What Questions Can Uncover Undisclosed Compensation or Referral Arrangements?

To find compensation that a fee schedule may not show, ask who receives value from the fund relationship, who pays it, and what event triggers payment. Specific questions can get clearer answers than a general request to disclose conflicts. Trace each payment through the documents and records that describe it.

Ask Who Pays Whom and Why

Ask the manager: "Does any person or entity receive money, credit, a discount, or another benefit because we invest or the fund closes a transaction?" "Who pays it, who receives it, and how is the amount calculated?" "Is the recipient affiliated with the manager, sponsor, adviser, broker, service provider, or portfolio company?" Ask whether compensation depends on your commitment, the amount raised, a transaction closing, or the selection of a vendor.

Cover direct and indirect forms: referral or placement fees, fee sharing, rebates, marketing support, consulting payments, transaction compensation, discounts, or non-cash benefits. Ask whether principals receive compensation from portfolio companies or service providers in addition to fund-level compensation. Request names, roles, payment sources, calculation methods, and dates or triggers.

Trace Payments Through the Records

Request the fee schedule, expense allocation policy, organizational chart, affiliate list, relevant service provider contracts, and disclosure sections in the offering documents. Ask the manager to identify the exact provision for each arrangement. If a payment is described differently across records, request a written reconciliation that explains the difference and identifies which document governs.

For affiliate services, ask what work was performed, who approved the charge, how the rate was set, and whether an independent provider was considered. Request a sample invoice or an anonymized example of the allocation. Check whether the fund paid the amount directly, reimbursed the manager, or allocated it to a portfolio company. Compare the payment with investor reports and financial statements, while recognizing that accounting labels alone may not explain the business arrangement.

Look for Indirect Benefits and Gaps

A payment may sit outside the line item called "fees." Review expense reimbursements, marketing or conference support, consulting arrangements, discounts, or compensation linked to a transaction. Ask whether the manager or an affiliate retains any amount otherwise described as an offset. Ask whether a referral source also advises the fund or portfolio company, and whether that relationship appears in investor disclosures.

Red flags include answers that name a category but omit the recipient, broad claims that there are no conflicts without a list of arrangements, and refusal to provide the policy or contract basis. A difference in presentation can have an innocent explanation, but unexplained gaps should remain open in your review. For related context, see disclosures about related-party transactions and how to examine the expense allocation policy.

Put the Economics in Context

Ask for a calculation showing how all compensation and reimbursed costs affect fund and investor economics. Clarify whether any reported performance is before or after those amounts. If terms are material or disclosure language is unclear, ask your attorney to review the documents and your CPA to address accounting or tax questions. Keep the manager's written explanations with the source records.

Checklist

• List each recipient and payer, the service, and the payment trigger.
• Request fee schedules, affiliate disclosures, policies, or relevant contracts.
• Trace affiliate charges to invoices and allocation records; note approvals.
• Compare answers across offering documents and investor reporting.
• Ask for a written reconciliation of any inconsistent description.
• Record unresolved compensation and its effect on fund economics.

Go deeper: direct deal vs fund calculator; How can a family office assess whether a fund's fee structure is fair?.

Few people know that in most places the one who asks the questions controls the process of negotiation and accomplishes more in bargaining situations.

Sources: Family Office Club investor due diligence framework, The Rainmaker Handbook. Informational only, not financial, legal or tax advice.