What's the Difference Between a Wealth Manager and a Private Fund Manager? A Fund Operations Perspective

Fund ops professionals routinely interact with wealth managers as distribution partners, referral sources, and co-investors alongside institutional LPs. Understanding how these two business models differ structurally, regulatorily, and operationally helps clarify where the industries intersect and where they diverge.

How Do the Regulatory Frameworks Differ?

Wealth managers operate as Registered Investment Advisers (RIAs) under the Investment Advisers Act of 1940. This framework imposes fiduciary duties on the wealth manager, requires Form ADV disclosures, and mandates written compliance policies which must also be reviewed annually. RIAs with $100 million or more in regulatory assets under management generally register with the SEC; smaller firms register with state securities authorities.

Private fund managers often operate under different exemptions. Many qualify as Exempt Reporting Advisers (ERAs) under one of two provisions:

(1) the venture capital adviser exemption (for managers solely advising VC funds) or

(2) the private fund adviser exemption (for managers with less than $150 million in U.S. assets under management).

ERAs file abbreviated Form ADV disclosures but are exempt from certain provisions of the Investment Advisers Act of 1940. Additionally, ERAs manage private funds. These funds typically rely on Section 3(c)(1) or 3(c)(7) of the Investment Company Act to avoid registration as investment companies.

What Investment Structures Do They Use?

Wealth managers primarily utilize separately managed accounts (SMAs), where each client directly owns the underlying securities in an individual portfolio. This structure allows for personalized investment strategies, tax-loss harvesting at the individual security level, and the ability to exclude specific holdings based on client preferences.

Private fund managers operate pooled vehicles, typically limited partnerships or LLCs, where multiple investors hold interests in a single fund entity. The fund, not the individual investor, owns the underlying portfolio companies or positions. This pooled structure enables investment in illiquid assets, concentrated positions, and strategies requiring patient capital.

Key structural differences include:

• Primary vehicle: Wealth managers use separately managed accounts; private fund managers use limited partnerships or LLCs

• Asset ownership: In SMAs, clients own securities directly; in private funds, the fund owns assets and clients own fund interests

• Liquidity: SMA assets are generally liquid on demand; private fund interests are typically locked for the fund term

• Investor base: SMAs serve retail and high-net-worth individuals; private funds serve accredited investors and qualified purchasers

How Do Fee Structures Compare?

Wealth managers commonly charge asset-based fees ranging from 0.50% to 2.00% of assets under management annually. Many operate under wrap fee arrangements, where a single bundled fee covers advisory services, trade execution, custodial services, and administrative costs. This structure provides fee predictability for clients.

Private fund managers typically charge a management fee (often 1.5% to 2.0% of committed capital) plus carried interest (commonly 20% of profits above a preferred return). The management fee covers operating expenses, while carried interest aligns manager incentives with fund performance. This "2 and 20" model, though increasingly negotiated, remains prevalent across private equity, venture capital, and hedge fund structures.

What Services Does Each Model Provide?

Wealth managers often deliver holistic financial planning alongside investment management. Common offerings include retirement planning, IRA and Roth IRA distribution strategies, tax planning, estate planning coordination, and referrals to affiliated professionals for legal and accounting services. The client relationship centers on personalized advice tailored to individual circumstances.

Private fund managers focus narrowly on deploying capital according to a stated investment strategy. Value creation occurs at the portfolio level through sourcing deals, executing transactions, managing portfolio companies, and harvesting returns. While institutional LP relations require significant attention, the manager's core function remains investment execution rather than comprehensive financial planning.

Where Do These Worlds Intersect?

The boundary between wealth management and private funds has blurred as RIAs seek alternative investment access for clients. Platforms like iCapital, CAIS, and Moonfare aggregate wealth channel capital through feeder fund structures, allowing RIA clients to participate in institutional-quality private funds with reduced minimums.

Some RIAs have moved beyond distribution relationships to launch their own private funds, either independently or through private-label partnerships with established sponsors. These arrangements allow wealth managers to offer differentiated products while potentially participating in carried interest economics.

For fund administrators and operations professionals, understanding these distribution dynamics informs client service models. Wealth channel capital often arrives through feeders with different reporting expectations, tax documentation requirements, and communication preferences than direct institutional LPs.

The structural and regulatory distinctions between wealth managers and private fund managers reflect fundamentally different business models. Wealth managers typically serve individual clients seeking personalized advice across their financial lives. Private fund managers serve investors seeking exposure to specific asset classes and strategies through pooled vehicles. Where these models converge through feeder funds, RIA-sponsored vehicles, and alternative distribution platforms creates operational considerations worth understanding.