Where To Locate A Family Office - 5 Key Factors To Consider



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In the past, high-net-worth families have often established their family offices in their home jurisdiction, but those habits are changing.
UK Wealth Management
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In the past, high-net-worth families have often established their family offices in their home jurisdiction, but those habits are changing. A more geographically dispersed family network and differing priorities across generations are leading to a more global outlook when it comes to locating their family office, as Ocorian's Richard Joynt explains.

Families are now establishing their family office in a select number of global hubs or offshore locations based on the following factors:

1. Operational Infrastructure (Communication links, access to professional services etc)

Any family office needs to be based in a jurisdiction with good communication links, and great infrastructure including banking facilities, accounting, tax, legal and other specialist professionals.

The family will want to maintain a close relationship with the family office staff in order to retain control over their assets.  The best way to do this is through regular calls and face to face meetings.

We spend much of our working day speaking with our clients – this is only practical as we tend to be within similar time zones and use the same common language.  If there is a family business, the family office's involvement in that business and the location of the management of that family business will also need to be factored in.

2. Availability of Skilled Staff

In practice, recruiting and retaining the best professionals is one of the primary issues for family offices.  Furthermore, family offices are often established by long-standing trusted advisors of the family principal – it is sometimes these advisors' home location that will determine where the family office is established with structures put in place to make the running of the office tax efficient.

The nature of the family office may impact on the types of professional required – we see a number of types of family offices from investment–centric family investment offices to offices that are focussed on succession where trustee and legal expertise is required.  Staff in a family investment office will often need to be based in or close to one of the world's main financial centres such as London, or New York where they can network with top investment experts.

3. Local Tax Regime

Whilst this is not the main consideration, it is one of the first questions to ask as whether the office needs to be on shore or offshore will filter out a large number of possible locations. 

A holistic, global approach to tax management can help the family preserve capital and enhance income for the family.  This needs to be balanced with the availability of the right expertise (which we discuss below) and may lead to an onshore investment advisory arm of an offshore family office with an appropriate market rate investment management fee paid. 

4. Regulatory Framework

When setting up a single family office, it should be possible to find a suitable jurisdiction where there is no or little regulation and therefore no regulatory cost to the family, and indeed this is part of their attraction.  However, specialist advice on this point will be required early on as governments try to regulate more financial activities post the credit crunch - the Dodd-Frank Act in the US, for example, increased reporting requirements for private advisors and created additional reporting burdens for many single family offices.  Multi-family offices operating as a business will generally need to be regulated wherever they are based.

The legal structure used to run the family office and employ staff will also be important to share ownership and control among family members, limit liability and create a tax effective structure e.g. to allow the family to obtain a tax deduction for the cost of running the office.  This might be a partnership, limited liability company or an S corporation in the US.  It may also be worthwhile looking at a Private Trust Company (which can assist with control over trust structures), or a Bahamas Executive Entity.  

5. Political and Legal Stability

This will be particularly relevant if ownership structures are going to be based in the family office jurisdiction, and in certain cases this may drive the family office location to being outside the jurisdiction where the wealth has been earned – this may be particularly relevant for certain families from emerging markets.  Likewise, some of these families may have privacy and security concerns about having their wealth managed in their home jurisdiction.

Whilst a stable legal system would seem to be a given for most Western European and North American jurisdictions, there is a constant array of new tax and regulatory standards that the US, EU, OECD, other countries and international bodies are implementing with the latest being a move towards global exchange of information along US FATCA lines.  This necessarily puts pressure on banking secrecy jurisdictions such as Switzerland and Austria.  It is therefore important to look at how the jurisdiction is viewed by the OECD, EU and other tax and regulatory bodies to assess the long term sustainability of the current financial regime. 

This article forms Part 2 of our three-part Family Office series. 

Click here to view Part 1 - What is a Family Office?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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