Written By Benjamin Locke. Featuring Asher Rubinstein, Partner Gallet Dreyer & Berkey, LLP 

Choosing between a family office and private banking depends on your specific financial needs and preferences. Family offices provide highly personalized services and greater control, while private banking offers extensive resources and professional management. The right choice depends on the level of customization and complexity of your financial needs. 

Both options offer distinct benefits and cater to different needs. This article explores the differences between family offices and private banking, highlighting their unique advantages and disadvantages. 

Is Private Banking the same as a Family Office? 

No, private banking is not the same as a family office. Private banking provides personalized financial services such as investment advice, wealth management, and estate planning to high-net-worth individuals, while a family office is a more comprehensive entity that manages all aspects of a wealthy family’s financial and personal affairs, including investments, tax planning, philanthropy, and family governance. Essentially, a family office offers a broader range of services and is often tailored specifically to the needs of a single family.

What is a Family Office? 

A family office is a private wealth management firm established by a family to manage their financial affairs. It provides a range of services tailored to the specific needs of the family. Family offices are dedicated exclusively to serving one or multiple families, allowing them to focus on the specific goals and values of the family members. They offer a holistic approach to wealth management, encompassing everything from investment management to personal concierge services. 

Services provided by Family Offices 

• Investment Management: Tailored investment strategies to meet the family’s financial goals. 
• Tax Planning: Optimizing tax liabilities through strategic planning. 
• Estate Planning: Ensuring wealth is transferred smoothly to the next generation. 
• Philanthropy: Managing charitable giving and foundations 
• Lifestyle Management: Handling non-financial needs such as travel and household management.

Types of Offices

Single-Family Office (SFO) The original family office set up for one individual or one family and its members. The staff is solely dedicated to preserving and growing the wealth. 

Multi-Family Office (MFO) Manages the wealth of multiple families. Preferred by high-net-worth individuals rather than ultrahigh-net-worth individuals. MFOs might have better connections to a global asset pool due to their history with other clients. 

Embedded Family Office (EFO) A more cost-effective option for HNWIs. The EFO is embedded in an existing enterprise, where the “staff” might not be solely dedicated to the owning family’s wealth management but are existing finance or tax compliance professionals handling family office responsibilities. 

Outsourced Family Office (OFO) A streamlined financial services and wealth management platform. It consists of a collection of lawyers, tax specialists, financial advisors, and others responsible for the client’s needs. Often, there is one point of contact who connects with all the other professionals, streamlining the process.

What is Private Banking? 

Private banking refers to personalized financial and banking services offered by financial institutions to high-net-worth individuals (HNWIs). These services are often provided by dedicated relationship managers. Private banking typically includes investment advice, wealth management, estate planning, and exclusive banking services. It aims to provide a one-stop solution for the financial needs of wealthy clients, leveraging the institution’s resources and expertise. 

Types of Private Banks 

Private banking caters to high-net-worth individuals (HNWIs) with specialized financial services and products. Different types of private banks offer distinct features and cater to various client needs. Here are some of the common types of private banks:

Services provided by Family Offices 

• Wealth Management: Investment advice and portfolio management. 
• Credit and Lending: Customized credit solutions and lending services. 
• Estate Planning: Assistance with estate planning and wealth transfer. 
• Tax Services: Comprehensive tax planning and advisory. 
• Exclusive Banking Services: Access to exclusive banking products and services.

Types of Banks

Domestic Private Banks These banks operate within the country and provide personalized banking services to local high-net-worth clients. They offer a range of financial products, including investment management, estate planning, and customized lending solutions. 

Offshore Private Banks Located in financial havens like Switzerland, the Cayman Islands, and Luxembourg, offshore private banks provide banking services to clients who wish to benefit from favorable tax laws and enhanced privacy. These banks are ideal for clients looking to manage international wealth. 

Global Private Banks These banks have a worldwide presence and offer services to clients with global financial needs. They provide comprehensive wealth management solutions, including cross-border investments and international estate planning. Examples include HSBC Private Bank and JPMorgan Chase Private Bank. 

Retail-Linked Private Banks These are private banking divisions within larger retail banks. They offer personalized services to high-net-worth clients while leveraging the resources and infrastructure of the larger parent bank. Examples include Bank of America Private Bank and Citi Private Bank. 

Independent Private Banks These banks are not affiliated with larger banking institutions. They offer specialized services and a high degree of personal attention. Examples include Pictet & Cie and Julius Baer.

Family Offices v. Private Banking

Here is a list of the benefits and the drawbacks to consider.

Pros of Family Offices 

• Customization: Family offices offer highly personalized services tailored to the unique needs of the family. They can provide bespoke investment strategies, tax planning, and estate planning. 
• Control: Families have greater control over their investments and financial decisions. They can align their investments with their values and long-term goals. 
• Privacy: Family offices maintain a high level of confidentiality, ensuring that the family’s financial matters remain private. 
• Dedicated Resources: Family offices employ professionals who focus solely on the family’s financial and personal needs, providing a high level of dedicated service. 

Cons of Family Offices 

• Cost: Setting up and maintaining a family office can be expensive. It requires significant financial resources to hire professionals and manage operations.
• Complexity: Families have greater control over their investments and financial decisions. They can align their investments with their values and long-term goals. 

Pros of Private Banking 

• Access to Resources: Private banks offer a wide range of financial products and services. Clients have access to the bank’s extensive resources and global reach. 
• Professional Management: Clients benefit from the expertise of professional financial advisors and relationship managers who provide comprehensive wealth management services. 
• Credit Solutions: Private banks provide customized credit solutions, including mortgages, loans, and lines of credit, tailored to the needs of HNWIs. 
• Convenience: Clients enjoy the convenience of having all their financial services under one roof, including banking, investment management, and advisory services.

Cons of Private Banking 

• Limited Customization: Private banks may offer less customization compared to family offices. Their services are often limited to the bank’s products and offerings. 
• Potential Conflicts of Interest: Banks may have conflicts of interest when recommending products and services, as they may prioritize their products over others.

Should I choose to do private banking, setup a family office, or both?

Choosing between a family office and private banking depends on your specific financial needs and personal preferences. If you require highly personalized services, greater control over your investments, and confidentiality, a family office might be the better option. Family offices provide bespoke investment strategies, tax planning, and estate planning, tailored to the family’s unique needs and goals. On the other hand, if you seek a broad range of financial products, professional management, and the convenience of having all financial services under one roof, private banking may be more suitable. Private banks offer extensive resources, global reach, and customized credit solutions. Ultimately, the decision should be based on your financial situation, the level of service you desire, and the complexity of your financial needs.

FREQUENTLY ASKED QUESTIONS (FAQ)

WHAT ARE THE COSTS ASSOCIATED WITH SETTING UP A FAMILY OFFICE? 

Setting up a family office can be expensive, often requiring significant financial resources to hire professionals and manage operations. Costs can include salaries for dedicated staff such as accountants, financial advisors, and tax specialists, as well as expenses related to office space, technology, and legal fees. 

HOW DO PRIVATE BANKS ENSURE THE PRIVACY AND CONFIDENTIALITY OF THEIR CLIENTS? 

Private banks employ various measures to ensure the privacy and confidentiality of their clients, including secure communication channels, strict data protection policies, and confidentiality agreements. They also adhere to regulatory requirements related to data privacy and have robust cybersecurity measures in place to protect client information.

HOW DO PRIVATE BANKS ENSURE THE PRIVACY AND CONFIDENTIALITY OF THEIR CLIENTS? 

Private banks employ various measures to ensure the privacy and confidentiality of their clients, including secure communication channels, strict data protection policies, and confidentiality agreements. They also adhere to regulatory requirements related to data privacy and have robust cybersecurity measures in place to protect client information. 

CAN A FAMILY OFFICE MANAGE PHILANTHROPIC ACTIVITIES? 

Yes, family offices can manage philanthropic activities for their clients. This includes setting up and managing charitable foundations, developing philanthropic strategies, overseeing donations, and ensuring that the family’s charitable goals are met. They can also provide advice on tax-efficient giving and impact investing. 

WHAT IS THE MINIMUM ASSET THRESHOLD TO QUALIFY FOR PRIVATE BANKING SERVICES? 

The minimum asset threshold to qualify for private banking services varies by institution. It can range from $250,000 to over $2 million in investable assets. Some private banks may offer different service tiers based on the level of assets, with higher tiers providing more personalized and comprehensive services.

Key Takeaways 

• Family offices offer highly personalized services and greater control, making them suitable for families with complex financial needs. 
• Private banking provides access to extensive resources and professional management, offering convenience and a broad range of financial products. 
• Both family offices and private banks have their own advantages and disadvantages, depending on the specific needs and financial situation of the client. 
• The decision between a family office and private banking should be based on the level of customization required, the complexity of financial needs, and the desired control over investments.