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 has increased fivefold between 2017 and 2019, according to the Monetary Authority of Singapore.
“In Asia, the concept of family offices started coming over,” says Nick Chan, head of sales at RBC Wealth Management Asia. “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.
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 Chan.
“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, RBC Wealth Management's managing director, head of Wealth Planning and Fiduciary Services for Asia, based 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 Chan. “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 Chan. “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.”
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.
A large family office can handle complexity
A larger operation would provide more extensive financial services and include more specialists, says Kiang. “For multi-generational, high net-worth families, the single family office may also have lawyers, an accounting department, and can also have trustees to look after different generations of the family.”
A large family office can provide non-financial services, such as someone to manage philanthropic matters, someone to oversee the family real estate portfolio, or perhaps an expert to curate the family art collection. Other employees then focus on educational opportunities for younger generations, or on governance rules for family members wanting to engage with the family business.
“Especially for large families, after many generations it could have someone to keep them aligned on the legacy of the family, how the family business runs, and at what point can people branch off,” says Chan.
For a larger office, experts can be added depending on the family's needs. According to Chan, a good rule of thumb is that a family office should cost about one percent of the assets being administered.
For families who don't have the net worth to justify their own office, they may want to participate in a multi-family office, which allows operational costs to be spread among more than one family.
A family office can help prepare the next generation
A family office can also help develop a family's human capital and prepare the next generation of stewards, whether or not they seek a role in the core family business.
“Some of the descendants might get involved in the family office in order to gain experience in finance, learn the ropes, and get involved in the family's wealth,” says Chan. A descendant, for instance, might take over the philanthropic wing of the family office.
Chan also sees younger generations in Asian families seeking opportunities and education abroad – one direction family offices are increasingly headed.
“As families cross borders, it becomes more complicated. That's where a family office can really help,” he says. “For example, when one of the kids ends up going to school in the U.S. and ends up staying there.”
One solution is to have an office in more than one location depending on where the family is based and its core business; such as a family office based in Singapore with a satellite office in the United States.
While family offices are often financial services companies in their own right, they are not banks. Working with a lender allows them to access capital and investment products for their clients. “What we do is we work with the family office that the client has hired,” says Chan.
Regardless of the size of the office, and whether it serves one family or several, family offices look out for a family's interests and allow for the continued stewardship of the business, while providing direction for the next generation.
*Younger generations are defined as those in Gen Z, Millennials or Gen X (18-54 years old). Older generations are defined as Baby Boomers and those in the Silent Generation (55+).
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