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Client families - Fiduciary structure analysis

The financial affairs of wealthy client families are frequently subject to intense scrutiny from tax authorities. The information which must now be reported by financial institutions of all types, including fiduciary services providers, and exchanged between jurisdictional tax authorities may trigger a request for further information, or even a full tax enquiry.

The rules that drive who is reported, and the financial information concerning deemed financial accounts attributed to them, are complex and frequently encompass individuals who have no right or entitlement to the assets to which those deemed accounts relate. Duplicative reporting in respect of the same individual and accounts, submitted by different financial institutions, is a frequent occurrence.

Our AEoI Consultancy Service provides a clear and easy to understand analysis of the reporting impacts of the FATCA and CRS regimes on a fiduciary structure.

This analysis details who will be reported, what will be reported about them, by whom, to which tax authority and when and encompasses all the entities which comprise a fiduciary structure, regardless of whether Stonehage Fleming administers those entities, or not. In addition we can, if required, extend such a review to include assets held in a personal capacity.

The major benefit of this analysis is that it provides certainty about, and advance notice of, the reporting flows and the content of that reporting. In turn this means, for example, that the necessary paperwork to respond to an enquiry from a tax authority, should one be forthcoming, can be gathered and collated well ahead of this being received.


Financial services providers

We can assist private banks, asset managers, fiduciary service firms and independent trustees with the complexities of maintaining fully compliant arrangements with regard to their ongoing obligations in respect of the AEoI.

Implementation assurance

We will review the adequacy and effectiveness of the implementation of FATCA and CRS requirements. In particular we focus on the arrangements and approach to:

  • Entity classification
  • Identification of account holders and pre-existing due diligence
  • New account onboarding
  • Change of circumstance
  • Reporting

The outcome of the review is documented in a clear and concise report, which contains recommendations for correcting any deficiencies identified. If required we can assist with the implementation of any recommendations made, draft policies and procedures, as well as providing training to staff to the extent necessary.

AEoI reporting

Stonehage Fleming can prepare and submit FATCA and CRS reports to the respective tax authorities through our in-house reporting software solution hosted in Switzerland. This includes:

  • Provision of a standardised data input template
  • Generating the reports in the required XML format
  • If required, submission of the reports via the relevant jurisdictional tax authority portal
  • Confirmation of successful filing of the reports with tax authorities and provision of a full audit trail

For more information please contact our AEoI Consultancy team.

Contact Us


Charlie Willcox

Director - Family Office

e. Charlie Willcox



Holistic Risk Management for Families

The growth of the wealth management sector over the last 20 years has been fuelled by the promise to clients of a new, holistic and strategic approach. At the heart of the proposition is more intelligent risk management.

Many new risk management tools have been devised by innovative individuals and institutions, seeking to develop a competitive edge. Useful and ingenious though some of these tools are, the overall result is disappointing, in that most of the innovation has remained narrowly focused on the volatility of investment portfolios, without addressing the broader risks affecting family wealth:

  • For many clients, the investment portfolio represents only part of the family wealth. Any risk appraisal which does not take full account of wider business interests, and other assets is therefore incomplete.
  • The investment industry’s conventional approach to risk is mainly based on volatility and ignores the fact that there are many other ways of looking at investment risk, from the perspective of the family and taking into account a longer term horizon.
  • No account is taken of the intangible and unmeasurable risks, which numerous studies suggest are the main causes of family wealth destruction (refer Chart A and Chart B).

The reality is that today’s families face an increasingly complex world of potential risks. This paper suggests a broader approach to risk management, which includes those less tangible and non-financial exposures. It is not as scientific or academically well founded as established methodologies, but is essentially based on well-structured common sense combined with a simple process, which ensures all risks are addressed in their proper context.

The Risk Exposure

The inevitable follow-on question is how to define risk and to identify and prioritise key risk exposures. There is no single correct approach to this question as it depends on one’s perspective. For a portfolio manager it is legitimate to focus primarily on the risk of the investment portfolio and to manage that risk by diversifying across a range of investments. By contrast, however, the clients are frequently entrepreneurs, who often manage risk by concentrating their investments in a few sectors which they know and understand.

For the wealth manager, with a broad mandate, an analysis of risk requires an understanding of the family’s wealth objectives. If this basic foundation is omitted from the process, the result is that all subsequent considerations and planning are conducted in a vacuum.

Indeed, a recent study by Stonehage Fleming, “Four Pillars of Capital for the Twenty First Century”* found wide agreement among families that defining a clear purpose for their wealth is a crucial step for wealth preservation across generations.

The challenge, of course, is that no two family’s objectives will be the same. However, a potential hierarchy of objectives might be as follows:

  • To provide financially to ensure appropriate living standards for family members
  • To maintain a successful family business which provides significant employment and makes a contribution to the community
  • To maintain and grow the value of the overall family wealth
  • To preserve family unity and prevent dispute
  • To provide a fund which enables family members to make entrepreneurial investments or to pursue other beneficial activities
  • To provide a fund for philanthropic causes, which may or may not involve family members
  • To establish and uphold a lasting family legacy


Financial risks include the possibility of an absolute loss, a failure to meet objectives or falling below minimum benchmarks. For many ultra-high net worth families, however, an absolute loss of wealth (even if a significant percentage of the whole) may not seriously damage lifestyles, nor even drastically impact on their ability to fulfil their main objectives.
Non-Financial risks, could include damage to the family reputation, a major family dispute, loss of family values and work ethic, or the destruction of a family legacy. In many senses the non-financial risks are the more important. For instance, a family dispute or lack of family leadership is far more likely to lead to a major destruction of financial wealth than any asset allocation mistakes in the investment portfolio, or the failure to insure a tangible asset.
It is also extremely difficult to put a price on the ‘non-financial’ benefits associated with continuing to own a successful family business, when a purely financial risk model may suggest the holding should be diversified. Equally the benefit of a united family with transparent governance is hard to quantify.
However, any analysis of long-term threats to family wealth should take account of the fact that most family fortunes are dissipated within three generations and, according to numerous studies, the principal causes of wealth destruction arise from those unmeasurable risks which are so often overlooked.
Surprisingly, many families continue to identify investment risk as their primary area of exposure, despite the fact that very few have ever lost their wealth purely through poor investment management (Chart A).
* Four Pillars of Capital for the Twenty First Century, Wealth Strategies for Intergenerational Success, 2015


(Source: Family Office Exchange, 2014)

On the other hand studies conducted after the event, on families whose wealth had been severely dissipated, indicate that such wealth destruction was most frequently caused by poor communication and family dynamics and a failure to prepare the next generation (Chart B).

Chart B: Actual Family Risks

(Source: Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, Williams & Pressier, 2003)

Of course not all risks can be avoided, but a structured and strategic approach will at least help to mitigate the risks and add to the likelihood of wealth being successfully passed from one generation to the next.

The Risk Mapping Analysis

The proposed approach to family risk management brings to families a system of analysis and control similar to the risk management processes routinely used by businesses and other commercial organisations. In some respects the discipline of such a process is even more necessary in a family than in a business, precisely because emotional considerations can easily lead to important issues being avoided.
The family risk management strategy should be developed from a hierarchy that takes into account both financial and non-financial risks:

  • Develop an awareness and understanding of the potential risk areas
  • Understand the potential impact of each risk upon family wealth and on the family itself
  • Rank risks according to perceived levels of materiality, determinability and pervasiveness
  • Consider the potential for discrepancies between the actual and perceived risks
  • Develop and implement a mitigation plan for each major risk exposure

It can be useful to distinguish those risks which are quantifiable and can be isolated, from those which cannot be quantified and are more pervasive. Risks can thus be classified into one of the four quadrants depicted in the risk universe graphic below:

(Source: Stonehage Fleming, 2016)

Assessing the family’s risk universe in this way, may impact quite significantly on the approach to individual risks:

  1. The discipline of such a process ensures all risks are considered and none avoided
  2. Risks are prioritised, so that attention is focused on those with greatest potential impact
  3. Defining risks more specifically, helps to suggest potential mitigation measures
  4. It drives documentation of a risk mitigation plan
  5. It helps identify groups of different risks which can be managed together, rather than individually
  6. Perhaps most crucially of all, since interpretations of risks can differ considerably between family members, this exercise helps to bridge such differences and develop a unified and integrated approach

The result is an intelligent assessment of the family’s risk universe to develop a risk mitigation plan which records risks, probabilities, impacts and mitigating actions.
The risk mitigation plan is ideally developed through collaboration with family members to achieve buy-in. The plan should be considered dynamic and reviewed on a regular basis.
Such an approach should lead to refinements in the investment risk appetite, asset allocations and acceptable time horizons.


By focusing primarily on those tangible risks for which there are ready made solutions, we believe too many families, and their advisers, fail to address the more complex, less tangible and less measurable risks which are so often the cause of family wealth destruction.
We believe a process such as this will facilitate a more comprehensive and effective approach, which will help protect family wealth and family wellbeing across the generations. Perhaps above all it will help bridge differences of understanding between family members, thus helping to avoid the biggest risk of all.


Single and Multi Family Offices


Wealthy families are bombarded with offers of advice and service. Private bankers, lawyers, trustees, investment managers, accountants, insurers, art consultants and security advisers scrabble over one another for the role of trusted adviser to the family. To even the most assured navigator of the wealth management world, the profusion of organisations purporting to ‘be on their side’ and offering an ‘alignment of interests’ can be bewildering.
Many families look to the idea of a Family Office for this alignment of interest.
But what sort of Family Office is required?
For some families the principal need is the management of investments. Others require a diverse range of professional and administrative services to meet the complex planning needs of international families, with extensive business interests, property and leisure assets, owned through complex fiduciary structures.
Should families build their own operations from scratch or use the expertise and infrastructure developed by others?
Whilst personal preferences play their part, this choice is best determined by the particular needs and circumstances of the family.
It can be reasonably argued that the simpler the needs of the family, the stronger the case for using a Multi Family Office. Indeed, many organisations describing themselves as Family Offices are essentially asset managers focused on the needs of wealthy families. By contrast, the more complex the needs of the family, the more difficult it is for families to find the right external support.
The central task is to identify the right practical arrangements to meet a family’s needs. This will often include an assessment of the degree to which responsibilities are allocated internally and externally. This paper seeks to assist families in this deliberation and will focus on the comparative merits of the Single Family Office and the Multi Family Office.


‘Family Office’ is a flag flown by a wide range of organisations. It is taken here to describe a multi-disciplinary platform that enables families to identify and achieve their strategic goals.
A true Family Office will play a key role in determining the ‘family approach’ to a wide range of affairs, including inter alia:

  • Family governance
  • Fiduciaries
  • Legal and tax planning
  • Aggregated reporting
  • Family business
  • Property investment and management
  • Banking and cash management
  • Philanthropy
  • Portfolio investments

The last item is obviously extremely important. Critically however, it is not the only item and the term ‘Family Office’ should not be taken as synonymous with ‘Family Investment Office’.


The strategic and technical requirements of each family are different. There are no rigid rules as to the right approach. However, several perceived advantages are often associated with the Single Family Office model.
There is clear evidence that many of those choosing to set up a Single Family Office do so in order to increase the level of privacy that they might enjoy.
More work is undertaken by a small, hand-picked group and less information about the family is circulated. Theoretically, data can be tightly managed and access to it monitored.
On the face of it, these are fair points. However, the fact that Single Family Offices have smaller operational teams can cause problems in respect of privacy. There is a greater need for the use of external agencies such as IT providers. It can be tough to properly vet the support teams and impossible in the event of need for external support to restrict access.
The concentration of a great deal of information and responsibility with a few people can also be problematic if the relationship sours. Larger organisations are able to put in place oversight mechanisms and ‘Chinese walls’ to ensure that information is managed on a need to know basis, regardless of seniority.
The physical and electronic security of smaller Single Family Offices can also be harder to protect.

A family with its own Single Family Office need not fear that it will be sold or merged with another organisation. The family is sole master of its destiny.
Ownership and control can occasionally present new issues. Great care needs to be applied to the regulatory and tax issues that pertain in each relevant jurisdiction and the consequences of control being held by residents of each jurisdiction.
A Single Family Office is a dedicated resource, devoted to one family. The personnel involved have no competing demands from other clients. The team should have an understanding of the family’s affairs that is second to none.
There is an important drawback here. Often the Single Family Office team can be seen as essentially tied to one member or sub-group of a family. They can be ‘Dad’s people’. This association can, in pressured circumstances, generate a perception of partisanship. This in turn can mean that the Single Family Office team is not in a position, for example, to navigate through tricky succession issues or other disputes. Professional organisations are able to deploy different personnel and better manage these perceived conflicts as they bring an inherent independence to the table.
The Single Family Office can be designed perfectly to meet the needs of the family in question. The right expertise can be sourced. There are no commercial pressures on the organisation to do anything other than serve the client family.
However, needs change and a smaller organisation can be less well placed to meet them than a larger, better resourced one.
Alignment of interests
The family can in theory, be confident that their own Single Family Office staff is motivated solely by a desire to do the best for the family. They are not, after all, selling any products.
However, great care should be taken to ensure that the employees’ and employers’ agenda do not diverge. Even in a Single Family Office, staff with investment roles can feel just as compelled to chase performance through inappropriate risk taking as their counterparts in the broader market, especially if their remuneration depends upon it.
This concern extends elsewhere across the multi-disciplinary spectrum. Single Family Office teams may instinctively drift towards their comfort zones in terms of expertise or even areas of personal interest. This is particularly true if they are being encouraged to keep external contact and fees to a minimum. They may, for example, be reluctant to engage lawyers on a specific issue and prefer either to avoid the issue altogether or proceed in the absence of advice. A multi-disciplinary Multi Family Office can afford to retain a breadth of in-house expertise available to advise quickly and cost effectively on a day to day basis.


Other families prefer to use a multi-disciplinary Family Office provided through an independent professional services group. Different arguments are available to advance in favour of this model.
Larger organisations may well be more able to attract talented personnel. They can often offer more compelling career paths and remuneration packages as they can include equity ownership in a growing business and the possibility to work with a number of families. This is often seen to make the work more interesting and to mitigate the career risk of an executive who is reluctant to put all his or her eggs in one basket.
A larger organisation is also able to employ more specialists, producing greater breadth and depth of expertise available in-house to clients. This can produce conflict of interest which need to be properly managed.
This should then generate a genuine culture of learning, in which different disciplines are able to interact and produce very advanced intellectual capital.
Inter-disciplinary oversight is invaluable to families. Lawyers, accountants and bankers in reality need to be able to communicate briefly and regularly. A professional Multi Family Office is able to coordinate this in-house.
However at this stage there are very few Multi Family Offices with the infrastructure and expertise to deliver a full service to international families with interests spread across several jurisdictions.
Economies of scale
The economies of scale touched upon above extend to other areas. The grouping of families within one organisation can result in enhanced buying power that reduces costs and improves standards.
This can also stretch to the opportunities to leverage off the group’s knowledge of markets, industries and other issues affecting wealthy families. Many families feel a need to find a forum in which they can exchange ideas with like-minded people who are facing similar issues. The Multi Family Office can provide this platform.
The Multi Family Office can also give the families it serves a voice in public debate. This means that policymakers’ decisions can be informed by more direct contact with groups of those affected, without any loss of privacy or the need for ‘to put heads above the parapet’.
One of the fundamental purposes of a Family Office, whether it serves one or many families, is to make sure that in the event of crisis there is an operational structure in place to ensure the family can function effectively.
Crises happen in Family Offices too. Clients of Multi Family Offices depend on an organisation and not an individual or small group of individuals. Internal control systems and alternates are in place to provide continuity to the client in the event that key advisers are not available. Checks and balances mitigate the risks associated with putting too much responsibility in one person’s hands.

The banking crisis and the subsequent economic conditions have left governments looking for more control of the financial services sector. Heightened regulation seems inevitable. Single Family Offices are not necessarily regulated but may be. It appears likely that an increasing number will fall into the regulatory net.
The effective management of regulatory issues requires considerable resources and a strong corporate discipline. Multi Family Offices do not have a monopoly over either. Nonetheless, it might be reasonable to assume that a larger professional organisation with an established compliance culture would be more adept at dealing with the changing regulatory environment.
Hard data on the typical duration of a Family Office is tough to find. A Multi Family Office with a track record of surviving both economic turbulence and transition through generations of clients is an attractive option.
A family can reverse out of a Multi Family Office with relative ease if their needs change or a better alternative is found. It is extremely hard to disentangle a family from a Single Family Office.
Multi Family Offices have other clients and a reputation to consider. In practice they are likely to end client relationships in a way that is as mutually satisfactory as possible.
Many aspects of a complex family’s life can be improved by the use of the right technology. Accounting, aggregated wealth reporting, treasury functions, investment management and research are all areas in which technological solutions abound. Larger organisations have the resources and expertise to select, set up and maintain systems that are cutting edge and integrated. They are also able to maintain fully vetted teams to manage the inevitable glitches that all IT produces. They do not need to involve outside agencies either in a support function or as service providers, for example to supply server space. This improves security.
Research suggests that the maintenance of a Single Family Office can cost in the region of 65bps of total wealth. It is unlikely that a Multi Family Office would charge fees anywhere near this amount. The economies of scale available to Multi Family Offices mean that in respect of costs the balance tips heavily towards them. This is especially relevant for those families who, in terms of net worth, fall towards the mid to lower range of those likely to require Family Office services. These families may feel that a Multi Family Office can deliver the right services within a proportionate budget.


The importance of these individual considerations will vary from family to family. The scale of family wealth will be a particularly important factor in determining the right approach.
No complex international family can function without a significant in-house function. The question is the extent to which responsibilities should be retained or devolved. In other words, families should not feel they face a choice between the two models. The challenge is to create the right relationship between them.
The fact that those closest to the family will have strong preferences and personal interests in the matter does not make this balancing act any simpler.
As always in the area, excellent advice that is truly independent remains at a premium.


Cyber security - simple scepticism is a good start

91% of cyber-attacks still start with a phishing email ¬– a fraudulent email designed to obtain sensitive information, deliver malware or extract payment ¬– and they are becoming increasingly targeted, sophisticated, and harder to detect, according to Roddy Priestley, Director of Cyber Security at global risk management consultancy, S-RM.

“We have seen a shift in the way that hackers approach an attack. They are patient and persistent in their approach to stealing data.”

“They build a profile around a target, looking at social media, the news and information on Companies House to understand their working and personal habits,” he told delegates at our 2019 Next Generation Seminar, hosted by Matthew Fleming, Head of Succession and Governance. The seminar – focused mainly on family, communication and governance - takes the opportunity to engage with the next generation of our client families and open their minds to the challenges and responsibilities they are likely to face, including the more practical issues surrounding wealth.

A successful phishing email is unobtrusive, authoritative, and appears to come from a reputable source. Often hackers will instil a sense of urgency in order to prompt their target to act. “We want to lift the veil on how a hacker thinks and understand the psychological tools they might look to exploit their victims sensitivities” explained Roddy.

“Understanding what they are trying to achieve at each stage of the cyber-attack will ultimately reduce risk.”

Roddy brought one of S-RM’s team of ‘ethical hackers’ with him, James Jackson. It is James’s job is to legally exploit vulnerabilities in systems for businesses and private clients, then recommend taking remedial measures to prevent cyber-attacks. During the seminar, James carried out a live hack, demonstrating to guests the process of information gathering and highlighting the level of sophistication a phishing attack requires.

Roddy added, “It is effectively impossible to be 100 per cent secure. We don’t talk about how to make things impenetrable, but how to make the level of sophistication and resources required by the hacker so high that you will not be a target.”

People are inherently trusting, explained Roddy, so a healthy dose of scepticism is a good thing when protecting yourself against cybercrime. He offered some simple tips: be wary if someone contacts you unexpectedly, don’t be pressurised into taking urgent action or giving confidential information. Be vigilant with security, setting up encrypted passwords and multi-factor authentication will deter hackers. “There are often tell-tale signs and common methodology behind attacks. At each stage there are things you can do to defend yourself,” said Roddy. In short, he warned: “Be suspicious.”


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Our approach is rooted in a deep and practical understanding of the family, its wealth and wider circumstances. We help families develop and implement their plans to pass on an enduring legacy.