it can cost a lot to be wealthy among the very rich some think about wealth management expenses—for investment management professional services staff salaries and much more—above all else while others pay more attention to values and goals a family with a halfbillion dollars in wealth could pay anywhere from 115 to 175 of their total assets in costs and fees annually amounting to us575 million to us875 million for instance cambridge associates wrote in a recent report to ensure fees are reasonable and make sense for a family cambridge offers a framework that can be used to evaluate the costs of managing wealth “sometimes families when they think of cost they just look at the data—they might see a survey where they just look at the bottomline number of the cost versus some kind of benchmark but they don’t put it into a framework and look at some of the nuances” says charlie grace managing director of family enterprise solutions in the private client practice at cambridge associates penta spoke with grace who wrote the report about the approach families can take to ensure they are spending the right amount to manage their family wealth for generations fees for managing investments typically are equal to 50 or more of annual expenses for all wealth management services cambridge associates said yet it’s not always practical for a family to unearth every cost they are paying that’s because some investment fees are from commingled investments such as hedge funds or private equity—which can be expensive but difficult to track grace says even exchangetraded funds which are relatively less expensive can pose problems because fees are automatically deducted “i’ve seen lots of instances where families don’t necessarily track that” he says grace doesn’t recommend families dig into these costs weekly or monthly but it could be useful to take a deep look at them every two or three years in terms of overall expenses for the family with a halfbillion dollars in assets cambridge associates calculates that thirdparty investment costs will equal between 075 and 105 of assets between us375 million and us525 million annually while noninvestment costs will be another 010 to 020 of assets or between us500000 and us1 million annually these estimated investment costs include a strategic investment advisor thirdparty asset managers for both actively managed securities and funds and alternative strategies custody brokerage research and related costs the report said on top of all that cambridge associates also adds in the investment and noninvestment expenses of a family office which could include the salary of a chief investment officer in addition to philanthropic management and other services those costs can range from another 030 to 050 of assets or between us15 million to us25 million but as grace points out costs can often be higher than most standard assumptions because certain fees such as those for commingled funds aren’t tracked or the methodology used by a family doesn’t capture certain costs this can happen when a family has a concentrated stock holding for instance oversight over that investment may not be as active as a diversified portfolio meaning it’s less costly to manage and when the value of that asset is added to total holdings it can appear to dilute the costs a family is paying for everything else “there are always wrinkles like that that come up in any kind of cost analysis” grace says family wealth management expenses also can vary widely when families have complex needs cambridge associates gives the example of two hypothetical families each with us300 million in assets but in very different situations one family includes three households their wealth management plan includes 12 “entities” meaning trusts partnerships and other arrangements they don’t have a family office and instead use thirdparty advisors they file 20 tax returns and allocate 10 of their assets annually to private equity and hedge funds annual wealth management expenses total 1 of assets or us3 million a second more complex family has 15 households their plan includes 45 entities 65 tax returns and both thirdparty advisors and a family office they allocate 30 of their assets annually to private equity and hedge funds their annual expenses 15 of assets or us45 million in other words their inherent added complexity costs this family us15 million more a year than their peers but families with that level of complexity may just need to pay more to get the services they want the key is making sure not to pay more than necessary one way to cut costs for example could be to place more assets with a single service provider or investment manager an investment manager for instance is likely to charge less if they are managing more of a family’s assets the report gives an example of a manager charging 058 annual on an investment of us15 million but only 034 annual on an investment of us50 million families can also take a look at how much they are paying for services it may make more sense for a wealthy family to only pay a sophisticated estate planning attorney for specific instances instead of hiring that attorney to take care of all legal services for a family office grace says whatever way a family looks at costs they should consider them within their overall wealth management strategy which includes family values in addition to goals some costs for instance are less quantifiable grace says “what’s the value of going to a really reputable firm to have some professional services done for a better sleepatnight kind of quality” he says “i would argue that that should be put into the mix when you’re looking at that costbenefit analysis even if it’s not easy to quantify”