Setting up of Family Offices
Updated: Dec 19, 2021
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. They handle financial investments, shares, properties and other assets.
Family offices can also be investing assets in real estate, digital assets, impacting investing, private equity, real estate funds, niche direct private investment (pre-initial public offering, or IPO rounds) in selective sectors such as electric vehicles, biotech and disruptive big data applications.
These offices expand the pool of capital for Singapore-based start-ups and business ventures, as well as funds that invest in such companies.
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.
The Purpose of Family Offices
- Consolidation of family wealth and centralized unit to manage the family assets
- Seeking clear and transparent tax regime
- Portfolio management, wealth planning and investments purposes
- Opportunity to create and formulate a family governance structure
- Philanthropic Planning
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.
Singapore as a Family Office Jurisdiction
- Reputation and Stability
- Major Finance Centre - pro business environment & availability of talent
- Ease of creating economic substance in Singapore
- Ease of relocating family / decision makers / employees to Singapore
- Availability of tax treaties, investment protection treaties and trade agreements
- Availability of tax incentives
- Licensing exemption available for Single Family Offices
- Pathway to establish Singapore residency
Families have been attracted by the residency and tax schemes in Singapore.
Key processes to start your investment journey with Singapore
As one of the world's easiest places to do business, setting up a family office in Singapore is seamless and efficient. Here are some of the key processes.
Setting up company in Singapore
In order to incorporate a company in Singapore, one must file an application on the Accounting and Corporate Regulatory Authority (ACRA) website. Please refer to the link for more information on the application requirements, such as registration of businesses, incorporation of companies and compliance matters.
There are existing class exemptions from licensing for the provision of fund management or financial advisory services to related corporations. Where an entity in substance only manages funds on behalf of a single family but does not fall neatly within the scope of existing class licensing exemptions, it may apply for a licensing exemption from the Monetary Authority of Singapore (MAS) under the Securities & Futures Act.
Applying for Employment Pass (EP)
Key professional advisors of family offices with specialised skillsets may apply for an Employment Pass (EP) to work in family offices in Singapore.
Your incorporation journey
Family's vision & goals
Extent of family's involvement
Assets to be managed
Families can discuss internally to determine the family's needs and goals
2. BUSINESS PLAN
Operating cost & budget
Services to be provided (e.g. SFO/MFO)
Families can engage family office service providers e.g. tax, legal, finance and banking professionals to be advised on efficient structures to manage their wealth and assets and assist in the entire setup process
3. SET UP
Licensing exemption application
Family office service providers can assist in the incorporation of family office structure, assessment and application for licensing / licensing exemption.
Establish advisory, investment committees, family board
Infrastructure & governance - office space, IT, bank accounts
Standard operating procedures
Recruitment and real estate service providers can assist in the hiring of professionals and sourcing of both office and residential space for key family office principals and executives to spearhead the family office set up in Singapore
3.3 Grants and tax incentives application
Family office service providers can advice and assist in the application of the grants and tax incentives
Key performance metrics (KPI)
Monitor & review
Plug into family office and investment networks in Singapore
Build and expand family office functions (e.g. philanthropy)
Besides commencing the family office operations, families can also explore family office related networks, events and initiatives to be exposed to investment opportunities and be plugged into Singapore's vibrant family office ecosystem to achieve the continuation of family legacy across generations
Class exemptions from licensing under the Securities And Futures Act (SFA) and Financial Advisers Act (FAA)
Family offices in Singapore are typically structured with an investment holding company and an asset management arm.
A SFO typically refers to an entity which manages assets for or on behalf of only one family and is wholly owned or controlled by members of the same family. The term ‘family’ in this context may refer to individuals who are lineal descendants from a single ancestor, as well as the spouses, ex-spouses, adopted children and step children of these individuals.
There are existing class exemptions from licensing under the SFA and FAA for the provision of fund management and financial advisory services respectively to related corporations.
A SFO may rely on the exemption provided for a corporation which manages funds for its related corporations, under paragraph 5(1)(b) of the Second Schedule to the Securities And Futures (Licensing And Conduct Of Business) Regulations [SF(LCB)R]. An example of an ownership structure for a SFO which could fall under this exemption is illustrated below:
SFO (a corporation) Manages / Advises Investment Fund for its related corporations, 100% owned by a Common Holding Company
A SFO that provides financial advisory services to its related corporations may rely on an existing exemption from licensing under regulation 27(1)(b) of the Financial Advisers Regulations.
Application for a case-by-case licensing exemption by a Single Family Office which does not fall within the scope of existing class licensing exemptions
An entity that is in substance managing funds on behalf of a single family only, but that does not fall neatly within the scope of existing class licensing exemptions may seek a licensing exemption from MAS under section 99(1)(h) of the SFA.
The following information would be useful to facilitate MAS’ assessment of such an application for exemption to be a SFO:
· Names of the shareholders and directors of the SFO;
· A chart depicting the shareholding structure of the SFO;
· A description of how the SFO is related to the investment fund vehicle and the family/beneficiaries;
· A description of the profile of the family whose assets will be managed by the SFO; and
· A description of the nature of activities to be carried out by the SFO.
The following arrangements are broadly considered typical of SFO arrangements. A SFO which has (or plans to have) these arrangements is advised to include the information when applying for licensing exemption:
· Where there is no common holding company, but the assets managed by the SFO are held directly by natural persons of a single family;
· Where assets are held under a discretionary trust, the settlor of the trust and the beneficiaries are members of the same family;
· Where a family trust is set up for charitable purposes, the charitable trusts are funded exclusively by settlor(s) from a single family;
· Where non-family members such as key employees of the SFO are shareholders in the SFO for the purpose of alignment of economic interest and risk-sharing, the initial assets and additional injection of funds are funded exclusively by a single family.
MAS may take between two and four months to review an application for licensing exemption, depending on, inter alia, the complexity of the arrangement, quality of the information submitted, and responsiveness of the applicant.
1-2 • Schedule meeting with MAS
• Collect documents for incorporation of FO/companies
3-4 • Incorporate companies and open bank account
• Prepare and submit EP application forms to MOM (if needed)
5-6 • Prepare slides for interview with MAS
• Coordinate interview with MAS
7-8 • Submit proposal deck to MAS
• Attend to MOM queries to ensure smooth EP application
9-10 • MOM to release outcome of EP application
• Meet with MAS
11-12 • Set up MASNET account, complete incentive application form and prepare other
documents for application
>13 • Submitted forms for incentive application and MAS to release results after
Bestar Family Office services
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 can assist in the incorporation of family office structure, assessment and application for licensing / licensing exemption. We can advice and assist in the application of the grants and tax incentives