Family Office Fee Structures: Costs of running a single-family office
When you consider the costs of a (small) team consisting of one or more investment specialists, an accountant, (tax) lawyer and one or more assistants solely working for you and your family, it is clear that a considerable sum of money is needed to operate a single-family office. Such a team, which you will have to recruit yourself (a challenge in itself own), is in most cases the minimum you will need in order to operate a single-family office that acts as more than just an administrator.
For most family offices, the cost and compensation of staff is the largest cost component (percentage-wise), it can easily reach 50-60% of the total office costs. At the same time, staff is also the most important asset of the family office. Therefore, it would be unwise to try to save money on that front.
If the costs of the different areas of activity are considered separately, then investment related costs are by far the largest cost component for most single-family offices. These normally include the costs of in-house staff, investment-related IT, external investment management and custody fees.
The target yearly total operating costs of a single-family office should normally range between 0.75% and 1.50% of the family’s total wealth. This percentage should include the costs of external providers, such as lawyers, accountants, investment managers and custodian banks. The larger a family’s wealth is, the more this percentage could move towards the lower end, and the other way around.
Family Office Fee Models: Every family is unique
As also mentioned on other pages of our website, every family is unique and the situation and needs of every family are different. Depending on the complexity or simplicity of your wealth, what exactly you and your family aim to achieve, which services will be outsourced and how many generations are involved, considerable higher (or lower) costs could be the outcome.
When a family office is, for example, actively engaged in private equity investments, the investment-related costs can easily be 0.5% – 1% higher, maybe even more. The expected return is also higher, and it is exactly that balance that should be in focus.
Remember, family offices evolve, just as families and their family businesses. Such evolvement will also affect the costs. You therefore need to keep monitoring the costs during the whole lifetime of the office.
A more detailed answer regarding the costs of a single-family office is only possible once the actual objectives of the family have been established and an initial family office business plan has been drafted.
