How do I set up a family office? What is the purpose of a family office? How do family offices work? Why the family office is on the rise? What is a family office structure?
Family offices are "ecosystems" built by families to enable them to organize, manage their assets and enjoy their lifestyle. Depending on the needs of the family, this may include investing in financial portfolios, or managing charitable interests.
The term “single family office” (SFO) generally refers to an entity that manages assets in the name of only one family and is wholly owned or operated by the same family.
Why set up a Family Office
There could be many reasons for setting up a family office but increasingly families are looking to in-source the fund management function or at the minimum be more involved in the management of their financial assets. Many times, the investment team may also include the next generation family members who want to manage their own wealth.
The setting up of a family office is typically coupled with the setting up of a family fund. The set-up of a family fund institutionalises the holding structure for the family’s assets, facilitates succession planning and creates a more efficient and transparent structure.
Given the worldwide development on tax transparency and increasing scrutiny over structures in offshore jurisdictions, it is essential that families start considering whether they would need to institutionalise the management of their family matters and investment management through a family office structure.
Why the Family Office is on the rise
Considering whether to set up a family office depends on many factors, but perhaps the biggest factor driving the interest in family offices is the complexity that individuals and families face when managing their own affairs today. Imagine trying to juggle household administration, law and tax, personal investment and philanthropy. At some point, these tasks will become full-time tasks, allowing jugglers to use more expertise.
Today’s low interest rate environment, turbulent financial markets, and increasingly volatile geopolitical conditions have led wealthy families to seek better returns, considering more complex investment tools, from private equity to real estate to hedge fund, usually available in overseas markets. Therefore, complexity is also related to asset management itself. This complexity requires more complex cash management and asset adjustments, putting pressure on family members or a trusted advisor.
Another trend seen around the world is the sheer volume and complexity of the tax system. The globetrotting clan may find that their international footprint can create confusion from different tax and reporting requirements in each country in which they work, live or study.
Management to avoid reputation risk for violating local tax regimes also forces people to find a way out with the family office solution. Households based in various jurisdictions should consider setting up a family office in a tax neutral location to avoid tax duplication in jurisdictions with conflicting or overlapping tax rates.
Wealth transfer planning
Lifetime tax is not the only tax concern families face. Many wealthy families choose family offices to help in their succession planning. Families and individuals may want to reduce the impact of estate or wealth taxes on future generations. Family office advisors may be retained to help plan for the future. The family office usually plays a larger role in the “wealth” education of future generations.
Singapore's growing appeal to Family Offices
In recent years, the number of family offices established to run a wealthy family business has skyrocketed. Over the last two decades, global wealth growth is reflected in the increase in the number of family offices. The number of millionaires is increasing due to phenomena such as the Internet boom and the rise of technology.
Given the growth of wealth in Asia, it is not surprising that Asian families began to plan and institutionalize family wealth management.
With the increase in wealth in Asia, more and more families are consolidating their wealth in Singapore through family offices.
Singapore has become one of the leading wealth management centers in the world and Asia. It gives investors access to global and global opportunities and world-class wealth management capabilities. The breadth and depth of the institutions in Singapore gives them access to global and regional financial markets at all times while providing many wealth management services to meet their various needs.
Singapore is gradually becoming the main jurisdiction to set up family offices and family funds. It meets the criteria required by many families, including:
1. Strong regulatory framework and sound financial oversight;
2. Political and economic stability;
3. Advanced financial services industry and infrastructure;
4. Stable business-friendly government policy;
5. Transparency and very strong legal regulations;
6. Existing private banking business relationships;
7. Skilled workforce and availability of talent pools; and
8. Substance exists where family offices and investment teams can establish and operate.
The family office trend is expected to continue to grow, and simplicity, efficiency, clarity and cost savings associated with setting up a family office will make Singapore the base for these family offices.
Bestar Family Office services
Effective family wealth management covers not only a range of issues related to business purposes, but also individual and family purposes. Wealthy families often consider setting up a family office to manage most of their investments, reporting, philanthropy and financial responsibilities. Properly establishing a structure and staffing of the family office requires analysis of taxation and governance considerations and an in-depth understanding of the short-term and long-term business and professional goals of the family.
Bestar professionals can assist in the design and preparation of family offices, family education and communications, charitable projects and private foundations, and regular business investment. Our methods not only addresses the family office as a business, but also the continuous expansion of customer’s family wealth.