As wealth continues to increase in Asia, many are turning to family offices to manage their complex financial and estate needs, as well as to build the foundation for an orderly wealth transfer and business succession.
At their core, family offices are private companies focused on providing financial services for high-net-worth (HNW) families, with a dedicated staff anywhere from one or two, to dozens. The concept of the family office has become increasingly popular in Asia as the region's wealth has expanded. In Singapore, the number of family offices quadrupled between 2015 and 2017, according to the Monetary Authority of Singapore.
“In Asia, probably five years ago, the concept of family offices started coming over,” says Michael Reed, head of RBC Wealth Management for Southeast Asia, based in Singapore. “A number of family offices moved from Switzerland to places like Singapore after the 2008 financial crisis, and I guess that ideology stuck.”
Along with the expansion in wealth, the financial needs for HNW families has grown in complexity — as family members travel abroad for education, or set out to launch their own business ventures in an increasingly fluid marketplace. In this environment, a family office may provide a measure of stability and organization for a family, and help ensure the estate is managed in its best interests.
With the largest transfer of wealth in history underway, major attitudinal shifts are emerging. Interests are swinging from local to global, smart philanthropy is taking hold, and impact- and alternative investing are going mainstream. As wealth shifts—globally and from one generation to the next—the influence of affluence will change.
In a recent survey by The Economist Intelligence Unit (EIU), commissioned by RBC WM, 68 percent of HNW respondents in Asia say, compared with a generation ago, wealth is less easily attained or preserved today.
The New wealth rising survey targets HNWIs, adult children of HNWI and high-earning professionals in China, Hong Kong, Singapore, Taiwan, the U.S., UK and Canada.
A family office can help with the family business
Family offices often are associated with families whose wealth is generated by a shared business, but may also be appropriate for a family without a shared business who want dedicated experts to manage their wealth. When a shared business exists, a family office may provide peace of mind for family members, regardless of their interest level in the enterprise itself.
Typically, a family office may be a wholly separate entity from the family business, or may have a role in governance of the overall family business — providing services such as reporting on family assets and record-keeping, says Reed.
“Usually the family has a business affecting multiple generations, and is sizeable enough that they want a family office that can look after the governance of the family business, but not the operations,” says Vivian Kiang, head of wealth planning for Asia at RBC Wealth Management in Hong Kong.
When differences of opinion among family members arise, the office may serve as a neutral arbiter, ensuring major decisions are made in the best interests of the family.
“When you've got a very complex family, the office can be the one mandated to manage everyone equally and fairly,” says Reed. “So you've got some security or comfort that the family business won't suddenly be going rogue because of a cousin taking it over and running it a different way.”
How to get started with a single family office
Families considering a family office should first determine what service level they require. A single family office is focused on the needs of one family only, and may provide services beyond financial management. For a simple operation providing basic estate and wealth planning services, one or two employees may suffice.
The starting point for an office is usually an investment manager, says Reed. “You want someone dedicated to your wealth. And you want that person to be employed by you. They're not managing other people's money, they're managing your money, and that's all they're doing.”
Research from the EIU shows HNW respondents in Asia prioritize growing their wealth (61 percent), conserving wealth for their future well-being (51 percent) and reaching wealth goals sooner (41 percent). Additionally, 78 percent say they expect their financial advisor to offer unique investing opportunities.
Another key role is a concierge, or all-purpose family assistant, who can ensure the family's wishes are carried out in the growing enterprise. For a smaller office, the concierge may serve several roles, including tasks such as managing international travel arrangements.