Resources for bespoke wealth management and responsible governance strategies are in growing demand from family offices restructuring in their pursuit of new investment opportunities in new markets.
Singapore and the United States were the most attractive jurisdictions for family offices to move to, buoyed by rocketing wealth in Asia-Pacific and North America. However, many family offices want to review and improve their succession plans, with their next generation in mind, in the pandemic era. Access to debt and cyber security were the biggest outside challenges facing family offices.
These were among the findings of an exclusive survey of global family offices by CampdenFB and TMF Group in the fourth quarter of 2021. As more families and their businesses operate in multiple locations around the world, TMF Group works to simplify the administration of those global assets. Its team of experts provides the combination of fiduciary, company secretarial, accounting and tax, and HR and payroll services essential to the comprehensive servicing of both private wealth and family office clients across jurisdictions.
Families were given an early insight into the survey's results when they attended the Campden Wealth European Family Office Forum in London on 3-4 November 2021.
Pandemic disruption has offered family office executives a rare opportunity to re-evaluate their practices and priorities and consider the resources and services they need to achieve their goals in a new era of economic volatility.
We asked TMF Group experts Tim Houghton, Jersey-based Channel Islands Market Head, and Aynsley Vaughan, Global Head of Private Wealth & Family Office, for their thoughts on the CampdenFB and TMF Group survey findings.
Which findings from the survey surprised TMF Group the most?
That more than 50% of respondents are setting up a new entity or structure. New and diverse investment opportunities was one of the key drivers for this. It highlights how fast family offices are moving on deals and how open they are to co-investment with other families in their networks, utilising fund structures and Special Purpose Vehicles.
Survey finding: Of the 53% of respondents who said they have considered consolidating or restructuring their family office in the last 18 months, their motivation varied from growth and evolution, professionalisation and sophistication, to adapting to tax reforms and changing investment strategies including sustainability and even intergenerational pressures.
Which restructuring initiative would TMF Group recommend family offices prioritise?
Every family is unique and although there are some themes emerging from our research, we urge families to take some time to assess what their priorities are and to agree a timeline. Succession plans and working with the next generation are not issues solved overnight, so agreeing a road map with achievable milestones will keep the project on track. Adapting to tax reforms may require a nimble approach, so engaging stakeholders and your advisers early on will give you the ability to make a decision with the knowledge you need.
Many of our clients have taken some time to reflect on their priorities through the pandemic and are now taking action. This is not only in the expected area of philanthropic giving but also planning for the future and the role the next generation will have in families.
Survey finding: Singapore and the United States were the countries respondents said they were most interested in moving their family office to.
What makes Singapore and the US attractive to family offices and how does TMF Group support family offices in those countries?
Growing wealth in Asia and Latin America is pushing demand for services in both the US and Singapore. There is not only the geographical element where families choose to reside, but where they locate their family office.
Both the US and Singapore are the simplest places in the world to do business, according to TMF Group's 2021 Global Business Complexity Index (GBCI). Both countries have a well-regulated financial services industry and support system of advisers as well as a deep pool of talent. Singapore has several initiatives to attractive family offices and more than 100 double taxation agreements.
What we know is that evaluating where a family office is located is not a simple case of pros and cons. There are regulatory issues, tax considerations, outlook of political and economic stability as well as investment opportunities at play.
Survey finding: Of the 52% of respondents who said they have considered setting up a new family office entity or structure, the majority (37%) said they wanted to "restructure". Succession planning and new investments as their drivers were tied at 26% each. Restructuring was the most common additional reason, respondents said, with new and diverse investment opportunities their other drivers.
What are the key matters to consider when restructuring a family office?
The growth of responsible governance is a global theme we see — businesses are increasingly being encouraged by authorities and shareholders to behave in a responsible, transparent and more society-minded manner. In 2021 we saw a renewed focus on ensuring companies are behaving responsibly, from employing workers to paying appropriate levels of tax and ensuring their structure and behaviours are transparent. This trend is also reflected in our discussions with families when considering new locations and reviewing their current footprint.
"International versus local complexity is another interesting consideration for families"
International versus local complexity is another interesting consideration for families. We have seen how the drive to international alignment and cooperation between jurisdictions has clashed with local regulation. While the push for standardisation continues via regulation such as CRS, UBO and FATCA, uptake varies globally.
Despite international customs making the global regulatory landscape more uniform, it's worth noting that many jurisdictions continue to have 'specialisms'. The Netherlands, for example, is still a hotspot for setting up joint ventures, mainly due to historic legislation and the infrastructure to support it. Geography also continues to be a factor for many clients as well as time zone.
Every family is different and therefore how they choose to restructure will also be different.
Survey finding: A solid 50% majority of respondents said the ability to have a bespoke platform to suit the family and its requirements was their priority when asked what the purpose of their family office was. The second highest priority was to professionalise how their family wealth is managed.
How does TMF Group help families in achieving their bespoke goals?
At TMF Group, we give our clients the ability to focus on what they do best in running their businesses by leveraging our global network and skillset to ensure they are compliant and efficient in all the jurisdictions they have a footprint in.
Survey finding: A resounding 76% of respondents claimed their family office priorities had not changed due to the Covid-19 pandemic.
To what does TMF Group attribute family office resilience and is their unchanging strategy wise in an increasingly uncertain era?
While I would agree there were very few clients that made knee jerk reactions, I would say that as we emerge into a new world from the pandemic, families are now looking to make changes as they look back on the period of uncertainty. We have certainly engaged with our clients more during the pandemic and many, as the findings suggested, were well positioned to weather the storm.
Survey finding: A change of jurisdiction (40%) followed by a change in investment appetite (33%), considering the preservation of wealth versus the growth of wealth, were the most common new priorities for family offices given by respondents.
Do these jurisdiction and investment priorities match the trends TMF Group sees with its family office clients?
Yes, many are reviewing their structures as we emerge from the pandemic, as well as looking to new jurisdictions. The reason is often because they want to be closer to the market they are investing in which highlights the importance of having a team on the ground to source information and be able to move quickly on any deals. A move to transparency is also a theme we are witnessing as tax becomes less of a driver.
"Many are reviewing their structures as we emerge from the pandemic, as well as looking to new jurisdictions"
Survey finding: Respondents said access to debt (36%) and cyber security (26%) were the biggest external challenges facing their family offices.
What measures can families take to meet those debt and cyber security challenges?
Interestingly, at our round table sessions, there was a consensus that cyber security was a business issue, not a family issue. We would suggest that families consider regular training, just as a business would to ensure all members of the family are aware of the risks which are becoming increasingly sophisticated.
On the debt front, in September, we partnered with Private Equity Wire to survey a group of leading General Partners to offer insights into how managers expect this asset class to develop over the next 12 months. It was clear that the power of proprietary networks could be key to sourcing deals and having boots on the ground with local market expertise to find the right opportunities. Our family office clients have echoed this opinion as they look to establish a presence in new jurisdictions and be closer to where they deploy capital.
Survey finding: Risk to the key person was the biggest internal challenge facing the family office for the 46% majority of respondents, with a defined family constitution the second biggest at 38%.
How has TMF Group met those challenges surrounding risk to the principal and drawing up a constitution?
Post-pandemic, many of our clients are reviewing their structures and corporate governance having had the time to reflect. We would say that defining a family constitution is an admirable achievement, but this is not an easy task for some families therefore considering what key family values are might be a good starting point for discussions and having an ongoing dialogue is a positive step in the right direction.
With regards to key person challenges, this is also not a quick issue to solve, but by setting a timeline and milestones will help a family to agree on new roles and responsibilities that can be handed over in time. It's important to note that sharing experiences with other families is hugely beneficial as this is an issue faced by many families.
Survey finding: Of the 59% of respondents who were looking to review, enhance, update their succession planning, 63% said their next generation was the reason why.
What common errors should family offices avoid when planning succession for their next generation?
Communication — not doing enough of it! It sounds very simple, but communication is key. In another recent study with STEP, communication was a common theme from the adviser community as being the most valuable piece of advice they would give. Also, continued communication is important as the world is not standing still. Families should give themselves the space and time to talk and share their views. We are seeing more families consider mediation too and we suspect this will be an area to watch.
"Increasingly families are looking to set their own ESG agendas"
Survey finding: Sustainable investment at 25% was second only to maintaining capital at 64% as the key considerations when family offices deploy capital.
Was respondents' high interest in sustainable investing a surprise?
This is not surprising, increasingly families are looking to set their own ESG agendas. Philanthropic giving is not a new concept, but there has been a shift in families investing early on in 'ESG' companies as VC investors and looking to add value where they can from their own family office. This will be an area that will continue to change at speed as the next generation bring their own opinions and expertise on what they want to achieve.
Flavia Micilotta leads TMF Group's ESG practice. She has significant experience in this space and is available to support clients and family offices with their ESG strategies.
Survey finding: Of the significant 84% of respondents who do outsource professional services from their family offices, 83% outsourced legal advice, while accounting and tax reporting were tied at 63% each.
What services do you provide to meet demands in legal, accounting and tax administration?
Whether you are running a single, multi- or virtual family office, preparing to enter a new market, or have existing investments and holdings across many countries, it can be extremely difficult to manage legal and operational requirements with numerous service providers.
We have a global team that are experts at this. We take care of the details, across multiple service areas, in 85 jurisdictions and all delivered through a dedicated single point of contact. This leaves clients able to focus on what's really important — using us an extension of their business.
We offer a highly flexible approach to family office management. We can provide bespoke outsourced services for existing family offices, a package of services particularly relevant for new family offices, or a package designed for those looking to restructure or move an existing family office to an alternative location.
Survey finding: Of the 48% of respondents considering further outsourcing of professional services, investment management and investment monitoring were tied at 21% each priority.
How does TMF Group help families in professional and investment services?
As a truly independent provider, we can work with chosen investment managers without any conflict of interest in corporate governance or local regulatory restrictions. We can act as an independent sounding board when needed.
How will all the survey findings shape TMF Group's engagement with family offices going forward?
We recognise that family dynamics are changing and becoming more global whether they are investing into a new market and dealing with cross border issues or facing an increase in complexity in a changing regulatory landscape. They need support as they face the challenges that come with being a family office in today's environment. Our aim is to provide access to the services they need to be able to grow globally for the next generation.
This article was originally published on CampdenFB's website and is based on a survey commissioned by TMF Group.
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