The reliable way to evaluate a family office is to trace the entire money flow—not just the headline advisory percentage—and then test every recommendation against the office’s incentives. Start by identifying the office’s legal structure and regulatory status, inventorying every direct and pass-through cost, documenting payments from investment or service providers, and reconciling the contract with actual invoices and account records.
This is a U.S.-focused diligence guide. A family office may qualify for the Securities and Exchange Commission (SEC) family-office exclusion from the Advisers Act investment-adviser definition, so the words “family office” do not by themselves tell you whether the office is registered, what it must disclose, or which fiduciary obligations apply. State law, tax rules, trust and entity documents, and non-U.S. law can change the analysis for a particular family.
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Start with the relationship and regulatory status
Before judging whether a charge is high or a conflict is serious, establish who is actually providing advice and who is paying whom. A single “family office” name can cover several entities: an investment adviser, an employer of household staff, an administrative company, a trustee, a private investment vehicle, or an affiliated business. Each may have different contracts, owners, revenue sources, and legal duties.
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Map who contracts with the family
Request an organization chart and the agreements that govern each service. Identify:
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- The legal entity named in the engagement letter and invoices.
- Every affiliate or related person that provides investment, tax, accounting, legal, lending, insurance, concierge, or administrative services.
- The family members, trusts, foundations, partnerships, and companies included in the relationship.
- Who owns and controls the office, including any outside owners or minority investors.
- Which accounts, private investments, operating businesses, and personal expenses are inside or outside the mandate.
This map prevents a common error: assuming that a fee paid to one company covers work performed by another, or that a recommendation is independent because the invoice comes from the office rather than from a product provider.
Determine whether the SEC family-office exclusion may apply
The SEC’s final family-office rule, effective August 29, 2011, excludes a defined family office from the Advisers Act investment-adviser definition when the office meets the rule’s conditions. The exclusion is not a blanket label for every organization using the term. Ownership, control, clients, and services matter. SEC staff has specifically noted that providing advisory services to non-family members requires examining whether those services affect the analysis.
Do not assume that every family office is a registered investment adviser or that every office must file or deliver Form ADV. Ask the office to state, in writing, whether it is registered, exempt, relying on the family-office exclusion, or operating through another regulated entity. For a legal-status question, have counsel familiar with the family’s facts review the answer; this guide does not establish whether any particular office complies with federal or state law.
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Ask for a schedule showing what is included in the mandate and what is separately billed. Include liquid portfolios, private funds, direct deals, real estate, operating companies, trusts, charitable entities, and personal or household services. A fee that appears reasonable for investment management may be expensive if it also covers extensive reporting, bill payment, tax coordination, or family governance—or misleadingly low if those functions are billed by affiliates.
Build a complete fee inventory
Obtain the current engagement agreement, fee schedule, amendments, side letters, and at least several recent invoices. Record each payment arrangement exactly as written, then compare it with what actually leaves the family’s accounts.
List every form of compensation
| Compensation type | What to document | Questions to ask |
|---|---|---|
| Fixed or retainer fee | Amount, covered services, payment dates, renewal terms, and adjustment clauses. | What work is included? Can the amount change when assets, family members, or services change? |
| Asset-based fee | Percentage or tier, assets included and excluded, valuation date, billing frequency, and advance or arrears billing. | Are cash, private holdings, pledged assets, and externally managed accounts included? How are illiquid assets valued? |
| Hourly or project charges | Rates by role, minimum increments, estimated hours, and approval requirements. | Which tasks trigger hourly billing, and are senior or outside professionals billed separately? |
| Performance-based compensation | Measurement period, benchmark, hurdle, high-water mark, crystallization date, loss treatment, and accounts covered. | Could the arrangement reward additional risk or influence which accounts receive attention? |
| Transaction or implementation compensation | Commissions, placement, execution, financing, or other per-transaction charges. | Who receives the payment, and can the office choose a lower-cost execution or implementation route? |
| Other payments | Any compensation from funds, brokers, custodians, lenders, insurers, administrators, or vendors. | Is the benefit passed through, credited against the family’s bill, waived, or retained? |
Capture the calculation mechanics
The fee base can matter more than the percentage. Write down the valuation date, whether the office uses beginning, ending, average, or daily assets, and whether deposits and withdrawals are prorated. Note minimums, breakpoints, tier changes, treatment of cash, and the method used for private or hard-to-value assets. Confirm what happens when assets move between accounts, when the family terminates the relationship, or when the scope expands mid-period.
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Also record who is billed, which entity receives the money, whether the charge is negotiable, and whether the office deducts it directly from a custodial account or sends an invoice. A fee deducted from an account can be easy to overlook, especially when investment expenses are deducted inside a fund and never appear on the office’s invoice.
Separate the office’s fee from other costs
Build a second list for costs paid directly or indirectly by the family:
- Brokerage commissions, bid-ask spreads, trading charges, and foreign-exchange costs.
- Custody, account, wire, and platform fees.
- Fund, separately managed account, private-fund, and product expenses.
- Fees charged by outside portfolio managers, banks, administrators, or consultants.
- Legal, accounting, tax, valuation, audit, and entity-administration work.
- Transaction, diligence, financing, implementation, and termination costs.
Ask whether the office receives fee offsets, rebates, expense caps, credits, or waivers and whether each benefit reduces the family’s bill. A “no additional fee” statement does not answer whether the family is paying an embedded expense elsewhere.
What fees should a family office disclose?
For an adviser covered by the relevant SEC disclosure regime, Form ADV Part 2A (the brochure) addresses compensation, fee schedules, negotiability, billing or account deduction, assessment frequency, and other expenses such as brokerage, custody, and fund costs. It also addresses performance-based fees and managing accounts side by side. Part 2B brochure supplements can provide information about the people who give advice.
Those materials are a useful checklist, not proof that every family office must provide them. If the office is not a covered adviser, ask for equivalent written disclosures in the engagement documents. The practical standard is whether a family can understand the total cost, how it is calculated, when it is charged, and which third parties may benefit.
Check the timing and version of disclosures
Use the current agreement and current brochure, not an old proposal. Ask when the office last changed its fee schedule, custodians, product shelf, ownership, or compensation arrangements. A disclosure can be technically accurate for an earlier period yet fail to describe the practice you are experiencing now.
Match disclosures to the services actually delivered
Compare the promised scope with meeting records, investment reports, tax calendars, and invoices. If the office says a service is included but bills an affiliate for it, ask for the contractual basis. If an expense is described as “at cost,” request the definition of cost and supporting invoices. If a family member receives a different arrangement, ask whether the difference reflects scope, assets, negotiating history, or another factor.
Trace direct and indirect compensation
A conflict can exist even when the family does not write the recipient a separate check. The SEC Division of Investment Management staff stated in an October 18, 2019 compensation-conflicts FAQ: “An adviser that receives, directly or indirectly, compensation in connection with the investments it recommends has a financial incentive to make recommendations that result in the receipt of that compensation.” The SEC identifies this FAQ as staff views; it does not alter applicable law and has no legal force or effect.
Ask whether the office, an affiliate, or an employee receives money or a non-cash benefit from a fund, broker, custodian, lender, insurer, administrator, software provider, or other vendor. Probe for commissions, distribution or service fees, 12b-1 fees, revenue sharing, transaction charges, marketing support, expense reimbursements, platform credits, fee offsets, and waivers.
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Demand particulars instead of a general assurance
For every identified arrangement, ask:
- Which legal entity or individual receives the payment or benefit?
- What written agreement creates it, and how is the amount calculated?
- Which products, share classes, custodians, trading venues, or services are affected?
- Does the office recommend, maintain, or favor assets with that provider?
- Does the payment change the family’s direct fee or reduce another expense?
- Is the benefit passed through, offset, rebated, waived, or retained?
- Does the answer differ by account, family member, client type, or service?
Custodial payments or expense offsets may create an incentive to keep assets at a particular custodian. That does not by itself prove improper conduct; it tells you to examine whether the arrangement limits choices, raises total cost, or is controlled and disclosed.
How can I tell whether my family office has conflicts of interest?
Read the office’s conflict disclosures, then compare them with actual recommendations and operations. Where applicable, review Form ADV Part 2A and relevant Part 2B supplements. The brochure topics include business practices, fees, conflicts, disciplinary information, other business activities, brokerage, personal trading, and related practices.
Specificity matters. SEC staff guidance says disclosure should let clients understand the conflict and make an informed decision. A statement that a firm “may” have a conflict is inadequate when the conflict actually exists. Ask how the office identifies, avoids, mitigates, monitors, and discloses each real arrangement. The guidance also says advisers should consider disclosures when recommending that a client continue holding an investment, not only when recommending an initial purchase.
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Share-class and product selection
Ask whether the office receives more compensation for one share class, fund family, insurance product, structured investment, or private vehicle when a lower-cost or differently compensated option is available and the family is eligible. Request a total-cost comparison that includes fund expenses and any payment to the office or affiliate. Ask who approves exceptions and whether the rationale is documented.
Custodian and platform incentives
Determine whether payments, credits, technology subsidies, or expense offsets depend on where assets are held. Ask whether the selected platform restricts the funds, managers, lending terms, or trading venues available to the family. Require an explanation of how the office evaluates alternatives when a different custodian would offer broader choice or lower cost.
Performance fees and side-by-side management
Performance compensation can create incentives to pursue greater risk, realize gains at particular times, or devote attention to accounts with more lucrative terms. If the office manages accounts under different fee arrangements, ask how opportunities are allocated, how trades are handled, and how the office prevents preferential treatment. Obtain the exact performance-fee formula and examples showing gains, losses, withdrawals, and termination.
Trading and brokerage practices
Ask how brokers are selected, whether the office receives research or other benefits, whether client referrals influence selection, and how trades are aggregated or directed. Request the policy for allocating partial fills, initial public offerings, private placements, and limited-capacity investments. Compare execution records with the stated policy.
Personal and affiliate interests
Ask whether the office, its owners, employees, or affiliates invest in securities they recommend, trade before or after client orders, lend to recommended companies, or provide paid services to portfolio entities. Determine whether related businesses receive legal, accounting, lending, insurance, or administrative work generated by the family relationship and whether those services are priced independently.
Check the numbers against actual records
The SEC Division of Examinations announced on June 9, 2026 that its economic-conflict reviews include fee and expense disclosures and whether advisers accurately calculate and charge fees in accordance with those disclosures. That announcement is not a prescribed private audit method, but it highlights the value of reconciling the paperwork to the money.
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- Collect a matched period. Gather the engagement terms in force, the office invoice, custodial statements, transaction reports, fund expense information, and records of rebates or credits for the same quarter or year.
- Recalculate the advisory charge. Apply the contract’s asset base, valuation date, tier, minimum, proration, and billing timing. Keep a worksheet showing each input.
- Trace the deduction. Confirm the amount withdrawn, the receiving entity, and the date. For an invoice, match the payment to the family’s bank or custody record.
- Identify embedded expenses. Review fund and product documents for management, distribution, performance, custody, and other expenses that do not appear on the office invoice.
- Verify offsets and waivers. Match each promised rebate, credit, expense cap, or waiver to a line on the bill or a documented reduction elsewhere.
- Explain variances. Ask for a written explanation of every difference between the contract, calculation, invoice, and account record. Preserve the response with the supporting documents.
Ask the office to provide a sample calculation before hiring and to repeat it after a major deposit, withdrawal, valuation change, or scope change. A willingness to show the arithmetic is a useful control, regardless of the fee model.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Compare family-office proposals on common axes
When comparing two offices, hold the household, asset mix, service scope, and evaluation period constant. Use the following worksheet headings rather than comparing percentages alone.
| Comparison axis | Evidence to collect |
|---|---|
| Total expected cost | Direct fees plus brokerage, custody, fund, outside-manager, professional, transaction, and implementation expenses. |
| Calculation method | Fee base, valuation method, tiers, minimums, treatment of cash and illiquid assets, proration, and billing in advance or arrears. |
| Services included | Written scope, exclusions, affiliate charges, and circumstances that trigger hourly, project, or transaction billing. |
| Third-party compensation | Payments, credits, rebates, waivers, revenue sharing, and the entity receiving each benefit. |
| Conflict controls | Documented product and custodian selection, allocation procedures, personal-trading controls, independent review, and escalation channels. |
| Performance arrangements | Formula, benchmark or hurdle, loss treatment, crystallization, account allocation, and side-by-side management practices. |
| Disclosure quality | Specificity, update date, consistency with observed charges, and responsiveness to written questions. |
No SEC source establishes a universal or “normal” family-office fee rate. The sources provide disclosure topics and examination priorities, not market pricing data. A lower percentage can produce a higher total cost when the fee base is broad or embedded expenses are substantial.
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Warning signs and how to respond
- Only one headline percentage is provided. Request the complete fee schedule and a worked example using your assets.
- The office says “no conflicts” without describing arrangements. Ask specifically about provider payments, affiliates, share classes, custody, trading, and personal holdings.
- “May” language replaces facts. Ask whether the arrangement exists now, who benefits, how much is involved, and what control applies.
- Invoices do not match the agreement. Pause disputed deductions, preserve records, and request a written reconciliation.
- Private assets are valued without a stated method. Require the valuation policy, date, source, and approval process.
- Rebates or credits are mentioned but never appear. Ask where the benefit is recorded and whether it reduces your bill.
- Documents are stale or inconsistent. Request current agreements, brochures where applicable, ownership information, and provider contracts.
- Pressure to use one custodian or product family. Ask what alternatives were considered and whether payments or platform limits influence the recommendation.
An incentive is not proof of wrongdoing. The relevant questions are whether the incentive is understood, disclosed with enough specificity, controlled, and reflected in a recommendation that remains suitable for the family’s objectives.
What should I ask before hiring a family office?
- Which legal entity will contract with us, and which entities or affiliates will perform the work?
- Who owns and controls each entity?
- Are you registered with the SEC or a state, or relying on the family-office exclusion? Which entity is regulated?
- Which family members, trusts, companies, and accounts are covered?
- What services are included, excluded, or billed separately?
- Show the complete fee schedule and a calculation using our actual asset types.
- Which assets are included in the fee base, and how are cash and illiquid assets valued?
- Are fees billed in advance or arrears, and how are deposits, withdrawals, and termination handled?
- What minimums, tiers, breakpoints, or scope-change provisions apply?
- Do you or any affiliate receive compensation from funds, brokers, custodians, lenders, insurers, administrators, or vendors?
- Are any rebates, credits, waivers, or expense offsets retained or passed through?
- How do you select products, share classes, custodians, brokers, and outside managers?
- How are performance-fee accounts, side-by-side accounts, and limited-capacity opportunities allocated?
- What personal-trading, affiliate-investment, and related-business controls apply?
- Who independently reviews fee calculations and conflicts, and how can we escalate a concern?
- Will you provide a sample invoice, reconciliation, and written answers before we sign?
When an independent review is worthwhile
Consider an independent fee and conflict review when the family has multiple entities, private investments, performance compensation, related-party services, or a material change in ownership or custody. A qualified fiduciary adviser, compliance consultant, or financial-services attorney can test the legal structure, calculate total costs, review disclosures, and examine whether controls fit the actual arrangement.
Give the reviewer the engagement agreements, fee schedules, invoices, custodial and fund records, organization chart, provider contracts, and written responses to your questions. Ask for a report that distinguishes documented facts, unresolved questions, and legal conclusions requiring counsel. A worksheet or software tool can organize charges, but it cannot replace professional analysis of fiduciary duties, tax consequences, trust terms, or possible claims.
Know the limits of this evaluation
This framework is designed for U.S. families using SEC materials. It does not determine whether a particular fee is fair, whether an office owes a fiduciary duty, or whether a disclosure satisfies a specific state, tax, trust, entity, or foreign-law requirement. SEC staff FAQs are staff views and do not have independent legal force. If you suspect an undisclosed payment, inaccurate billing, or a breach of contract or duty, preserve the documents and consult a qualified professional familiar with the family’s jurisdiction and structure.
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