The outlook wasn’t brilliant for the Mudville nine that day: The score stood four to two, with but one inning more to playCasey at the Bat, Ernest Lawrence Thayer

Hope springs eternal in the OCIO space. Each year confident investment officers and ardent marketeers announce their brand-new best-in-class discretionary outsourced solution. But for most of these eager rookies, few customers will come or care.

Looking back over the last four decades, the best time to pitch an outsourced chief investment officer (OCIO) proposition was probably about thirty years ago when prospects were plentiful, competitors few, and margins were healthy.

In today’s hyper-competitive wealth management arena, fielding a full-service institutional grade asset management team is expensive and costs are soaring for compensation, cyber-security, audits, and compliance, to say nothing of rampant regulatory hurdles and those nasty unknown unknowns.

(See our charts below for detailed office cost breakdowns.)

We recently completed an OCIO search and selection engagement for a sizable east coast nonprofit and found all the responding providers to be consummate professionals and serious competitors.

Firms such as Hirtle Callaghan, Blackrock, J.P. Morgan, and Brown Brothers Harriman, among the stalwarts in our directory, have had years to hone their systems, service, succession, and investment capabilities. But it’s never easy.

In an interview with Jon Hirtle for our 2020 OCIO review he reminisced on the firm’s early efforts to win clients.

Debby [Jon’s wife] and I often talk about the financial low point when our checking account had dropped to $17. What kept us going was that everyone loved the OCIO concept. The idea of powerful, informed, energetic advocacy without the conflicts of interest that define the traditional investment industry.

This Cold Cruel World

It’s tough for newbies and niche players to keep up with the veterans. This year kicked off with Edgehill calling it quits, Agility selling to Cerity Partners, and Vanguard’s OCIO team decamping en masse for Mercer.

They’re in good company. The past few years have seen a steady stream of outsourcing hopefuls merge with better-resourced patrons including Truvvo, Ellwood Associates, New Providence, CornerStone, PFM, and Permit Capital. There will certainly be more.

Boston Consulting Group, in their Global Asset Management 2023 review, estimates that – due to rising costs – the industry’s compound annual growth rate in profits “will be approximately half the average of recent years (5% versus 10%).”

Most nonprofits and family offices, basically anyone under $500 million in investable assets, don’t have the time or resources to build competitive and secure internal investment capabilities. 

Investment Office Costs: you pay to play

Strategic Investment Group published an investment office cost study recently, Building Blocks and Costs of an Internal Investment Office, that’s worth a read. 

Keep in mind that the costs in their report focus only on core investment activities, what a family office would likely spend to build in-house capabilities.

For aspiring OCIOs, RIAs, and advisors these costs are just the beginning. Pursuing Wall Street metrics like distribution reach, product innovation, customer acquisition, and AUM growth blows holes through most rose-colored budgets.

Here’s what SIG calculates a build-it-yourself family investment office will cost depending on the size of AUM – $500 million, $2 billion, and $10 billion in assets under management.

Investment Office Costs

Investment Office Costs











Staffing and Compensation




Hardware, Office Supplies




Internal Systems & Data Licenses




Manager Diligence, Monitoring Costs




Other Costs




Total Costs




Total Costs in basis points (bps)





As SIG notes, staff is by far the single largest cost item, representing between 75-85% of the total.

As portfolios grow in size, the complexity of the investment strategies pursued tends to increase. The operational demands on the investment office go up correspondingly. Regulatory and compliance demands are significant.

Moreover, institutions tend to undertake more and more operational functions in-house. As a consequence, the proportion of operational staff in total staffing increases with size at an accelerating pace.

A Deeper Dive

While family office costs are notoriously difficult to pin down, their fraternal twins, private foundations, do report useful cost data in IRS filings – 990PFs to be precise – which foundations must swear to “under penalty of perjury.”

Here’s a revealing data set on investment expenses from our good friend John Seitz, CEO of FoundationMark.

We wrote about Mr. Seitz in our newsletter a few months ago on “Foundation Investment Performance,” and his research and insights are a go-to source for asset owners and purveyors of investment products and services.

(Private Foundations – Investment Office Costs PDF)

No Free Lunch

If total office costs seem low, there’s probably a reason. Foundations list all their costs in the 990s, but it’s not always clear what went where.

Take the Duke Endowment, for example. From their line items in row 46 in our chart above, we see average investable assets of $5.4 billion and investment office costs of $849 thousand. A tad light, don’t you think?

We thought so too. So, we combed through the 990 and focused our attention on one item in particular called Other Professional Fees (OPF), a black hole for wayward expenses including OCIO and consultant fees.

In the case of the Duke Endowment, their money is managed by the excellent team at DUMAC (Duke University Management Company), a perennial top performer in our annual endowment investment report.

The charge for DUMAC’s investment services in 2022 was $5,688,220, which we found – you guessed it – among “other professional fees” totaling $8,704,212 on the Duke Endowment 990 form.

You would not know it, of course, unless you looked in another section of the 990s titled “Five highest-paid independent contractors for professional services,” Part VII. It’s not hidden, just scattered about.

Add the DUMAC management fee to the Duke Endowment office costs and we have a skosh over twelve bps. Quite reasonable for the amount of AUM.

The Wrap

OCIO services are a compelling proposition for serious investors, whether they are institutions or families. And the demand for full-service, discretionary asset management shows no sign of slowing.

But building a resilient business with sales, service, and investment capabilities, adding financial muscle, and developing bench strength takes time and money.

If the goal is to deliver superior performance, service, and solutions and be there for multiple generations and perpetual institutions, who is most likely to endure and deliver?

And who will families and institutions – and their search consultants – select to manage their legacies?

Aspiring newbies? Or the seasoned warriors on our list with billions in AUM, rock-solid balance sheets, and decades of hard-won experience?

I think you know the answer.

Charles Skorina

(520) 529-5677

(download this newsletter as PDF)

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