Raising the global family

Written by: Kirsten Morel Posted: 24/06/2014

As families and their businesses become increasingly scattered around the globe, the work of the family office is more important than ever when it comes to best managing their wealth, as Kirsten Morel explains

 

Wealth preservation poses challenges for the extremely wealthy, particularly as they look forward across the generations and understand that as a family grows over time, so capital can easily become diluted.

Nobody can predict the future, nor can they control it, but measures can be put in place to ensure that the capital accumulated today is maintained and enhanced for the enjoyment and wellbeing of future generations.

The desire to preserve capital has resulted in the rise of the family office, an administrative infrastructure that ensures investments and assets owned by a family remain available to them long into the future. There is no standard definition of a family office, but they tend to come in two types: a single-family office is concerned with the affairs of only one family, while a multi-family office pools resources and looks after the interests of a number of families.

As organisations created today but with a clear eye on the future, family offices have to have the flexibility to adapt not only to a changing world, but to a changing family. Over generations, families grow, become more widespread and their affairs more complicated. In a globalised world, even the first and second generations of a family can have multinational interests that need to be taken into account by the family office.

The best way to understand the complexities that can be involved is to look at an example. You may have a US citizen living with his Argentinian wife in London as non-domiciled residents in the UK. Their children have multiple passports and the family has business and property interests in the US and Europe, as well as property in South America, all of which may be held in a trust structure based in the Channel Islands or elsewhere.

Such families live on a global platform, one in which the concept of belonging to a nation is diminished. Instead, family members see themselves as world citizens able to enjoy the benefits of the multiple jurisdictions they "inhabit".

“One of the biggest trends we are seeing with globalisation is the concept of "borderlessness",” explains Duncan MacIntyre, Head of Coutts Private Office. “Families are becoming borderless, with the whole world as their stage. As wealth moves from the first to the second generation, we"re seeing family offices operating across multiple jurisdictions.”

Life without borders

Regardless of where family members choose to base themselves or travel to, the family office is expected to coordinate their financial, business and property interests. A key job is to ensure tax efficiency while also being aware of how long any individual family member can remain in a particular country before tax liabilities become an issue.

As Richard Joynt, Director of Bedell Family Office, a multi-family office firm headquartered in Jersey, explains: “Taking tax advice in all the relevant jurisdictions is costly. You need someone to be the family"s eyes and ears. We advise families on the optimal way to get what they want whilst taking account of the risks.”

Being borderless means that the family office can be located anywhere, and most families take a practical approach when making this decision.

“Globalisation means that when they"re setting up a family office, families need to look at a number of things, including tax, available skills, time zone, language, a stable political and legal system, as well as ease of travel to those locations where the family members are,” says Richard Joynt. “For this reason, London has become popular for family offices, as has New York. Of course, other families won"t want to be based in the UK or US because of tax and privacy of information. In this case, they"re looking at well-regulated jurisdictions, like the Channel Islands, Isle of Man, or midshore jurisdictions like Singapore or Luxembourg.”

Once established and in charge of the family"s affairs, it falls to the family office to remain in contact with all members of the family, advising them of their own obligations and the risks associated with activities such as travel, as well as providing all the information necessary for the family to make decisions that will ensure their capital is protected.

With family members located all around the world and with some families containing hundreds of individuals, this can be a challenging task. One approach is to draw up a constitution that sets out the responsibilities of particular members and the parameters for decision-making and meetings.

“Our job is not to dictate to the family how they should govern themselves,” says Duncan Macintyre. “We help them put in place family constitutions, which are very important documents, and we find that progressive families absolutely embrace these constitutions.”

Once a constitution is in place, the roles of the office and family members are much clearer, but that doesn"t immediately overcome the problem of communication.

“Communication is key to keeping a family"s wealth intact in the long term,” says Edward Stone, Group Partner at Channel Island law firm, Collas Crill. “The best solution I"ve found is where the family has a council of members who report back to their members of the family.”

Alternatively, the family may choose to come together once a year to communicate with the wider group. However, where there are family divisions, it falls to the family office to overcome them.

Naturally, technology also plays a key role in overcoming distance. Conference calls, video conferencing and email play a crucial role in communicating to family members and ensuring a collective response is provided. Technology cannot however, overcome the need to meet face-to-face, and anyone responsible for a family office is expected to have to travel regularly in their work.

Global reach

While a family office representative will certainly travel widely, it"s impossible for one office to fully understand the many cultures and legal regimes that play a role in the life of a global family. Therefore a successful family office will engage in partnerships with professionals, such as tax advisers in the relevant jurisdictions, and will also call on the services of global providers such as multinational banking or consulting institutions.

“You can"t have a branch of a family office in every jurisdiction the family lives, so they need to create partnerships,” says Mark Osment, Head of the Financial Intermediaries team for Deutsche Bank in the Channel Islands. “Jersey, as the central office location, is ideally placed, but they have to team up with satellite providers.”

The need to access expertise in a variety of jurisdictions is one reason why a single-family office may choose to engage with a multi-family office, sharing resources to reduce costs.

“A large Jersey trust firm will already have contacts in Singapore and other jurisdictions. Banks like Deutsche Bank have an important role to play in making these offices more efficient,” says Osment.

They do so by having systems to manage risk through consolidated reporting, which gives an overview of exposure to sectors or jurisdictions.

Coutts plays a similar role, providing the banking services one would expect, such as custody and foreign exchange, but also, and perhaps from the family office"s perspective, more importantly, the reporting tools which enable the office to stay on top of everything. “We"ve spent a considerable amount in developing a single IT platform that supports those families,” says Duncan Macintyre.

Thousands of families around the world are worth in excess of $1bn each and tens of thousands count their wealth in the millions. As they grow across generations, and travel and technology remove national borders, the family office"s work is only going to become more complex.

To successfully maintain their roles as the overseers of the family wealth, family offices must keep their eye on the single most important aspect of their work, which is communication. By using structures such as family constitutions, a family office can keep control of their interactions with the family.

On the business side, no family office can do everything and understand every culture or legal system, and it"s here that partnerships are key. Whether to engage with a multi-family office or to maintain the privacy of a single-family office is one question that must be addressed, but it"s only through institutional partnerships that the office will be able to keep on working to ensure the preservation of their family"s wealth.  

A road map for the future

The responsibility of a family office extends far beyond today. Every investment or structural adjustment is made with one eye on the future. The reason is simple - to ensure that the wealth generated today is available to the family for generations to come.

“One of the greatest challenges of the family office is that of governance and drawing out a road map that looks beyond the short term,” says Andrew Le Gal, Director at Kedge Capital. “The road map, shareholders" or partners" agreement, in whatever guise, has to be robust enough to survive challenges, yet flexible enough to be able to change according to outside forces acting on the family"s set up and structure.”

The complexity involved can be quite staggering. Le Gal cites one case where his firm looks after residences in several jurisdictions, businesses across Europe and North America as well as various investment subsidiaries worldwide.

On its own, the administration of these assets is an enormous task. Add to that three living generations of the family, the most recent of whom are just being introduced to the business, and additional layers of complexity are added.

Given the number of factors involved, and to ensure solid foundations that will last long into the future are laid, it"s critical that the office itself is situated in the right location. “The traditional family office being based in one location has certainly moved on. Having a global presence means the family office should be in the best place possible to take advantage of various changes whether that be investment, legal, regulatory or tax driven,” explains Le Gal.

 


Reader Comments

Gravatar for Jan van Bueren

Jan van Bueren at 26/06/2014 22:16:26
Twitter: @https://twitter.com/Family_Offices

Interesting article. In the list of jurisdictions I am missing Switzerland as one of the most relevant ones to establish a family office or use the services of a multi-family office. Research shows that after the USA, Switzerland is home to most family offices.

The biggest challenge for family offices (both single and multi) is know-how and keeping up with increased legislation and regulatory developments. In combination with families becoming more global and the fact that most family offices, especially multi-family offices, have only been established over the last decade, it has to be seen how many wealthy families can afford to run a single-family office and how many multi-family offices will be really capable to provide comprehensive and high-quality services to their clients in more than one jurisdiction. Finding qualified staff for single-family offices is already now quite a challenge and so far there are very few family offices able to provide services out of several jurisdictions. As strategic cooperation between (multi-) family offices is only in a very early stage, it is really difficult to predict how the industry will develop further.

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