Multi Family Office Fee Structures

TL;DR

Multi-family offices typically charge a flat advisory fee, but there is a trend towards performance fees to align interests and cater to entrepreneurial families.

Transcript

closest richard wilson from the family office club I'm here in front of the Taj Mahal today in India and I wanted to create court a quick video on multi-family office fee structures when I was speaking at a conference here this week people are asking about what types of fees family offices are charging around the world I want to go over the common ... Read More

Key Insights

• 😥 The majority of multi-family offices charge a flat advisory fee, typically ranging from 50 basis points to one percent.
• 🧑‍💼 Some offices deviate from this model and charge performance fees based on returns, although this is not yet widespread.
• 🥳 Performance fees can be held in escrow over multiple quarters, protecting the family's capital from potential downturns and aligning both parties' interests.
• 🤱 To go beyond capital preservation, families may require help with direct investments and real estate, which necessitates careful consideration of fees.
• 🤱 The competition among multi-family offices is expected to increase, leading to more complex fee structures that may combine both advisory and performance fees.
• 🧑‍💼 The inclusion of performance fees can incentivize multi-family offices to work harder and strive for greater returns, rather than solely focusing on asset preservation.
• 👪 Families should carefully evaluate the fee structure that best aligns with their goals and the services they require from a multi-family office.

Questions & Answers

Q: What are the common fee structures for multi-family offices?

Common fee structures involve a flat advisory fee ranging from fifty basis points to one percent, often with additional charges for specific services.

Q: Are performance fees becoming more common among multi-family offices?

While still relatively uncommon, there are instances of multi-family offices charging performance fees, which may increase in popularity as families seek greater alignment and entrepreneurial outcomes.

Q: How can performance fees be balanced to protect the family's capital?

One approach is to hold the performance fees in escrow over multiple quarters, ensuring no fees are paid if there is a downturn, and aligning the interests of the family office with the family's goals.

Q: Are there ways to incentivize advisors to perform well without taking excessive risks?

Some models, inspired by Warren Buffett's partnership, require advisors to reinvest the performance fee, allowing them to profit only from the returns generated on the fee, and not the fee itself.

Summary & Key Takeaways

• Most multi-family offices charge a flat advisory fee, ranging from fifty basis points to one percent, with additional fees for specific services such as trust and estate work or charitable giving.

• Some offices, like one in Los Angeles, charge a performance fee based on returns, which may become more common in the future.

• To balance performance fees, families may require holding them in escrow over several quarters and reinvesting the fee alongside the advisor.