Family offices are helping high-net-worth families manage and increase their wealth, and their popularity is growing.
With global wealth in the spotlight as never before, high-net-worth and ultra-high-net-worth families are changing the ways they manage their wealth. Like their investments, high-net-worth and ultra-high-net-worth families are becoming increasingly international. Research conducted by Boodle Hatfield LLP for The Wealth Report 2013 shows that 60 percent of the private client advisers consulted deal with families which "frequently" have members who live outside the home jurisdiction. Another 9 percent advise clients whose families are "always" outside.
As a result families must deal with many aspects of their life (ranging from asset management, family governance, succession planning and charitable giving to day-to-day administrative assistance to individual members) in a complex and ever changing international legal, regulatory and tax environment. The management of investment professionals and other professional advisers across multiple jurisdictions inevitably takes a lot of time and effort. Many of the aforementioned aspects also require a bespoke approach and/or do not traditionally fall within the service offering of a bank or wealth advisor.
While tax planning remains the dominant issue, there is a growing interest by high-net-worth families in setting up family offices to look after various needs. Having in the past been set up mainly by US, UK and Swiss families, single and multi-family offices are now spreading to other areas, and those already established are becoming more tightly run. For example, family offices were largely unknown less than ten years ago in Germany, but it is estimated that some 1,100 single-family offices and 80-120 multi-family offices now operate there.
Types of family offices
Single-family offices focus on one family and often look after the family's business interests and the personal affairs of its members. However, this does not mean that they operate as silos. Information and knowledge are regularly exchanged through formal and informal family office networks. In particular in the US, there is also a new trend of single-family offices actively cooperating in specialised investment areas such as niche kinds of real estate.
As the name implies, multi-family offices assist several families with a view to collating know-ledge and benefiting from economies of scale. This can range from bespoke offices for two or three families to large operations set up and run by external service providers (sometimes closely linked to a bank) to look after dozens of families.
Two basic approaches
The operative models of family offices are as diverse as their founders, but they tend to follow two basic approaches. The first model emphasizes the preservation of wealth across multiple generations and focuses on the selection of relevant advisers and the management and monitoring of their performance. The second approach (particularly popular in the US) is more geared towards active, operative asset management and wealth creation and entails a much more active role of the family office in investment decisions and the selection and implementation of direct investments.
What private clients want
According to The Wealth Report 2013 only 23 percent of private clients worldwide rule out the idea of establishing a family office; 47 percent want a single-family office; 5 percent want a multi-family structure and 26 percent a mixture. With the next generation of entrepreneurs increasingly enjoying active involvement in the management of their or their family's wealth we expect that the family office trend will continue and increasingly also spread to the Asia-Pacific region.