The Chinese have a dire saying: ‘fu bu guo san dai’, meaning ‘wealth never lasts more than three generations’. Preserving wealth and succession planning are regarded as significant motivations for setting up family offices. Only a family office can provide a genuine holistic solution that is tailor-made to a family’s business, wealth, personal and corporate needs.

As private wealth continues to spread and grow throughout Asia, there is a growing trend among Ultra High Net Worth Individuals (UHNWIs, as they are called) to create a family office consisting of dedicated full-time staff (often professionals) to handle and manage their wealth and private affairs. As will be discussed further below, the range of activities of a family office can be as wide as concierge services to orchestrating the most complex of financial transactions and running the family business.

It can be said that a family office is like a private bank serving only one client, i.e. the family. Just as private banks tailor a portfolio for a client, a family office can be built around the individual and very specific needs of the UHNWI and his family. It could, for example, carry out any or all of the following: administer the entities which house the businesses and private holdings of the family; provide tax and succession planning; legal advice; management of investment portfolios and real estate holdings; act as a trustee; supervise the businesses of the family; or pursue philanthropic objectives. In short, while the family office focuses on the business needs of the family, the private issues of the family are very much taken into account and not neglected.

The diagram on the following page illustrates just some of the services typically provided by a family office. As can be seen, the services can be wide and far-ranging indeed. A variety of factors, such as the size of the family, net worth, goals and objectives will ultimately determine which family office model is most suitable.

Family offices come in several forms. The most focused one is a single family office or SFO, for a single UHNWI and his family. SFOs handle most if not all of the family’s financial matters including management of investment portfolios, real estate holdings, tax and succession planning and concierge services. It can also serve as a contact point for family members. Your typical SFO is staffed by professionals and full-time employees who are dedicated to the family’s needs.

Given the expenses, the scale of the assets required to justify a SFO can be daunting. Joining a multi-family office or MFO may be more appropriate for some families, typically those with common goals and values. Thus, MFO may involve a few families, e.g. siblings of an UHNWI or the children of these families. These families can take advantage of the economies of scales that their combined resources can bring to management of investments and procurement of services.

There is also a virtual family office (VFO), in which a private bank or other institution, such as a trust company, provides the services of a family office but through its institution so that the family office exists “virtually” within a larger organisation. The family can rely on a team of experienced professionals managing the functions of a family office, providing the necessary infrastructure and expertise on a whole range of legal, financial, tax and fiduciary issues while taking into account the private issues of the family.

In Asia the concept of the family office has not reached a high level of awareness among the HNWIs which probably explains why the use of family offices is not yet as prevalent as in the developed markets such as the U.S. and Europe where the use of family offices is well established for generations; for example the Rockefellers and the Carnegies who hired full-time professionals to manage their enormous wealth.

However, the concept of the family office in Asia is not new. The Mitsui family of Japan, for instance, had in place a family office structure that helped preserved the family fortune for almost 3 centuries. Governance, in the form of a family constitution which clearly articulated the vision and guiding principles of the Mitsui family, was established in 1722 and the entire business of the Mitsui family was under the control of a single family council. Guided by the founder’s advice to “employ men of great abilities” the family businesses flourished generation after generation. Three hundred years later, Sokubei Mitsui’s descendents were as rich as the Rockefellers.

In Asia, a hybrid model is possible. In this hybrid model, some of the functions of the family office stay within the family (or trusted longtime associates) while other functions are outsourced such as investment and trust services, accounting, concierge or other backroom functions. A family office acts as an integrator of these services for the satisfaction of the family’s needs. This model is ideal in a situation where an older patriarch of the family realises he can no longer perform all of his wealth management “in-house” yet is unwilling to allow outside professionals to have access to proprietary information. The patriarch will often deal separately with bankers, asset managers, lawyers and licensed trust companies with whom he has long established relationships.

The family office may be structured in several ways. A common and simple structure is a limited liability company or similar entity which may act as the trustee of an umbrella master trust with sub-trusts, with each sub-trust representing groups within a family. The family office can thus become an asset holding company that owns the businesses of the family and other investments through various legal structures. Other corporate vehicles include the Protected Cell Company (“PCC”), which will enable the building of individual asset allocations across a variety of asset classes tailored to specific groups within the family while at the same time preserving the independence of each cell.

In a rapidly globalising world, the needs of wealthy families, especially in Asia, are also globalising. But as the world grows more complicated and the needs of families, and their wealth, grow and also become more complex, there will be an increasing need to “professionalise” these informal arrangements, including employing “men of great abilities”. The family office can provide the most flexible, responsive and tailor-made solution to the family’s financial, corporate and personal needs. 

This article was first published in Labuan IBFC's Q Report, Issue 1 (2013)

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portcullis group

The Portcullis Group is the largest independent trust, fund and family office service provider in Asia.

With a rich history of servicing clients for more than 30 years, we have a wide range of professional expertise and experience essential to running a large wealth management office successfully.

Our international network gives us the reach and ability to provide a multitude of services in a variety of regulated jurisdictions, bringing advantages in terms of cost, convenience and efficiency.

We offer trustee, foundation, fund administration services and corporate services to high net worth individuals, family offices, philanthropists, private banks, investment managers and advisers through our team of lawyers, accountants, fiduciaries as well as trust, company and fund administrators.

At the Portcullis Group, our mission is to provide each of our clients with expert, tailored and cost-effective services of the highest standards with complete dedication and commitment. We strive to do so with the highest levels of integrity and transparency in our dealings with clients as well as regulators.

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