Family offices are deliberately discreet institutions that try to keep a low profile, which leaves ultra-high net worth families in the dark on whether these institutions offer good value for money, a conference heard yesterday.

While these institutions are thriving because of the desire of families to protect generations’ wealth, the opacity of this sector can be a difficult issue when it comes to comparing the fees, costs and profitability of different family offices, Kripa Sethuraman, international managing partner for Family Office Exchange, said.

“A lot of people come to us for cost evaluations for setting up a family office. Because this sector is so discreet, it is actually hard to find out what you need to do in setting one up,” she told the Dealer’s Group Family Wealth & Estate Planning Conference 2009 in London.

“It’s an area of great struggle for a lot of family offices,” she said.

Among family offices themselves, the prices they pay to external advisors vary considerably, Ms Sethuraman pointed out. Figures from the Family Office Exchange show that the average fee, in basis points, that family offices pay to advisors ranges from 21 basis points to 70bps, giving a median of 44.5bps. Figures from 2006 – to be updated by the FOE – show that profitability of family offices is also wide. Some 45 per cent of family offices had profit margins of between 11 per cent to 15 per cent, while only nine per cent of family offices had margins between 25 to 30 per cent. The margins for this year are almost certainly likely to have compressed.

The Family Office Exchange, a network organisation with about 380 members, has been working to gather more statistics to establish benchmarks for the kind of pricing and performance that would-be family office creators should look for, Ms Sethuraman said.

In other data, figures showed that some family offices were far more disciplined in pricing for services than other firms. Some 11 per cent of respondents to questions from VIP Forum Research said their firm was "rarely" disciplined on pricing; 21 per cent were disciplined on pricing "all the time", 37 per cent said their firm was disciplined "most of the time" and it was "some of the time" for 32 per cent of respondents.

Demand for single-family office and multi-family office structures was being driven by widespread disenchantment among the ultra-wealthy about the services they had been getting from some banks, she continued. “We have seen a decent pickup in the last six to nine months or so. The turmoil in the banking industry has led families to step back from these relationships.”

Speaking at the same conference, Sebastian Dovey, managing partner of Scorpio Partnership, a consultancy for the wealth management industry, said cost-income ratios for family offices and other institutions are likely to have been inflated by a drop in revenues and some increases in expenses.

“The cost-income ratio is going in the wrong direction after a decade in which it went in the right direction,” he said.