Negotiating family office vendor fees
Built on Chapter 7 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Negotiate a family-office fee after defining the work it covers. A lower price is difficult to evaluate if the provider has removed the reporting or follow-up the family expected. For a billionaire family with several outside firms, an unclear fee can also hide the same task being billed in more than one place.
Chapter 7 warns that outside relationships create ongoing costs and coordination responsibilities. I would use that warning to examine the full engagement. Price, scope, and responsibility should be understandable together before the family decides what to accept.
Richard's point about fee mechanics
In recorded teaching about investment structures, I discuss catch-up fees and warn that their mechanics can make the fee burden much larger than an investor expects. That discussion concerns investment arrangements. It is not a statement that ordinary vendors use the same structure.
The lesson I would apply to vendor negotiations is to understand the calculation behind the quoted figure. Ask what triggers another charge and which assumptions determine the estimate. A familiar label on a fee does not tell the family what it will pay when the work changes.
Put the expected work on one page
Describe the recurring deliverables and the records the family will supply. Identify the condition those records are expected to be in. A firm quoting for clean books is pricing a different assignment from a firm expected to correct incomplete records.
Ask the provider to mark exclusions. Then decide who handles those items. An exclusion is manageable when the office has deliberately assigned it elsewhere. It becomes a service problem when everyone assumes it was included and the obligation is left undone.
Ask what makes the bill change
Discuss new entities, additional meetings, and unusual transactions where relevant to the engagement. Ask how the provider identifies out-of-scope work and obtains authorization. The office needs enough warning to make a decision before the work becomes an unexpected invoice.
A project estimate can be useful without being a guarantee. Have the provider explain the assumptions that could change it. Keep that explanation with the approval record so a later discussion can compare actual work with the original assignment.
Compare like-for-like proposals
Give competing providers the same description of the work. If one proposes a different approach, ask them to explain which responsibilities change and why. The family may prefer that approach, but it should evaluate the difference consciously.
Avoid treating every extra service as an advantage. A family with capable internal reporting may not need a second reporting package. Ask the prospective firm whether its engagement can fit the existing team without making the office purchase an unnecessary duplicate function.
Negotiate the work that creates cost
A provider may spend substantial time collecting information the family supplies inconsistently. Ask whether a cleaner intake process would change the required effort. If the office commits to that process, name the employee responsible for maintaining it.
Do not promise easy records to obtain an estimate and then deliver a disorganized archive. The family and provider should agree on the actual division of work. A credible negotiation begins with an accurate description of what each side can deliver.
Protect the people doing important work
The least expensive staffing arrangement may give the family less experienced attention than it needs. Ask who performs the work at the quoted fee and who supervises it. If the family requires senior involvement, specify where that involvement is necessary.
There may be routine tasks that can be assigned differently without weakening the engagement. Let the provider explain the options. Keep the decision connected to the work rather than bargaining over a percentage without understanding what the reduction removes.
Keep a record of concessions and conditions
If the provider changes its proposal, record the revised terms and any conditions attached. A concession may depend on a longer engagement, additional business, or a different information process. Have the appropriate professional review the final agreement.
Give the person checking invoices a copy of the operative fee description. They should be able to compare a charge with the scope and identify an unexplained difference. The negotiation is useful when the office can administer the terms after the people who negotiated them have left the meeting.
What to take from this
- Define the included work and its assumptions first.
- Ask what triggers additional charges.
- Give the invoice checker the final fee terms.
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.
Questions and answers
Is the smallest quote always the best value? Compare scope, staffing, and retained family responsibilities before deciding.
What should happen before additional work is billed? The engagement should establish how changes are identified and authorized.