A Simple guide to the family office fee playbook

Introduction

Every family office grapples with a fundamental question: “What is the right price to pay for wealth management fees?” The answer lies not in chasing the lowest cost, but in achieving alignment with long-term objectives. In addition, the right amount is also more nuanced than x or y percentage basis points.

In Determining the Right Price, Charlie Grace, Managing Director at Cambridge Associates points out that family offices exercise varying degrees of control over investment decisions. For example, some manage the majority almost internally, while others delegate the bulk of services to third parties.

Those who do investments in-house have much more control over their fees and expenses. However, those who use third parties mainly can face a few issues when calculating overall costs. That’s due to the fact that while some fees are specified up front in mandates, others are not disclosed and only surface in the transactions of certain line items.

Why fee management matters

Despite the diversity within the industry, all family offices could benefit from a guiding principle, or “North Star.” Danil Knyazev, Co-Founder at GreenLock, offers family office workshops on fee monitoring and reduction. To illustrate effective fee management, he references the Norwegian Government Pension Fund Global (GPFG). Managed by Norges Bank Investment Management (NBIM), with nearly $2 trillion in assets under management, the fund is renowned for its disciplined cost approach.

While family offices may not have the same infrastructure as NBIM, they share common goals: preserving and sustaining wealth over generations. Whether an office operates with a lean internal team or through a network of outsourced specialists, managing costs proactively is part of that stewardship.

The lesson is clear: Cost governance is not about cutting corners but clarity and control. Family offices that continuously audit and optimise their fee structures protect returns and reinforce the trust, discipline, and transparency that sustain a family’s legacy for generations.

The cost of complexity

Most family offices manage complex investment portfolios, but what’s often overlooked is how the level of complexity drives fees. To illustrate, picture two family offices that have the same Assets Under Management (AUM). The first reinvests primarily in its family business, parks extra funds in index funds, and holds nearly all assets in a single currency. In contrast, the second family boasts a globally diversified portfolio, which includes various structural arrangements such as trusts, foundations, and multiple custodians.

It’s clear that the second family has the highest management fees. In structures with layers of external asset managers, custodian banks, and specialised funds-of-funds, each intermediary takes a cut. The result is aggregated fees that ultimately reduce returns. And that’s because complexity creates an environment where hidden costs can thrive.

Where hidden fees hide

While family offices often assume investment fees are capped with conventional financial institutions, a simple fee audit usually reveals this is far from the reality. The reason being is that these costs frequently lie outside of the standard, easily itemised management fees.

In Exposing Hidden Costs: Protect Your Wealth from Silent Erosion, Sergey Borzenko, COO of Greenlock, details how he helped a European-based family office identify four critical areas where its wealth was being silently depleted. Below are the four critical areas:

Cash drag

Cash drag is the silent, negative impact of holding idle cash balances within a portfolio rather than fully investing that capital to earn a return. For family offices, it manifests primarily as an opportunity cost because cash yields very low or near-zero real returns. Also, its value is steadily eroded by inflation, decreasing the portfolio’s overall returns over time.

FX spreads

Foreign exchange transactions are a major source of hidden revenue for banks. That’s because the fee isn’t an explicit line item, but a hidden markup embedded in the conversion rate (the “spread”). These opaque conversions, especially on smaller or non-negotiated amounts, can amount to a massive drain on capital.

Retrocessions

Retrocessions refer to kickbacks or undisclosed commissions paid back to an intermediary (like an advisor or custodian) by a fund manager for placing a client’s assets into their fund. They create a clear conflict of interest. They incentivise the intermediary to choose the product that pays them the highest commission, rather than the one that is best for the client’s long-term interest.

Complex products

Complex products are investment instruments, such as Funds-of-Funds or structured notes, characterised by layered and opaque structures that obscure the underlying costs. This lack of transparency allows embedded costs to go unchecked, leading to significant, hidden erosion of the portfolio’s net asset value.

Mastering family office fees

In Winning Tactics for Family Office Fees, Don Harder of FundCount discusses the complexities of investment fees in family office operations and their impact on long-term returns. Based on case studies from clients, he discusses that the total true investment cost for family offices can be as high as 2-3% every year.

In addition, he uses an illustration to demonstrate how saving 1% of the annual investment cost significantly boosts returns. For example, a $10 million investment over ten years at 10% could grow to $27 million. However, with a 1% cost saving (11% effective return), it becomes $29.4 million, an additional $2.4 million (25% of the initial investment).

Harder emphasises the importance of understanding and minimising these costs through strategies like identifying hidden charges and negotiating better terms. Then, addresses how family offices can optimise their fee structures and enhance investment performance by adopting best practices and using the appropriate family office software.