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Stonehage Fleming and Lombard International Assurance, a global leader in wealth planning solutions for high-net-worth individuals, announce a new strategic partnership.

The collaboration will allow Stonehage Fleming to offer its clients access to Lombard International Assurance’s unit-linked life assurance solutions. The solutions will be available in all of the 20 markets in which Lombard International Assurance is active or for which they have jurisdiction-specific offerings.


​Unit-linked life insurance is an established and internationally recognised tool for the preservation of wealth. It is adaptable to the most complex of situations, and its robustness and flexibility make it highly complementary to other wealth management solutions. It can be tailored to suit the unique needs of individuals, their families and institutions, with the potential to optimise financial planning.

Johan van Niekerk, Partner, Stonehage Fleming said: “I am pleased to announce that we are entering into this strategic partnership with Lombard International Assurance. They were pioneers in introducing the concept of using unit-linked life assurance for wealth planning. Their extensive knowledge and experience enhances our total wealth management capabilities and is a strong complement to our existing wealth planning tools.”

“We understand that the needs of our clients are constantly evolving. This collaboration demonstrates our commitment to continually enhance our offering to ensure we offer our clients best-in-class solutions, as we strive to lead the industry as a truly international family office.”

Axel Hörger, CEO of Lombard International Assurance commented: “We are delighted to be entering into a strategic partnership with Stonehage Fleming, whose strength of brand and reputation in the market are unrivalled. We share the same values and vision of delivering innovative and expert solutions to ensure our clients’ wealth can be protected, preserved and passed on.”

 

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Johan van Niekerk

Partner - Head of Family Office, Neuchâtel

e. Johan van Niekerk

 

 

The Changing Role of the Family Office

Family offices are struggling to cope with the growing demands for advice and expertise arising from increased regulation, a more litigious society and the risks of an unstable global economy. Andrew Nolan argues the need for tighter definition of its role and responsibilities to enable the family office to adapt to the current environment.

There is no blueprint for a family office, as each should be designed to serve the particular needs of the family concerned. There have, however, been some clear trends over the last two decades which need to be considered by any family establishing a new family office or reviewing the role of an existing one. Indeed the extent of the changes now taking place in the external environment is challenging the fundamental concept of a modern family office and its economic viability. Never before has it been more important to define the objectives and to design a working model which can realistically meet those objectives in a cost efficient manner.

THE TRADITIONAL FAMILY OFFICE

Whilst a family office should in theory be ‘purpose built’, most have evolved over decades, new functions being added on in response to events. Many started as offshoots of a family business or an estate office.

The role was primarily administrative, keeping accounts, processing transactions and administering trusts and other vehicles. The family would take advice directly from professional advisors such as lawyers, accountants, stockbrokers and land agents and the family office would be responsible for implementing that advice.


EVOLUTION FROM ADMINISTRATOR TO ADVISER / GATEKEEPER

Over the last twenty years, the role has gradually evolved from administration and implementation to adviser and ‘gatekeeper’ between the family and their professional advisers.


There are four main reasons for this significant change of role:

  1. The need for professional advice is more frequent and more specialised, reflecting an increasingly complex and litigious environment. Many families require a ‘gatekeeper’ to identify issues, to select appropriate specialists, to understand and interpret the advice they give, and to integrate that advice into the broader picture.
  2. Wealth management, in particular, is vastly more complex than twenty years ago with a plethora of new products, strategies and structures, which require extensive analysis and ongoing monitoring, to ensure the right solutions and the right advisers. The days of relying on a single stockbroker or investment manager are now a distant memory.
  3. The increased risks of a fast changing and unstable economic environment have brought a need for highly sophisticated risk management across the full spectrum of family finances.
  4. Families themselves have become more complex, primarily because they are increasingly international, but also because many have multiple business interests.

THE PROBLEM WITH THE CURRENT MODEL

The problem is that the need for advice is growing so rapidly that it is challenging for a typical family office even to meet the requirements of being an effective gatekeeper.

The combined impact of ever more complex tax compliance, increasing regulation and a highly litigious environment is testing the capabilities of even the largest and best resourced family offices. Many indeed are so busy responding to the latest tax or regulatory changes that they scarcely have time to consider the bigger picture, especially family strategy, governance and succession planning.

The problem is often exacerbated by loose definition of the role of family offices, causing muddled thinking and duplication of effort between the family office and external advisers. Some family offices, for instance, have already overreached themselves in trying to duplicate the role of an external asset manager, without the critical mass or resource to deliver a fully competent service. Not only is this inefficient, but by immersing themselves in excessive detail in one aspect of the family’s affairs, they can be distracted from their core responsibility of implementing the family’s wider wealth strategy.

Defining what is expected of a family office can be more difficult than it sounds, as it involves articulating very precisely the relationship between the family, the family office and external advisers, both in reaching decisions and in the implementation. It will involve analysis of:

  1. The family itself
  2. Key areas of collective activity
  3. Extent to which the family wishes to delegate the management of its wealth to a family office, rather than through direct relationships with professional advisers and private banks

1. THE FAMILY HISTORY AND CIRCUMSTANCES

Whilst each one is different, the services required will strongly reflect the circumstances, size and history of the family itself:

  • History, number of generations and number of family members
  • Ability, orientation and authority of family leadership
  • Geographic and jurisdictional complexity
  • Assets collectively owned / collective activities
  • Complexity of structures through which assets held
  • Family strategy, objectives and values
  • Family Governance

Clearly it is a very different proposition to run the family office for a 1st generation entrepreneur with two young children than for a 5th generation family with 200 members scattered around the world, led by senior family members who are not particularly interested in business and are thus less involved in day to day decisions.

Equally, the role of the family office is strongly affected by the complexity or otherwise of the structures through which the assets are held and the governance framework which aligns family decision making with long-term strategy and objectives. The family office is often the guardian of family governance processes and in larger families, with many different trusts and companies, it requires considerable skill and experience to ensure key decisions reflect the interests of the family as whole.

2. MAIN AREAS OF COLLECTIVE ACTIVITY

The priorities of the family office will also reflect the main collective activities of the family which will generally include some or all of the following:

  • Investment management, banking and treasury
  • Relationship with family business
  • Private equity and direct business interests
  • Property
  • Philanthropy
  • Administration (Basic / Expert) and Reporting

In each area, the precise role of the family office needs to be defined, for example:

Investment management

How is responsibility for asset allocation and manager selection apportioned between external investment managers, the family office and the key decision makers within the family? Is the role of the family office to be a manager of managers and supplier of investment services or to stand in the shoes of the family in purchasing such services from the external market?

The difference may be subtle, but if not precisely defined, there is every chance the family office will become a shadow investment manager, with all the resource and cost which that implies.

Relationship with Family Business

To what extent is the family office involved in overseeing the relationship between the family business and family shareholders (often through trusts and other vehicles), ensuring that the interests of all shareholders are properly represented, especially when major decisions are made which impact on the risk profile of their investment?

In many cases the family leadership is directly involved in the business, so knowledge and skill may be required in ensuring their decisions are subjected to proper scrutiny on behalf of other family members. The family office may also be closely involved in succession planning for the business, often through a formal framework defined in the family constitution.

Private Equity and other business interests

Is the family office a mini private equity house accountable for performance or does it simply implement the ideas and decisions of senior family members to invest in private businesses on an opportunistic basis? If the latter how are the interests of other family members protected?

Again, the difference is quite fundamental, one requiring a team of highly experienced private equity professionals, and the latter requiring someone with sufficient corporate finance experience to research and implement, but not ultimately responsible for decisions. Either way, suitable governance will be required to protect the interests of the wider family.

Property

Is the property for residential, leisure or investment purposes or a combination of all three? Does the family office find and negotiate the purchases on the family’s behalf, or does it simply implement the instructions of the family and provide ongoing administration services? Is it also responsible for considering the tax and succession implications and the alternative structures through which the properties should be held?

Philanthropy

Is there a philanthropic legacy and what are its objectives, both externally and within the family? What role do the family members play in this and what support is required from the family office?

Arrangements for philanthropic giving vary considerably from one family to another, but philanthropy is increasingly combined with succession planning in leaving a legacy of social capital as well as monetary wealth, in which family members play a key role.

Administration and services

The administration requirements of a family office can require considerable technical expertise (trusts, tax, legal, banking etc) and a deep working knowledge of the family is also essential, including the history, personalities, preferences and objectives, so that the family office is able to process routine transactions without continuous reference to the family leaders.

Just how complex are the family’s requirements and what is the frequency of transactions requiring decisions and judgments in the implementation? Are they, for instance, frequently buying properties, works of art or leisure assets? How complex are the banking and treasury arrangements?

Legal, structuring and tax issues

All of the above are overlaid with legal, structuring and taxation issues, some of which may be relatively routine and within the competence of the family office team, whilst others may require specialist external advice. For complex situations even quite routine transactions may have significant ramifications which need to be considered.

Risk management

Finally, risk management for a wealthy family now requires a highly disciplined methodology similar to that for a business. It starts with a full risk audit, analysing and prioritising all the risks faced by the family, across all the assets including direct business interests, as well as the investment portfolios and the risks in the family itself.

3. THE NATURE AND DEPTH OF FAMILY OFFICE INVOLVEMENT

To address the role of the family office from a slightly different perspective, it is worth asking in principle what level of advice and service the family requires:

A. Implementation and administration only - family make key decisions with direct input from advisers
B. Family Office selects and coordinates external advisers
C. Family Office plays lead, trusted adviser role
D. Family Office sets agenda for family and plays leading role in facilitating decisions


At the extreme, the role of the family office combines that of a service provider, trusted adviser and management consultant, working with a range of professional advisers to identify the right course and build a family consensus, as well as being responsible for implementation and administration.

In practice the level of input may vary as between the different areas of responsibility. For instance a business family may want the family office to have limited involvement with the family business, but a much deeper level of involvement with the investment portfolio.

The nature and depth of involvement may also change over time, particularly as the family leadership passes from one generation to the next. The family office may have a role to play in preparing for that transition and for succession planning more generally.

Some family offices are led by one or more family members, although this obviously depends on having someone willing and able to fulfil that role, who is competent, acceptable to other family members and willing to submit to proper governance processes.

KEY CONCLUSIONS

First, it must be accepted as a fact of life that the world is changing and that wealthy families will probably pay more tax than in the past and incur greater costs in managing their affairs, if they wish to avoid unnecessary risks. Unpalatable though this may be, they have to be realistic and can only set out to manage their wealth as efficiently and effectively as possible.

Second, in order to contain these costs, the objectives and role of the family office must be much more precisely defined than in the past, clearly specifying the division of responsibilities between the family, the family office and external professionals such as investment managers and lawyers. Improved definition reduces unnecessary duplication and time wasting caused by indecision or muddled thinking.

Third, for every significant activity (including high level strategy), the optimal balance must be found between the expertise and servicing capability to be maintained within the family office and the extent of outsourcing to external specialists. This balance will depend on the volumes and complexity of the anticipated work and the impact on quality as well as cost.

Fourth, considerable thought needs to be given to the need for a trusted adviser to the family and whether this advisor resides in the family office. Having such an individual regularly involved at the heart of the family’s decision making may not only improve the quality of key decisions made, but also save considerable costs by swiftly rejecting ideas which are unlikely to be viable, before too much has been invested in their appraisal.

Finally, the model for any family office must be realistic in terms of the ability to recruit, retain and motivate suitable staff, bearing in mind that whilst there are benefits of having advisers directly employed, these must be balanced against the benefits of using external advisers who have regular and ongoing experience of working with other clients in their field of expertise.

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Paul Weldon - Working with sports and entertainment clients

Paul Weldon, Director - Sports and Entertainment, discusses working with Sports and Entertainment Clients.

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The Unusual Wealth Management Needs of Sports Stars

By comparison to others, whose greatest earning power comes in middle age, the sports star has certain disadvantages which help define their need for financial advice and other professional support:

  1. They acquire wealth at an age when they have had little opportunity to develop the knowledge and skills to manage it or to handle the impact on their personal life and personal development
  2. Because of their youth and inexperience, they are heavily dependent on agents and other professionals to look after their interests, both in the exploitation of their talents and in the management of their affairs
  3. Because they are ‘in the public eye’, with a high media profile they are obvious targets for those who wish to take advantage of them
  4. As their sports careers come to an end, they have to prepare for a second career, which may be far less remunerative and less ‘glamorous’
  5. Most have to rely significantly on wealth amassed by their mid-thirties to provide for their lifelong needs. If they fail to get it right, they may never get another opportunity

Of course needs vary from sport to sport and from one individual to another, depending on their abilities, personalities and tastes. Footballers are employees of their clubs, whereas golfers and tennis players are self-employed and the arrangements for racing drivers depend very much on individual circumstances. Some sportsmen/women have obvious potential to make a second career in management or the media; others do not. Some have the makings of reasonably astute businesspeople and investors, with potential to leverage their assets and their names; others do not.

THE GOLDEN YEARS

During the ‘golden years’, the aspiring sportsperson is dedicating himself almost entirely to success in his/her sport, almost to the exclusion of everything else. He or she has a large support team to keep them at peak performance level, both physically and mentally and most need comparable support in looking after their longer-term life interests, both financially and otherwise. The key difference between a sports star and most other successful individuals is that their earnings generally peak in their twenties and early thirties.

He or she will probably need at least three main advisers, who ideally will work to together as a team:

AN AGENT

Agents will manage relationships with the key sources of revenue – the clubs in the case of footballers, the tour organisers in the case of golfers and tennis players, and the teams in the case of racing drivers. Most agents will also play a role in negotiating and managing sponsorship agreements and ‘image rights’ (the ability to exploit your name).

Agents are thus in a position of great trust with influence over very large sums of money on behalf of relatively vulnerable individuals. Most sportspeople will have professional agents, often working for a large organisation which has considerable experience in the relevant sport and all the necessary contacts to operate effectively.

Some, however, prefer to place their trust in family members or friends, because the relationship of total personal trust is more important than the experience, networks and support infrastructure of larger groups. There is no right or wrong answer to this – it is a value decision which will depend on the preferences and instincts of the individual sportsperson and those who influence them.

The most important factor is a close alignment between the interests of the sportsperson with those of the agent, especially where there is an obvious conflict between the financial temptation of a shortterm contract and the sportsperson’s long-term career and life interests.

MENTOR

This will often be an informal role, but nonetheless highly important and perhaps the most important of all. Needs will vary, but it seems obvious that suddenly coming into large sums of money has a major impact on the lives of young people, which separates them from their peers. It changes the dynamics of personal relationships, interferes with the natural process of personal development and attracts numerous followers, motivated by their wealth and fame, as much as personal friendship.

A young sportsperson has to cope with wealth and fame with very little preparation and most will need a mentor and sounding board to guide them through all the choices and pitfalls which now lay in front of them.

The mentor will add perspective and context to a situation, to keep the sportsperson grounded when the media build them up to disproportionate heights and to be there when they face adversity.

As well as his or her career, the sportsperson needs to cope with other life events including relationships, marriage, births, deaths and sometimes divorce, all of which can be made more challenging because of the wealth or media attention. Spouses too can be affected by the wealth and publicity.

The mentor or life coach will also play an important role in helping the sportsperson prepare for a second career, helping them assess their strengths and weaknesses and suitability for a variety of possible occupations.

WEALTH MANAGEMENT AND FINANCIAL PLANNING

Long-term planning of finances is inextricably linked to decisions about career and lifestyle and too many sportspeople have suffered from advisers who take only a partial, short-term view.

Most stars have only 10 – 15 years to convert temporary revenues into soundly based wealth which will help provide for themselves and their families for the rest of their lives and beyond.

At the most basic level this obviously requires some financial disciplines to avoid the temptations of excessive expenditure and to ensure enough is put aside to invest for the long-term. Whilst this is obvious, it is not always easy, depending on the reaction of the individual, his or her spouse and their circle of friends or associates, who may encourage profligacy.

The financial management needs fall broadly under the following headings:

  1. Managing day to day expenditure in support of lifestyle needs of the individual and family
  2. Where desired, to provide support for other family members (e.g. parents) on an agreed and controlled basis
  3. Making long-term investments (mainly equities, fixed interest and property), to build a capital base which will provide for their financial needs when earnings have diminished
  4. Managing, reviewing and administering the investment portfolio
  5. Managing the risks (including insurance), particularly the risk of injury which may cause unexpected loss of income or, ‘in extremis’, a premature end to the career
  6. Setting up appropriate holding structures for the assets to promote tax efficiency, whilst resisting the temptation of artificial tax avoidance ‘schemes’ (which may fail, resulting in heavy fines and adverse publicity)
  7. Where desired and appropriate, to consider whether and how to allocate funds for participation in private ventures (including property) often brought to them by friends and associates (most sportsmen/women have no experience in this area, which carries considerable risk)
  8. Where appropriate, to consider allocating funds to invest in building a platform for a second career (see next section)

In the most straightforward cases, the sportsperson is an employee of a club, but there is often significant additional income from other sources, which must be properly channelled and managed.

Where the sportsperson is self-employed, there may need to be appropriate advice, structures (trusts and companies) and administration to support their activities, especially where those activities are cross borders, with income and costs arising in a number of different countries. This will range from setting up and running special purpose companies and overseeing tax affairs to sending out invoices, running banks accounts, and handling sponsorship arrangements.

For savings and investments, most sportspeople will be best advised to stick to conventional quoted investments and products, fully managed by professional managers. Others may have the desire and the capability to be a little more entrepreneurial allocating a portion of their wealth to direct property investments, private equity (non-quoted companies) and even private ventures. Some of these might also be linked to the exploitation of their own name, personality and passions, perhaps providing the foundation for a second career.

For those sportspeople with entrepreneurial ambitions, who wish to use their name and their wealth to access direct business opportunities, their needs will thus be far greater. They will require the support of a wealth manager who has both the platform and the experience to help them build a business or a portfolio of direct investments, in which they become personally involved.

There are many examples of sportspeople who become successful entrepreneurs, but even more examples of those who fail to make that transition. It is a key role of the wealth manager to ensure proper disciplines are put in place and to question and challenge every potential investment they consider.

Young sportspeople generally have little or no experience of managing wealth but it is vital that they become fully engaged in the process so that they understand the implications of all the decisions being made, particularly the risks. Transparency and joint-learning are crucial to a successful, long-term, mutually beneficial relationship.

PREPARING FOR THE SECOND CAREER

No planning, financial or otherwise, can take place without some consideration of the wider picture, including the longer-term future. As a sportsperson’s career progresses, the need to think about what 4 happens next becomes increasingly important and this may well have a significant impact on the management of his or her affairs.

It is not just the sudden loss of income. After coming off the adrenaline high and fame of a sports career, the challenge of making a transition to a less intense, less focused and less high profile occupation can be quite daunting. This is especially so if the sportsperson is suddenly on their own, without any of the large support team which has helped them through their career and upon whom they have come to depend.

Most people need a sense of purpose to motivate them and only a small number of sportspeople have the natural ability to move seamlessly into management or coaching roles within their own sport. An equally small number have the talent and communication skills to make a second career in the media.

For most sportspeople, their second career will be well out of the public eye and may or may not have some connection with the sport in which they made their name. Hopefully, if a sound capital base has been established, the need for income will be secondary to the need for a degree of personal fulfilment. Many will, for example, pursue activities which help the development of young people, making a contribution to society and perhaps to the grass roots of their sport.

However, a significant number of sportspeople with entrepreneurial flair try to use their name and contacts, and some of their wealth, to become involved in business and direct investment activities. Typically this may range from property investment and branded sports clubs to hospitality, travel, branded clothing and even specialist foods and beverages.

Whatever the preferred route, it is usually advisable to lay the foundation before the sports career reaches its end, especially if it involves leveraging the individual’s personal brand and contacts. All of this has considerable relevance to the management of wealth:

  1. because the future plans will impact the wealth management objectives
  2. because there may be a need to allocate funds to help finance this transition, especially if it involves setting up a business or participating in joint venture investments

CONCLUSION

Ideally, in making these major decisions, perhaps over a considerable time, the sportsperson will draw on the collective experience of his mentor, agent and wealth manager, working together as a team, which will not only help plan the future, but support him or her through the difficult transition period.

For the reasons stated, there are very few people who have greater need than professional sportspeople for ‘trusted advisers’. The precise definition of the different roles may vary in accordance with their capabilities and the particular circumstances of their client, but the central point is that none of them can operate effectively without understanding the whole picture.

For many sportspeople, particularly those with complex affairs, the role of the wealth manager resembles the holistic approach of a family office, where looking after their arrangements goes far beyond the management of the money itself. The wealth manager needs a range of experience which not only encompasses financial matters, but supports the client in every major decision, as well as in the day to day demands of being a highly successful individual, with a variety of different interests.

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