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At what level of wealth does a family office start to pay?

Chapter 2 calls the threshold substantial and leaves it there. It is $567m — and it is a property of two fee schedules, not of the industry.

Julian R. Sterling · from The Family Office Professional

A single-family office is described as viable “above a substantial threshold”. That adjective is the most consequential word in the chapter for a family deciding what to build, and it has a number. On the schedules below the number is $566.8m.

Worked in full in The Family Office Professional by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →

The reason a threshold exists at all is that one of the two costs is fixed and the other is not. A staffed office costs what it costs. A multi-family office charges a percentage. One curve plunges as wealth grows, the other merely sags, and they meet exactly once.

What the office costs

Five people is the smallest complement that covers investment, operations, analysis, control and administration without asking anyone to do two jobs. Salaries alone understate the cost badly: employer costs and a bonus pool add 55% on top before a single premise is rented.

Five people, before anyone has made an investment. The figure does not move with assets.

The office	$ per year
Chief investment officer	$450,000
Chief operating officer	$300,000
Investment analyst	$160,000
Controller	$140,000
Administrator	$90,000
Salaries	$1,140,000
Employer costs and benefits, at 25%	$285,000
Discretionary bonus pool, at 30%	$342,000
People	$1,767,000
Premises	$120,000
Technology and reporting platform	$145,000
Audit, tax and legal	$190,000
Custody and banking	$85,000
Insurance, including directors' cover	$55,000
Travel, research, memberships	$80,000
Running the office	$675,000
Total, every year	$2,442,000

Note what this figure does not do: it does not move with assets. The same $2,442,000 oversees $100.0m or $2,000.0m. That is the whole of the argument.

The same cost, in basis points

Against a tiered multi-family schedule — the realistic alternative, not a straw man — the two curves look like this.

Multi-family office schedule	Rate
On the first $100m	65 bps
On the next $150m	50 bps
On the next $250m	35 bps
Above $500m	25 bps

Positive means the multi-family office is cheaper. The sign changes exactly once.

Assets overseen	$100m	$250m	$500m	$750m	$1000m	$2000m
Single-family office (bps)	244.2	97.7	48.8	32.6	24.4	12.2
Multi-family office (bps)	65.0	56.0	45.5	38.7	35.2	30.1
Difference (bps)	+179.2	+41.7	+3.3	-6.1	-10.8	-17.9

The office falls from 244 basis points to 12. The multi-family office falls too, but only from 65 to 30. One plunges, the other sags.

Solving for the crossover

Above $500.0m the multi-family fee grows at the top-tier rate of 25 basis points, so the crossover has a closed form: take the difference between the office's cost and the multi-family fee at $500.0m, and divide by that rate.

The office costs $2,442,000. The multi-family fee at $500.0m is $2,275,000. The gap is $167,000, and at 25 basis points that gap is closed by another $66.8m of wealth. The crossover is $566.8m, where both cost about $2,442,000 a year, or 43 basis points.

The framing that actually helps

Almost no family picks the cheaper option and stops thinking. The useful question is not which costs less but how much better must the office perform, net, to be worth its extra expense. That is a hurdle, and it is a number.

The hurdle is what the office must add, net, every year, simply to justify its own extra cost. Above the crossover it is negative: the office pays for itself before adding any value.

Assets	Office	Multi-family	Extra cost of going alone	Hurdle
$250m	$2,442,000	$1,400,000	$1,042,000	+41.7 bps
$300m	$2,442,000	$1,575,000	$867,000	+28.9 bps
$400m	$2,442,000	$1,925,000	$517,000	+12.9 bps
$500m	$2,442,000	$2,275,000	$167,000	+3.3 bps
$567m	$2,442,000	$2,442,500	−$500	-0.0 bps
$750m	$2,442,000	$2,900,000	−$458,000	-6.1 bps
$1000m	$2,442,000	$3,525,000	−$1,083,000	-10.8 bps

At $250.0m the hurdle is 42 basis points a year — every year, through the cycle, from a five-person team, net of everything. At $500.0m it is 3. That is the difference between a hard question and an easy one, and it is two hundred and fifty million wide.

What moves the threshold — and by how much

The threshold is not a property of the industry. It is a property of two schedules, and both are negotiable. Two changes, each of them ordinary:

Change	Crossover	Moves by
As it stands	$566.8m	—
A second analyst, at $160,000 of salary	$666.0m	+99m
Ten basis points off the top tier, 25 to 15	$611.3m	+45m
Both changes together	$776.7m	+210m

The second analyst is the trap. The instinct is to divide the salary by the top-tier rate: $160,000 at 25 basis points is $64.0m, so the crossover ought to move to about $630.8m. It does not. Employer costs and the bonus pool apply to that salary like any other, so $160,000 of salary is $248,000 of cost, and the crossover moves to $666.0m — $35.2m further than the naive answer. A hire is never its salary.

And the fee cut moves the threshold less than the hire does: $44.5m against $99.2m. Which is worth knowing before a negotiation, because it says where the leverage is not. Ten basis points off a top tier feels like the bigger win and is worth under half of one analyst.

What the arithmetic does not settle

Confidentiality has a value that appears in no fee schedule. So does control over hiring, over what gets reported and to whom, and over the ability to act on a Friday afternoon without a committee.

The point of computing the threshold is not to overrule those reasons. It is to price them. A family building an office at $300.0m is choosing to pay about 29 basis points a year — $867,000 — for control, confidentiality and continuity. That may be excellent value. It is a different decision from believing the office is free, and only one of the two can be defended to the next generation.

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