How can I make money as a Private Wealth & Family Office Practitioner?

By Ayoob Rawat & Kabir Rawat

As can be imagined the management of more than $300 Trillion of wealth is a huge for-profit business.

Except when there is a profit it is shared with the bank and asset managers but when there is a loss it is for the private client alone to bear. This is one of the reasons we quit banking and financial services.

Another reason was the costs that people end up actually paying.

Unlike other industries, most people haven’t a clue most of the time as to what, when and how much they are paying for the services being provided.

Another point of confusion is statements about performance. They are not measured in a standard way.

If only the charges and performance were standardised and transparent a bit like the Big Mac Index invented by The Economist in 1986 as a light-hearted guide to whether currencies are at their “correct” level.

There does seem to be regular and irregular attempts made by different service providers, supervisors, and regulators to try to standardise charges. For example, the Retail Distribution Review in the UK. 

Costs matters in wealth management as the higher the costs, the less the paying clients end up having for themselves and over time that drains the value of their holdings.

As data become available to each one of us, unlike before, we are all now more sensitive and realise that like any other item that we consume, we can shop around.

The availability of low costs products cutting across all types of investment and in a variety of currencies will change wealth management fundamentally for the benefit of the end client.

In order to discuss how one could make money as a Private Wealth & Family Office Practitioner, one needs to have an idea as to what does it cost to obtain a wealth management service in general?

Let us explore this. As you can understand, we cannot comment on the actual amounts as each bank, business or manager will apply their own rate. It also depends on where the services will be provided. For example, Switzerland will probably be more expensive than most other jurisdictions.

So there are a number of possible fees and charges that a private banker or an independent asset/wealth manager will charge depending on the services that will be provided.

From our experience, developing and running single and multi-family offices, this is how we understand fees are split (more a less).

Investment Management

Advisory, discretionary, and consulting. The charge will be between 0 to say 3% based on Assets Under Management for advisory and discretionary and on a time and complexity basis for consulting.

Performance-based fees.

This is a performance-based profit share arrangement that can be applied and the share is normally 5-20% of net profit generated in one year.

Banking/ Brokerage.

Depending on whether you will be using a broker or a bank, a number of fees linked to the services you will use will be charged.

Custody fees.

1 and 0.5 per cent of the securities held in custody.

Administrative fees

1 to 0.2 per cent of the AUM or a fixed amount...

Annual account fees:

Can be between 0 and 1000 CHF per year.

Brokerage fee.

Based on buying or selling and can be from 0.2% to 2% of the amount transacted are typical. Depending if the security is domestic or foreign there will be an additional fee due say another 0,10 or 0.15 of the amount transacted.

Product fees

Whilst shares or bonds are products, the industry has devised a new way of earning money. They devise investment vehicles or products: investment funds, mutual funds, private equity funds, structured products. There is still brokerages to buy or sell these “funds” or “products” but the brokerage may now range between 0-5% of the amount paid. The investment fund itself then charges a management fee of between 0.1 to 2,5%

Linked with “products” is a retrocession fee.

This is a very controversial subject that has seen the industry and many banks criticised for applying retrocession.

Often it was not declared as happen in the UK for many years until the Retail Distribution Review that came into force made it illegal not to declare retrocession to clients.

A retrocession is a fee paid by a fund to a wealth manager whose client has bought the product. Somebody who introduces a client to a bank can get retrocession for life on this client’s assets held in the bank.

You can imagine the hidden conflict of interest that exists but is being fought against by clients and campaigners. 

Other charges.

Various additional charges apply, including stamp duties (in the case of transactions) and value-added tax (in the case of custody fees). Depend on which jurisdiction your asset is held but also which jurisdiction the “product” is issued from.

The first choice an advisor or practitioner will need to decide on is whether they are retaining control over the investment decision on the portfolio or not.

They will need the client to sign up for an advisory mandate. In this case, the practitioner’s role will be to give advice based on the analysis performed by the wealth manager or the institution he operates from.

The alternative to advisory is discretionary. In fact, here you give control as to investment decisions to the wealth manager. Normally this is for fixed-term mandate during which you cannot and should not influence the investment decisions.

Your own profile will dictate which Advisory or Discretionary you go for depending on your experience in investments and your availability to manage the portfolio as often decisions need to be taken fast. From this, one could then decide what to charge.

Thank you for your time, share your thoughts with us 😀

The Swiss Association supporting professionals to join, navigate & succeed in the blue ocean that is Family Office and Private Wealth solutions.

 ➡️ Join the Private Wealth & Family Office (PWFO) Association Community here 

➡️ Or on socials: