Multi Family Office Fee Structures

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On a recent trip to India to speak at a couple of Family Office conferences, Richard recorded this video on fee structures for multi-family offices.

Hello, this is Richard Wilson from the Family Office Club. I'm here in front of the Taj Mahal today in India and I wanted to create a quick video on multifamily office fee structures. When I was speaking at a conference here this week, people were asking about what types of fees family offices are charging around the world. I want to go over the common fee structures and where I think things are trending towards, and then some uncommon ideas as well.

First off, I think most people are charging probably 50 basis points to 80 basis points or 1% for a multifamily office management flat fee. Then in addition to that, they might have some one-off fees or add-on kind of a la carte fees for other types of services, which could be anything from more heavy trust and estate work to helping multiple family members or charitable giving type work. It just depends on the situation. I've heard of a couple of groups, I think one is in Los Angeles, that charges a performance fee instead of a management fee. They do something like a 10% performance fee and I'm not sure if they peg that against the S&P or some sort of index of some type. But I think in the future, there will be more families wanting a performance fee.

But I think that to balance it so that you're not taking big risks with the family's money just to earn big fees, I think that probably what's going to be required in most families is having that fee rollout over, say, eight different quarters and held in escrow so that if there is a down draw on the capital, that the family won't have to pay any more of those performance fees and it aligns the families more, because people say, "Oh, well, I'm being objective by charging a management fee." But you're also basically telling the family, "I only want to get paid for growing my assets under management," and you have no basically tie to actually performing well for the family. So, you just do things in an ultra conservative way and you push the agenda of capital preservation when the reality is, a lot of families that are worth $100 million-plus don't just want capital preservation.

They want help with direct investments, they want help with real estate investments. If they wanted to just make everything super highly diversified, they could just go get a great trust and estate attorney and charitable giving consultant and just get a diversified ETF index portfolio and some currency services and they don't need a more expensive, multifamily office. Things have to be careful with what fees you're paying and what that is motivating the family office to do for you.

Finally, I would say another way to have performance fees is to force the advisor to reinvest those alongside of you in the strategy. This is like a Warren Buffett partnership type model where the first time you earn a fee, it gets reinvested. Then over that length of time, whether it's a one-year period or two-year period, that second time you can take off the profits earned from the reinvestment of your performance fee, but you never are able to take out that performance fee itself.

I hope that makes sense. But essentially what I found is that almost every multifamily office globally is charging a flat advisory fee. But in the future, I think it's going to get more competitive and more complex with some offering a performance fee or some sort of mix of the two because it can align both parties for a more entrepreneurial family, to have the multifamily office work harder to get great returns and not just to protect the capital. It just depends on what the family wants and who that multifamily officer's targeting and what makes the most sense.

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