Family offices are built on relationships. No single office, however accomplished, can employ every specialist a family may need. At different stages, it may call on tax advisers, trustees, lawyers, investment consultants, cyber-security experts, art valuers, property specialists or succession practitioners. Knowing whom to call—and who can be trusted—is part of the value a family office provides.
But what if an introduction also generates revenue for the family office? Is it reasonable to build a margin into a specialist’s fee, or does that risk turning trusted advice into an undisclosed commercial transaction?
The answer is not always obvious. Much depends on the work the family office undertakes, what the family hears, and whose interests ultimately shape the recommendation.
A straightforward request becomes complicated.
Consider the fictional Dry Family Office, established to manage the affairs of a family whose wealth was created through a successful logistics business. The family has recently experienced an attempted cyberattack and asks the office to find a specialist who can assess its personal, business and digital vulnerabilities.
The family office turns to a cybersecurity firm it has used before. The specialist quotes R180 000 for the assignment. Before presenting the proposal to the family, the office adds a margin of 15%, bringing the final fee to R207 000.
The managing director considers the additional R27 000 to be a fair compensation. His team identified the provider, negotiated the scope of the assignment, arranged access to several family entities and will coordinate the work. The family’s engagement letter, however, mentions only the final amount. It does not disclose the specialist’s original fee or explain that the family office will retain a margin.
The proposed service is necessarily appropriate. The specialist is highly qualified, the work is needed, and the total fee may still be commercially reasonable. Yet an ethical issue has quietly entered the relationship.
What is the family actually paying for?
A mark-up is not inherently unethical. Businesses routinely charge for coordination, project management, due diligence and access to professional networks. A family office that evaluates several providers, negotiates terms, manages an assignment and accepts responsibility for its delivery is doing more than passing on an invoice. Charging for that work may be entirely justified.
The problem arises when the nature of the charge is obscured. The family may believe it is paying the specialist’s fee at cost when, in fact, part of the amount is being retained by the office. The question is therefore not simply whether the family office is entitled to earn revenue. It is whether the family understands how that revenue is being earned.
There is also an important distinction between a professional fee and a finder’s fee. A professional fee compensates the office for work it has performed. A finder’s fee rewards it for directing business to a particular provider. The first can be measured against clearly defined responsibilities; the second may influence—or appear to influence—the independence of the recommendation.
The conflict hidden inside the introduction
Suppose the Dry Family Office is considering two cybersecurity firms of similar competence. One offers the family office a referral fee; the other does not. Even if the paying firm is ultimately the right choice, the commercial incentive creates a conflict that the Dry Family Office must recognise.
Would the same recommendation have been made if no fee were available? Could another provider have delivered better value? Has the office tested the market, or has a profitable relationship gradually become the default?
Employees may feel uncomfortable asking these questions because the conflict seldom looks like misconduct. It may appear to be a long-standing relationship, a convenient arrangement or a modest addition to an invoice. Over time, however, undisclosed incentives can erode the objectivity on which a family office’s authority depends.
Transparency changes the nature of the fee.
The Dry Family Office has several defensible options. It could pass the specialist’s fee to the family at cost and invoice separately for its own coordination work. It could disclose the mark-up and explain exactly which services it covers. Alternatively, it could agree an annual management fee that includes specialist sourcing and oversight, thereby avoiding transactional margins altogether.
Any referral commission paid by the cybersecurity firm should also be disclosed. Depending on the family office’s mandate and any applicable regulatory requirements, it may be appropriate to rebate the commission to the family or obtain informed consent before retaining it.
Disclosure does not cure every conflict, but it allows the family to assess the arrangement with full knowledge of the facts. That is materially different from discovering the margin later through an invoice, a casual conversation or the specialist himself.
The reputational test
The question is not only, “Are we allowed to do this?” but also, “Would we feel comfortable explaining it to the family in plain language?” If the fee becomes difficult to justify once it is visible, the arrangement probably needs to be reconsidered.
Family office employees occupy positions of unusual trust. They see private information, influence consequential decisions and often act for family members who do not have the time or technical knowledge to examine every recommendation. This creates a higher obligation than ordinary commercial practice may demand.
The value of a family office is not its Rolodex. It is the assurance that every introduction has been made for the right reason. Fees may compensate the office for its work, expertise and responsibility, but they should never leave the family wondering whether an undisclosed reward quietly influenced trusted advice.