Our Family Office is at the heart of our service offering. It is designed to cover everything you would want from your own family office and a lot more. Family office can offer a hub of knowledge, experience and operational capability, which can support the requirements of the family across the whole range of their affairs, from long-term planning to routine transactions and administration.
The service is individually designed around the requirements and preferences of your family. Whilst no two families are alike, the family’s history, size and location, the nature of the principal assets and the aptitudes of senior family members will all be key factors in defining your requirements.
All families have one thing in common: the need to plan the practicalities of passing the baton from one generation to the next and laying the foundations for an enduring legacy. This, perhaps above all, is the common theme which helps define our approach.
Your key adviser is there to act on behalf of the whole family, as required, and to proactively help the family plan for significant decisions which may have a long-term impact.
The key adviser will share the benefits of his or her extensive practical experience of working with other families.
We routinely work closely with your family’s other trusted advisers. Where necessary, we procure and coordinate specialist advice on behalf of clients, either from our internal experts or from our wide network of professional contacts around the globe.
We identify the need, together with the family, and we select and brief the adviser; we apply the advice given to the totality of the situation and we make clear recommendations to the client.
We manage the family governance framework to ensure both routine and strategic decisions are consistent with agreed objectives and that they adhere to the agreed decision-making processes.
We support families in the development of their plans for succession. We frequently chair and facilitate family meetings.
Our Family Office provides a full range of high quality administration services. These ensure everything is correctly processed and documented and that all the necessary information is available in the form you want it - to help make sound decisions on a day-to-day basis.
We run bank accounts, operate companies and trust structures, and manage properties, art collections, aircraft, boats and philanthropic foundations.
We support clients in all transactions, including buying or selling businesses, investments, properties, art or leisure assets.
An unfortunate impact of the media assault on the ‘offshore sector’, prompted this time by the so called ‘Paradise Papers’, is that it tarnishes the reputation of Trusts more generally, whether onshore or offshore. The demand for a clampdown reflects the widespread view that trusts are primarily vehicles for tax avoidance and money laundering, with little understanding of the many other important functions which they serve.
Indeed it is ironic that some commentators are predicting the gradual demise of the onshore English Trust, despite the fact that the alleged abuse has mainly taken place in offshore jurisdictions. For onshore English Trusts, the ‘clampdown’ has long since taken place and they offer limited potential for tax avoidance, other than for legitimate purposes specifically intended in the relevant legislation.
But the English Trust is one of the most successful and enduring concepts in common law, showing itself to be an inherently flexible and durable instrument. It will recover from the publicity, as it always has in the past, as families and their advisors focus on the multiple benefits of trusts, which go far beyond tax and which have served society so well for centuries.
The trust industry is itself to blame for allowing abuse and too often in the past trusts (especially offshore trusts) were sold as products, ‘marketed’ primarily for their tax efficiency, rather than the other advantages they offer. But when you look beyond the tax issues, most of the benefits of English trusts remain intact especially for those concerned with long-term wealth and succession planning.
Trusts first emerged in English law in the 1200’s usually as a solution to a particular problem. During the Crusades, for example, they enabled assets to be managed in the absence of their owners, for long periods with poor lines of communication.
More recently, prior to the Married Woman’s Property Act in 1882, a father would commonly declare a settlement for his daughters to safeguard their interests, as a woman could not legally hold property in her own right.
Today the trust is frequently used as a vehicle for holding a family business, reducing the prospect of family disputes and avoiding the disruption which may occur on the death of a major shareholder.
Many families establish trusts for specific purposes, such as education, dealing with hardship, or encouraging entrepreneurial activity. Some have valuable art collections or other assets which, for a variety of reasons, are best managed through a trust structure.
Trusts are frequently used to protect the vulnerable, both from themselves and from those who may wish to exploit them - for example children or those who may struggle to own assets directly perhaps because of a disability or limited capacity to make decisions.
They are also used to give family members a degree of anonymity, in the extreme protecting them from extortion and kidnap, or less dramatically, from people seeking a friendship or relationship for the wrong (financial) reasons. Whilst the extent of privacy afforded by trusts is undeniably reduced as a result of recent measures designed to encourage tax transparency (such as the UK Trust Register), they still provide a significant degree of protection.
Finally, wealthy families tend to create philanthropic trusts as vehicles for charitable giving, often involving a variety of family members across generations, working together to use their wealth for the benefit of society. In short trusts can be used to ensure some continuity of purpose for wealth across generations, the trustees being responsible for balancing the differing views of beneficiaries with the intentions of the settlor, as expressed in the trust deed and letter of wishes.
The phrase “rags to rags in three generations” is often repeated because it is so true. Using a trust, or indeed multiple trusts, can help protect the family’s wealth for generations to come.
It does so by creating a set of criteria to ensure the wealth is responsibly managed and distributed to beneficiaries on a basis which is sustainable and appropriate. Many wealth creators are also concerned by the potential negative impact of wealth on the lives of those who inherit, particularly those who inherit at a young age. The flexibility inherent in a trust addresses this concern.
Crucial to this is having strong stewardship in the form of trustees who are able to guide the family wealth in the best interests of the beneficiaries. A trustee is a neutral party, who can negotiate and adjudicate between competing and differing family interests.
It is, however, important to understand the precise wording of the trust deed and most settlors also leave a letter of wishes explaining how they anticipate their trustees will exercise discretion.
Circumstances change and later generations may not necessarily hold the same views or interests as those of the founder. It is in such circumstances that a trustee with suitable experience and judgement will be able to review and reinterpret the original wishes of the settlor in a changing environment.
Using a trust can help preserve, manage and develop specific assets, such as a family business, an art collection or a heritage estate. No-one would wish such assets to decline through lack of direction, mismanagement or family disputes, as happens only too often.
By placing assets into trust, settlors are able to set out a broad strategy and a framework for major decisions.
On the other hand, no settlor would wish an asset to outlive its usefulness or suffer a severe deterioration or erosion of value. Within the terms of the trust, it is often the job of the trustee to make the judgement to dispose of such an asset if and when circumstances dictate.
Changing attitudes towards wealth, both in the external world and within families themselves were highlighted in a Stonehage Fleming research paper, entitled ‘Four Pillars of Capital for the Twenty First Century’. This saw a recognition of the changing context in which many families saw their legacy, in terms of four overlapping forms of capital: financial, intellectual, cultural and social.
In essence, the prevailing view was that wealth has to have a purpose and a context if it is to survive through several generations. Trusts help a family preserve the central purpose of their wealth within a changing environment.
Many people want to leave a charitable legacy, either during their lifetime, or on death.
One of the most effective and popular methods for giving back to the community is to endow a charitable trust, which can help to leave a lasting charitable legacy long after death.
Philanthropic trusts can also provide a helpful gateway to introduce the next generation to the greater role of wealth. It can create a sense of common interest and a common cause – which may help to bind the family together.
Trusts existed in England long before our statutory tax system, so the system always made special provision for trust taxation. The general principle was that trusts should be tax neutral and not provide an unfair advantage. Indeed because they were used by the wealthy, some governments have imposed strict regimes most notably in the changes made to Inheritance tax in 2006. However, flexibly drawn trusts, predominately those contained in wills, can still provide significant estate planning opportunities.
In broad terms, trustees will pay income and capital gains tax at rates roughly comparable to an individual’s higher marginal rate. Nonetheless it should be noted that there are some classes of trust which are treated as tax “favoured” trusts by virtue of their class of beneficiaries (minor children or disabled persons, for example).
As a general rule, inheritance tax is due at 20% when assets are transferred into trust (on the value above GBP325,000) and there is a “periodic charge” of 6%, every 10 years, with a similar charge on distributions. By comparison, inheritance tax is charged at 40% on a person’s death.
In addition, there are particular tax advantages when transferring certain assets to trust, examples being as follows:
Subject to certain conditions, the inheritance tax charge on the transfer of a family business into trust can be 100% mitigated by Business or Agricultural Property Relief. There should also be no immediate capital gains tax consequences, so long as it is possible to ‘hold over’ the capital gain. This allows such an asset to pass to future generations without having to pay 40% inheritance tax.
A gift to a charitable trust will be free from inheritance tax and can also be made without any capital gains tax being due.
Given all that is said above, the choice of trustees is critical. Historically, the trustees would be family members, friends, or longstanding family advisers who would be appointed to act as trustee on the basis that they would have a deep understanding of the family and their needs. In recent decades however, the complexity, responsibility and risks of trusteeship have increased significantly and there is a stronger case for the professional trustee, who can offer relevant experience, more resources and greater continuity. In practice, many families tend to combine the two.
As the nature of the assets commonly held in trusts have evolved, so too have the traditional fee structures. Broadly, the charges depend on three main factors:
A trust made in a UK context will be subject to a complex tax regime, the details of which need to be fully understood, but may well still provide long term advantages for wealthy families. In such circumstances, it may also be that tax mitigation is not the main motivation for using a trust. The English trust is inherently respected and will not generally give rise to the negative association of some offshore jurisdictions. The settlor, beneficiaries and indeed trustees will be able to take comfort in knowing that the trust will be administered in a jurisdiction with centuries of well tested and established trust law, and it would be rare for a question to arise which had not been seen before.
The trust is an alternative to the more usual approach of leaving assets directly to beneficiaries. The trust should be considered where the settlor:
The role of the trustee is crucial, and may have a massive impact on the welfare, happiness and unity of the family. It is not just a question of finding a suitably experienced trustee when the trust is established, but providing for the appointment of successor trustees in the future.
It is a system that has worked extremely well, in the past for UK families, particularly those who own land or business assets. Despite the loss of tax benefits and the bad publicity of recent years, the English Trust will continue to play a pivotal role in the management of wealth and succession.
Many wealthy individuals, particularly successful entrepreneurs, reach a stage when they might benefit from the services of a family office. Their affairs become so complex and their transactions so numerous that they need an individual or team to keep on top of it all, to handle day to day matters as they arise, conduct necessary research, and brief them on the background when decisions are required.
They may wonder how the service of a family office differs from that of a typical wealth manager? The clue is probably in the name, in that the family office is at least as much focused on the family itself, as it is on the wealth.
The ‘family focused’ approach recognises that the long-term preservation of wealth, across generations, is far more dependent on the family itself than on professional advisers and that engaging family members in the purpose and process of stewardship is a crucial ingredient of the service.
Equally, just as the family impacts on the wealth, so the wealth has a deep impact on the family and family members. There is little point in creating and handing on wealth if it does not help those who inherit to have fulfilling as well as prosperous lives.
So part of the reason for a family office is to integrate a plan for the management and administration of wealth with a plan for the family succession, which usually includes collective agreement on the purpose of the wealth and key objectives. It also includes family governance, essentially the framework for decision making, leadership and family communication. This is designed to unite the family in common purpose (as regards assets they collectively own), to help reconcile differences of view and minimise the potential for dispute.
In every family there will be some members who are actively interested in and motivated by the opportunity to manage and create wealth and others for whom wealth is simply a means of funding their lifestyle, thus being more inclined to rely on professional advisers. These differing perspectives need to be reconciled, which can have a major bearing on decisions concerning family assets.
The family office role thus demands deep knowledge and understanding of the family, as well as the assets they own and expertise across all aspects of their affairs, sufficient to contribute to high level decisions. For larger ‘multi-family’ offices, they will also contribute great practical experience drawn from other families going through similar circumstances.
But this is only part of the reason for having a family office.
Apart from the significance of the word ‘family’, the other word is ‘office’.
The need for a private office can simply reflect the number and complexity of tasks to be undertaken and decisions to be made, bearing in mind that many of these decisions cannot be taken in isolation, and require the input of someone with detailed understanding of the broader picture.
Many entrepreneurs have numerous investments and ventures, perhaps held through different holding entities, with complex tax issues and sometimes quite sensitive family considerations. There comes a point when it is almost impossible to carry all the necessary background in your head and the need arises for more disciplined and well-structured processes and record keeping, supported by an individual who understands all the issues.
He or she must be able to identify problems, offer opinions and bring a degree of expertise and experience. In some cases, such an individual can become indispensable, allowing the entrepreneur to focus on his or her core activity, without having to worry continually about the details of their financial and family arrangements. Crucially, such an individual also gives peace of mind to those who are concerned by the prospect of an unexpected event leaving their spouse or children with a complex financial situation, of which they have very limited understanding.
Overlaying this, some aspects of the arrangements may demand significant professional input and the family office procures such input either from within its own professional staff or from an external firm.
It is this combination of managing family arrangements, providing expert administrative support, and bringing high levels of technical expertise and experience, that make the family office highly valuable and very different from a typical wealth manager.
The precise needs of an individual or family vary enormously, depending on circumstances. For example how large or complicated is the family? What is the mix of assets and how are they held, in which countries? What are the capabilities and objectives of family members and how is this likely to change in the future? To what extent are they primarily looking for administrative support and technical advice or do they also want someone who really contributes to major decisions and long-term strategy / succession?
Only after addressing all these issues is a family able to begin considering what sort of family office they require. The most important decision is whether to have their own dedicated family office (single family office) or to find a so called ‘multi family office’ which operates as a commercial business, serving a number of different families. In some cases a combination of the two may be appropriate.
The functions of a family office are, by definition, many and varied, to meet the needs and preferences of the particular family:
A family office always provides extensive administration and reporting, which may require a sophisticated operating platform, depending on the nature of the family assets and structures.
This can cover numerous trusts and companies, bank accounts, investments, commercial ventures, properties, art collections and leisure assets. In many cases, the structures, the assets and the family are spread across a number of different countries, which adds to the complexity and the need for tax and legal advice to be followed meticulously in every movement of assets.
The family office will usually have responsibility for operating family governance, ensuring a proper framework for making decisions, arranging and facilitating family meetings, and organising family communications, which will include trustees, directors, and professional advisers, as well as family members. This is far more than an administrative task, as it involves proposing and agreeing the agenda, providing relevant information and analysis, obtaining and interpreting professional advice, prior to the meetings, often helping to resolve differences of view.
Nearly all family offices are directly responsible for the management of liquid assets, such as cash and investments, although the day to day running of portfolios is often outsourced to professional managers. The investments may include private equity holdings, both directly held and through funds, so it is common for family offices to have an in house private equity or corporate finance team.
For those who have a family business, the family office will also play a role in helping to manage the relationship between the family and the business and, in particular, ensuring the interests of all family shareholders and beneficiaries are properly considered, when major decisions are taken.
Residential and commercial property have always played a central role for most families and the management of art collections has become an increasingly important function as the value of the art has grown. Many families also own boats, aircraft and other leisure assets.
Recognition of the need to focus more formally on their contribution to society has increased emphasis on philanthropy and impact investing, both of which also play an important role in passing down values from one generation to the next and helping to shape the family culture.
Some families are very active in terms of regular transactions involving commercial ventures, property, art and leisure assets, and their family offices must be equipped to manage these transactions, including appraisals, diligence, structuring and funding.
Overlaying all the above, will be tax planning and coordination of advice, which is an ongoing process, as tax will probably have a bearing on nearly every substantial transaction.
A sophisticated family office will operate a framework for risk management across the spectrum of the family’s affairs, including risks arising within the family as well as risks attached to particular assets. In the current environment, there is increasing focus on reputational risk and cyber security.
They will deal with the implications of all routine family events, such as births, marriages and deaths and may play a key role in the event of family disputes, divorces and other problems. This deep and often sensitive involvement in personal issues means they develop and very close understanding of the family itself, which is extremely helpful in their guardianship of the family wealth.
Finally, the family office will normally be involved in all strategic reviews and major decisions and may play a leadership or facilitation role. This will nearly always include developing and implementing plans to pass the legacy to the next and subsequent generations, which is arguably the most important component of long-term wealth management.
The main advantage of the dedicated, single family office is direct control over the staff, who are entirely focused on the affairs of one family, free from the inevitable conflicts of serving other families or pursuing the corporate objectives of a commercial business (including targets etc). It should therefore be hoped that any advice received is unbiased and that the office will be flexible enough to respond to the changing needs of the family at any given time.
Privacy is also a considerable advantage, with sensitive information confined to the minimum possible number of people, all of whom are directly known to and employed by the family itself. Given concerns about data security this is an important factor for some families.
Finally, the single family office is usually not subject to regulation, which is an increasingly cumbersome and expensive burden for commercial providers.
These advantages can be of great importance to a family, but need to be weighed against the fact that depending on size of assets, they may not have the economies of scale of a commercial operation. In addition, there are a number of other attractions of going down the ‘multi family office’ route, or indeed of finding a compromise between the two.
In theory, the main advantage of the multi family office (MFO) is that it has the economies of scale, and hence can offer a more sophisticated operating platform, much greater diversity of expertise and invaluable practical experience of other families, addressing similar issues.
The complexities of managing wealth in all its forms have increased dramatically over the last decade and require increasing input from specialist advisers. Having extensive expertise ‘in house’ can thus be much more effective in ensuring the correct advice is always sought and applied. In some cases they can apply the same advice across a number of families, also reducing costs.
For potential clients, the practical experience of other families is among the most attractive features of a multi family office, in that they are usually keen to learn how other families have dealt with similar situations and what lessons have been learnt.
The operating platform is of particular importance for those with diverse assets and holding structures, as it enhances efficiency and enables flexible reporting tailored to particular circumstances.
Finally, a further advantage claimed by MFO’s is that they provide a more attractive career for staff seeking the opportunities of a more commercial environment. They are hence better placed to attract and retain staff of the quality required and less dependent on a single individual.
Whilst the above advantages can be claimed in theory, the practice is that most MFO’s are quite small boutiques with perhaps only 30 – 50 staff in one or two locations, and a relatively small number of client families. Such ‘boutiques’ are limited in the expertise they can carry and in their international representation. They hence tend to focus on certain types of families with limited needs, some of them, for example, primarily focusing on the management of liquid assets, rather than the broader wealth of the families they serve.
For international families with a wide variety of assets, held through multiple structures, the future must be for larger, more international MFO’s, which can genuinely meet their needs. This means being able to add value across the totality of their affairs, but nearly always working in partnership with other professional advisers.
In general, the wealthier the family, the more likely they will want their own dedicated family office, especially to deal with more personal family issues. However, it is now common for such families also to use a multi family office, for aspects of their affairs which will benefit from greater economies of scale, access to a broader range of expertise, capabilities in a number of geographies and a more sophisticated operating platform.
Deciding on the need for a family office service is typically driven by the realisation that day to day management of the family’s affairs is becoming a task which exceeds the capacity of a single individual family leader, without restricting their involvement in other matters (such as running the family business). This often coincides with the wish to begin involving the next generation, which also increases the need for more formal decision making processes and family communication.
The very wealthiest families will nearly always want their own, dedicated family office, but quite frequently combine it with using selected services of a MFO or International Family Office to access its broader range of expertise and operating platform.
For all families, the decision about which type of family office must start with a thorough and frank appraisal of the family’s principal needs. They should think very hard before putting in place an expensive bespoke operation, if they can find a multi or international family office which already has the infrastructure, expertise and experience to meet their needs more effectively.
Our industry is beset with a general lack of understanding around the role of a family office, according to Roelof Botha, Stonehage Fleming’s Head of Family Office in London. “The common misconception is that a family office is a private investment business that does other things on the side,” he told guests of at a recent lunch, co-hosted by Invest Africa and Charles Russell Speechlys, to discuss the evolving role of the family office.
While investment management will always be a crucial aspect of managing a family’s assets, the job of a family office in the future will be increasingly to blend the financial and the non-financial objectives of the family, he explained. “For us, our role is much broader. We sit at the top table with a family and are part of the big decisions they face”.
Roelof’s team in London works with a wide range of clients, mostly international families, with a nexus in the UK. Their approach involves much more than the common misconception would suggest, said Roelof. “We assist families in managing proactively the risks they will face down the line.”
Of today’s unpredictable landscape, Roelof is measured. “Right now many of the families we look after in the UK face an interesting political landscape. While we are not in the business of making any predictions, we are able to advise our clients on some practical steps they can take to prepare for the potential changes in environment.”
Looking forward, Roelof predicts the future of the family office to be an evolution of the broader approach he describes. “As trusted advisers, in a sense we share ownership. We take an active role in deciding the direction that the family embraces and empower them with making decisions.”