For many family offices, the greatest threat to long-term wealth preservation isn’t a market crash. Instead, it’s the silent erosion caused by management fees. While not at the top of mind when making investment decisions, it is obvious that as wealth is diversified across global markets and complex financial products, the cost of management fees becomes obscured and can easily get out of hand.
This guide provides family offices with actionable steps to combat the “silent erosion” of wealth caused by management fees. It discusses how complexity hides hidden fees, then highlights key areas such as cash drag, FX spreads, retrocessions, and complex products. Finally, it suggests building fee transparency via technology as well as five negotiation strategies to preserve generational prosperity.
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.
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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