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Asset-Based Fees and Endowments: Paying for Work, Not Size
Adapted for endowment and foundation boards from Chapter 3 of Centimillionaire Strategies by Richard C. Wilson.
In the investment world, a lot of providers want to charge based on assets under management. In my book on centimillionaire families I pointed out a pattern. Many providers will charge a $300 million client ten times what they charge a $30 million client, even if the work is only three to five times as complex.
Part of that is real. Bigger portfolios can bring complex situations. Part of it is simply that the provider knows you can afford it.
Endowments face the same thing with consultants, outsourced CIOs, custodians and software vendors.
Where it shows up
- Consultant and OCIO fees quoted in basis points on total assets
- Reporting and risk software priced by assets or account count
- Custody with asset-based tiers
- Audit and legal that scale with "complexity" defined loosely
The no-price-on-the-website problem
When I researched portfolio reporting software for families, I found that almost no provider listed prices. They asked for your asset size, your type of organization and your industry before quoting. That approach breeds mistrust. Endowments should expect the same pattern and plan around it.
How to test asset-based pricing
- Ask what the fee would be at half your size and at double your size.
- Ask what work actually changes between those levels.
- Ask for a flat fee or a capped fee as an alternative.
- Get at least three quotes, and share the range with each finalist.
If the work barely changes but the fee doubles, you have room to negotiate.
Where asset-based fees make sense
For a discretionary OCIO with real responsibility for results, some link to assets can align interests. For a reporting tool, there is less reason for the price to grow with your returns.
Over time this will change
As each provider niche matures, firms that price clearly and fairly tend to win the trust of institutional clients. Until then, ask the questions.
Frequently asked questions
Are basis point fees always bad?
No. They are common and sometimes fair. The test is whether the fee tracks the work and the value.
Should we put vendor contracts out to bid regularly?
Many institutions review major providers every few years.
What about fee caps?
A cap on total fees in dollars is a reasonable ask for many services.
Sources
- Centimillionaire Strategies, Chapter 3, Richard C. Wilson .
