Costs and Fees
When should I consider this choice for my family?
There are two main reasons families make this choice, size and expertise. Some families have been very lucky with their main business and have not been able to focus equal time and energy onto their personal wealth management. They often feel after a certain point that the private banking services that they use, are not specialized enough in products or services to their satisfaction. A full-time or shared professional team is needed to make better informed choices exclusively for the family. Many wealthy people enjoy running their personal wealth, but time, health and energy take a toll. There comes a point when shifting this responsibility makes sense due to the size of the assets to manage and the investment goals of the family.
How is a family office different from wealth advised by a private banker?
Private bankers offer a more standard style of products and services with only minor custom made changes. A family office is an "order made" kind of business. Each is unique to each family, and is sometimes called an "Estate Office" in the UK or Europe. Real estate holdings are often a major part of the portfolio. A top quality service like this will integrate wealth transfer or inheritance goals, tax & compliance goals, investment return goals and family philanthropic goals into a single comprehensive family strategy. This is the full-time job of the family office service team with no outside distractions. This professional wealth service is only focused on the single family or multi-families funding the business.
What are the costs in fees of a family office that I should expect?
There are three main ways that these kind of family or multi-family offices are paid. A combination of all three are often used by family offices depending on the ultimate goals that the staff are guided by.
1) The first is based on a minimum annual fee for the family or each family. This fee is often a minimum of 2 oku yen for a single family office based on 200 million dollars or more per year. A multi-family office will often charge each family a minimum of 400,000 dollars for asset amounts of at least 20 million dollars per year. Typical family investment returns are often set at 5-10% per year depending on clear pre-set goals.
2) The second is based on a percentage of the wealth assets to be managed. Based on 200-500 million or more, a descending scale from 2% to 1% of the total wealth asset amount is often used as a base amount in any annual or semi-annual or quarterly due fees. The larger the pool of assets, the longer the average holding period for each layer of investment made. This larger asset base allows for more short-term cash flow balance flexibility versus longer-term investment commitment.
3) The third is based on any hourly rate for special requests or custom made requirements that use outside expertise, research or resources not found within the service directly. Legal expertise in particular, can be a very expensive additional cost for order-made requests. Much of these hourly fees go to legal, audit or tax with outside counsel. Real estate holdings especially, are often overseas, so local family office staff seek overseas local experts when making decisions about the wealth of the family and any local impacts in foreign countries. These are often paid by the family soon after completion or within the nearest fee payment date due.