Cost to serve one investor against the manager's fee after retrocession, the floor below which no holding period helps, and why low minimums need an omnibus platform.
The minimum ticket at which a wealth investor pays for itself is the cost of serving that investor divided by the manager's net fee margin over the holding period: (onboarding + annual cost × years) ÷ (net margin × years). With illustrative costs of 1,200 to onboard and 600 a year, and a 1.25 per cent management fee less a 0.50 per cent retrocession, a five-year investor needs to commit 112,000. Below 80,000, the annual cost divided by the margin, the ticket loses money every year it stays.
Worked in full in The Private Wealth Fundraiser by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Lowering the minimum investment is the first lever a manager reaches for when moving into the wealth channel, because it widens the pool of eligible clients. Each investor, though, brings a fixed cost: identity and anti-money laundering checks, subscription processing, transfer agency, statements, tax reporting and often a per-account platform charge. Those costs do not shrink with the ticket. Before setting the minimum, a fundraiser should know the ticket below which the fee no longer covers the investor.
| Item | Value |
|---|---|
| Onboarding: KYC and AML, subscription processing, one-off | 1,200 |
| Transfer agency and investor servicing, a year | 250 |
| Tax and investor reporting, a year | 150 |
| Platform per-account fee, a year | 200 |
| Annual cost per investor | 600 |
| Management fee on NAV | 1.25% |
| Retrocession to the distributor | 0.50% |
| Net margin to the manager | 0.75% |
| Expected holding period | 5 years |
The ticket is held flat over the period and the cash flows are not discounted, for clarity; NAV growth would raise the fee slightly each year and lower the break-even a little. Performance fees are left out, because they are uncertain and a minimum should not depend on them.
Break-even ticket = (onboarding + annual cost × years) ÷ (net margin × years)
= (1,200 + 600 × 5) ÷ (0.75% × 5) = 4,200 ÷ 0.0375 = 112,000
Floor ticket = annual cost ÷ net margin = 600 ÷ 0.75% = 80,000
In Excel, with onboarding in B1, annual cost in B2, net margin in B3 and years in B4: =(B1+B2*B4)/(B3*B4), and =B2/B3 for the floor.
The floor is the number that matters most. Above it, each year contributes something towards the onboarding cost and a long enough holding period eventually repays it. Below it, the annual fee does not even cover the annual servicing cost, and every additional year deepens the loss.
| Ticket | Net fee a year | Contribution a year after servicing | Profit over 5 years | Cost as % of ticket a year |
|---|---|---|---|---|
| 25,000 | 187.5 | -412.5 | -3,262 | 3.36% |
| 50,000 | 375.0 | -225.0 | -2,325 | 1.68% |
| 100,000 | 750.0 | 150.0 | -450 | 0.84% |
| 250,000 | 1,875.0 | 1,275.0 | 5,175 | 0.34% |
A 25,000 investor costs the manager the equivalent of 3.36 per cent of the ticket every year, onboarding included, against a fee of 0.75 per cent. Even at 100,000 the investor is still slightly loss-making over five years, because the onboarding cost has not quite been recovered. It covers its running cost from the first year, with 150.0 left over, but needs eight years to repay the 1,200 spent bringing it in. The 250,000 investor repays it in under a year.
| Years held | Break-even ticket |
|---|---|
| 2 | 160,000 |
| 3 | 133,333 |
| 5 | 112,000 |
| 7 | 102,857 |
| 10 | 96,000 |
Longer holding periods spread the onboarding cost, but the break-even only approaches the 80,000 floor; it never falls below it. Semi-liquid funds that offer quarterly liquidity should expect shorter average holdings than closed-ended feeders, and set their minimums accordingly.
Why low minimums come with platforms. When clients invest through an omnibus platform, the fund registers one holder and the platform does the investor-level work, charging the client or the manager for it. If that leaves the manager 200 of onboarding and 100 a year per underlying investor, the five-year break-even falls to 18,667 and the floor to 13,333, and a 25,000 ticket earns 238 over five years instead of losing 3,262.
The common mistake is to judge small tickets by the money they raise rather than by the investors they add. Raising 10,000,000 from 400 investors at 25,000 brings in the same 75,000 a year of net fees as 40 investors at 250,000. But the first book costs 240,000 a year to service and loses 1,305,000 over five years; the second costs 24,000 and makes 207,000. The same amount raised, at a cost that differs by a factor of ten. A distribution team measured only on gross flows will prefer the first book, which is one reason the break-even AUM of a wealth distribution team has to be computed with the cost to serve included.
Set the minimum ticket at or above the break-even, (onboarding + annual cost × years) ÷ (net margin × years), and never below the floor of annual cost divided by margin. Here that is 112,000 and 80,000 for a directly registered investor, and roughly a sixth of that through an omnibus platform. Remember that the margin is what is left after the distributor's share, worked in how retrocessions are calculated. The Private Wealth Fundraiser covers raising private markets capital from wealth managers, private banks and family offices, and the free workbook for this case forecasts a wealth channel's flows platform by platform over seven years.
Because the annual fee on the ticket is smaller than the annual cost of serving the investor. At a 0.75 per cent net margin and 600 a year of per-account cost, any ticket below 80,000 loses money every year. A 25,000 ticket earns 187.5 a year and costs 600, so a longer hold only adds to the loss.
By aggregating many clients into one account on the fund's register. The manager then services a single omnibus holder and the platform handles investor-level onboarding and reporting, for which it charges its own fee. With illustrative per-investor costs to the manager of 200 to onboard and 100 a year, the five-year break-even falls from 112,000 to 18,667.
No, the losses scale with the number of investors. Raising 10,000,000 from 400 investors at 25,000 earns 75,000 a year in net fees against 240,000 of servicing cost, a 1,305,000 loss over five years. The same amount from 40 investors at 250,000 earns the same fees, costs 24,000 a year and makes 207,000.
This article is one calculation from The Private Wealth Fundraiser. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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