy or finding the right investments to fit unique goals, family offices can offer customization and attention. This is particularly true for those who see real estate as a cornerstone of their portfolio.
I’ve also collaborated with wealth management firms, particularly in helping clients diversify into real estate, so I’ve seen that wealth management firms are another valuable option that can provide accessible, cost-effective solutions for individual investors and families seeking expert guidance to grow their portfolios.
These experiences have provided valuable insights into how both structures can serve the needs of high-net-worth investors and families in different ways.
First, let’s cover the basics:
What is a family office?
A family office is a private organization set up to manage the wealth of an individual or a family. It typically handles everything from investment strategies and estate planning to philanthropic efforts and day-to-day financial management. A family office could serve either a single family or several families under one umbrella.
What is a wealth management firm?
Wealth management firms, on the other hand, are third-party organizations that provide financial advisory services to a wide range of clients. They typically specialize in portfolio management, financial planning and tax strategies, but their services may not extend into the deeply personal or operational areas family offices do.
What are the key differences?
What are the main differences between family offices and wealth management firms? Here are five key considerations:
1. Customization And Focus
Family Offices: With family offices, every decision, investment or strategy is tailored specifically to your unique goals, values and legacy. If you have a specific interest, such as multifamily real estate investing, a family office can dedicate resources to pursue that niche.
Wealth Management Firms: Wealth management firms also offer personalized advice, though in my experience, they typically operate within a framework designed to scale across multiple clients. The advice might not be as granular or tailored to niche investment areas.
2. Investment Philosophy And Flexibility
Family Offices: Whether you want to pursue value-add multifamily properties, venture into ground-up developments or diversify into alternative asset classes, a family office can usually adapt quickly. They can also vet and execute complex opportunities, like partnering on real estate syndications, with your long-term wealth goals in mind.
Wealth Management Firms: Wealth managers often focus on more traditional portfolios, such as stocks, bonds and mutual funds, but some firms may offer access to real estate funds or real estate investment trusts.
3. Control And Decision Making
Family Offices: With a family office, you are the ultimate decision maker. The office acts as your in-house team, working in partnership with you to achieve your financial and legacy goals. This can allow for a greater sense of control, especially in areas like real estate investing, where your preferences might influence everything from asset selection to deal structure.
Wealth Management Firms: In contrast, I’ve found wealth management firms act as advisors, offering recommendations but not necessarily involving you in every decision. For families and investors who want a more hands-off approach, this can be appealing.
4. Services Beyond Investment Management
Family Offices: Family offices often go beyond wealth management and may provide services such as coordinating estate planning, managing tax strategies, running philanthropic initiatives and handling personal services like bill payment or travel planning.
Wealth Management Firms: Many firms offer comprehensive financial services, such as tax guidance and estate planning, though their primary focus often remains on managing investments.
5. Cost And Scale
Family Offices: A family office is a significant financial commitment. Setting up and maintaining a single-family office requires substantial assets; in my experience, typically, $100 million or more is the benchmark for making this structure cost-effective. For investors with less, multifamily offices can offer a similar level of service but share resources and infrastructure among several clients.
Wealth Management Firms: These firms operate on a more accessible scale, often charging fees as a percentage of assets under management. This makes them a viable option for investors and families with smaller portfolios or those just beginning to build substantial wealth.
What should real estate investors consider?
For real estate investors trying to decide between a family office or wealth management firm, keep in mind that real estate is often complex and requires a deep understanding of market trends, due diligence and hands-on management.
From my experience, family offices can be uniquely suited to real estate investing because they can provide expertise and help develop investment strategies that fit your risk tolerance and goals. They also might have access to exclusive deals and partnerships, which can give you opportunities not available to the broader market. On the other hand, a wealth management firm might be a better fit if your focus is on passive real estate opportunities, such as REITs or real estate funds, rather than direct investments requiring hands-on oversight. Understanding the level of involvement you prefer can help you determine the best structure for your needs.
With whichever option you choose, it’s important to ask key questions to ensure alignment with your investment goals. For instance, inquire about the family office or firm’s experience with the type of real estate investments you’re considering, their due diligence processes and how they source and evaluate real estate opportunities. Additionally, clarify whether they have in-house expertise or rely on external partners for real estate management.
Which is right for you?
The decision between a family office and a wealth management firm ultimately comes down to your needs, goals and resources. If you’re looking for more customization, hands-on involvement and access to niche opportunities, a family office may be the better choice. If you’re just starting to grow your wealth or prefer a simpler and more cost-effective solution, a wealth management firm might be the right fit.
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