Find out how and why Singapore has gained prominence as the preferred base for family offices.
With rising affluence and wealth transfer comes a growing number of Ultra-High-Net-Worth (UHNW) families and individuals seeking professional help to manage and protect their wealth. With the average Assets Under Management (AUM) higher than ever before, it is no surprise families are looking for greater sophistication and personalisation, looking beyond their immediate jurisdiction for their wealth management.
The globalisation of wealth creates countless opportunities for UHNW families to access tailor made investment options around the world that align with their wealth ambitions.
This is particularly true in Asia, where most SFO growth has taken place over the last decade, with locations such as Singapore and Hong Kong continuing to gain international popularity.
An evolving picture
Singapore is well established as one of the leading private banking and wealth management centres globally and holds a lot of gravitas within Asia.
Traditionally speaking, Singapore was a destination of choice for Asian High-Net-Worth families, but this has changed considerably over the past five to ten years. The origin of wealth owners setting up an SFO in Singapore are now distinctively more diverse, with a growing number of European families choosing the jurisdiction for their SFOs and family trusts.
It has a strong track record as a robust and politically stable
jurisdiction with a transparent legal system and a supportive and
responsive government encouraging the growth of the private wealth
market. All these factors have helped provide confidence among
investors.
Boasting one of the most competitive tax regimes globally with no
capital gains or estate tax, and a roster of incentive schemes to
ensure the efficient wealth transfer and consolidation of
investments of SFOs has likewise attracted investors. The
Republic's robust financial licensing frameworks with shared
reporting standards to the EU and US and multi-lingual
professionals provide a familiarity appealing to many families.
What's next for Singapore?
Last year Senior Minister Tharman Shanmugaratnam commented that the total AUM for SFOs in the Republic was estimated to be around US$20 billion, and with more families entering the market, that value will continue to grow to create jobs across the financial industry.
As the need for family office experts grows, so will the need
for independent trust companies, law firms and accounting firms,
and it is most than likely that more senior private bankers will
opt to work for a single-family office or a multi-family office
rather than a bank.
As most of Asia's family-owned businesses are in their first or
second generation, meaning most SFOs are now looking at their first
transfer of wealth and how they can maintain harmony in the
process.
Having an SFO and transition plan in place helps resolve many
potential areas of conflict between family members.
Generally, not all family members would be involved in the family
business, so typically points of conflict tend to emerge between
the family members who run the business and those who hold an
equity stake in the business.
The latter group often feels frustrated and left out as the former
could make decisions at the board level to their advantage; for
instance, the board could approve a large bonus to the management
team, thus favouring certain family members.
Intergenerational transfers of assets, mainly linked to male-preference primogeniture, favouring the eldest born male over younger or female siblings, is another contentious issue that families seek to avoid by establishing an SFO.
Historically wealth owners have found it challenging to start a conversation with an external party in fear of creating conflict and disharmony within the family. However, this mindset is shifting, and there is now more confidence in seeking expertise and guidance to resolve concerns around transferring wealth to the next generation.
The needs of younger entrepreneurs and the second-generation wealth holders have encouraged a healthy attitude shift into the market and are actively creating a precedent for best practice.
These individuals are already more internationally mobile with
many holding more than one passport or multiple tax residencies,
truly embracing the benefits of globalisation and what it can offer
their wealth. With the increased international mobility comes the
need to consider the impact of FATCA and CRS on family structures
to ensure international compliance, many realising the value expert
advice can provide.
These young wealth holders are bolder in their investment
philosophies and increasingly seek sustainable investments and
emerging entrepreneurial opportunities in the digital and
alternative investment classes including, private equity,
artificial intelligence, and healthcare.
They recognise that wealth management is more sophisticated than before, and in the era of social media and public scrutiny, there is less room to get things wrong, so investments need to be right the first time around.
Likewise, transparency around the governance of one's family wealth is becoming equally important, ensuring the right legal structures and experts are in place to support the family office. The notion of what success looks like is changing as the younger generation of wealth owners step up to get involved with the family office, and their impact is being noticed.
SFOs are, like other areas of finance, becoming more conscious
and seeking benefits beyond immediate or long-term financial gain,
realising the importance of reputation and the social and
environmental impact of their wealth.
Their strategic impact and sophisticated approach to wealth are
creating modern and forward-thinking SFOs, who are attracted by the
lure of Singapore's equally ambitious and forward-thinking
financial market.
Navigating challenges, now and for the future
Covid-19 has been a wake-up call for many wealthy families and their advisers, encouraging a shift of focus; from establishing new business ventures to protecting the family wealth. The pandemic risks have highlighted the need for a succession plan in place and made families prioritise putting their plans to paper to avoid conflicts.
As a jurisdiction, Singapore has provided plenty of expertise and stability on this front, receiving international recognition for the government's rapid and efficient response to the virus. The low infection numbers and deaths have been praised internationally as the country has been hailed as a global leader for its approach.
This decisiveness has certainly built confidence in the government and the stability of the country's business and financial sectors, which has largely been able to carry on with business as usual.
The pandemic has accentuated Singapore's appeal in a world where wealth owners value transparency, agility and stability, moving beyond the traditional realms of a traditional single-family office.
The jurisdiction's diverse and wide-ranging financial expertise, political and financial stability during the pandemic, paired with its competitive investment benefits, are starting to appeal to more UHNW families from around the world.
With the needs of wealth holders rapidly evolving, it's important to recognise innovative thinking and service. This is where Singapore offers a competitive edge, enticing further families to seek its benefits for their SFOs.
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.