The Future of Family Offices – at least for 2015
As governments push to close taxation loopholes, the private wealth management industry has come under sharp scrutiny. Yet keen to remain competitive, family offices are innovating to better serve their clients, while keeping well within the limits of the law.
“THE RISE IN COMPLIANCE COSTS AND REQUIREMENTS DUE TO NEW LEGISLATION WILL REQUIRE FAMILY OFFICES TO REASSESS THEIR INVESTMENT MODELS AND STRATEGIES”
A plethora of new laws in the European Union and the US are forcing family offices to reassess their investment strategies. This is giving way to a new model office
Despite witnessing losses from the global economic crisis, family offices’ appetites for riskier, high yielding assets is on the rise.
While we see differences in the different regions the Family Offices (FO) are located in we see some similarities between the asset allocation in Europe (EU) and the Asia-Pacific (AP) region. The major differences are seen in Equities where the US has a moren than 30% higher Exposure to EU/AP and more than 40% higher than the Emerging Markets (EM). Real Estate and Fixed Income are up to 70% higher around the globe compared to the US while highest to be seen in the EM. Unsurprisingly the US is topping all other regions inn Private Equity investments – two times EM and still +25% compared to the EU. We also expected the US to top the Hedgefund Universe but the EM became first topping all other regions by up to 140%.
The difference in the differences in the Portfolios might be allocated to te regions but also to the average Total Family Net Worth held by the 2000 asked FO. The US came in first 1310m followed by the EU with 1270m, EM with 1000m and AP with 830m. The average cost of the investment activities range from 30-50+ basis points of the Assets under Management (AUM).
The top five services that are most likely to be performed in-house are the following: For General Advisory:
- 60% Financial Planning
- 35% Trust Management
- 25% Estate Planning
- 17% Tax Planning
- 12% Insurance Planning
- 81% Support for new Family Business
- 69% Family Governance
- 64% Management of Physical Assets
- 62% Concierge Service & Security
- 59% Family Counselling
Another major topic for most of the FO is currently new technicals standards influenced by new legislative challenges in 2015 that are not purely regulatory, however. The increasingly multinational and multigenerational make-up of families has meant finding one-stopshop outsourcing partners is also proving a headache for some, given the evolving regulatory environment. Paul Finn, head of global wealth management at Clarien Bank, says these families are finding it extremely difficult to find a wealth management organisation that will serve the family as a single relationship across multiple generations and regardless of nationalities.
As investments become increasingly complex to meet the high standards of the Families technology becomes becomes critical in mitigating risks.
Others trends that are seen over the last years are consolidation and philantrophy. Due to the big banks pushing more and more into the field of Multi Family Offices (MFO) cutting the prices to as low as hard to survive for the MFO. A fact that is mostly overseen is that banks have different revenue streams compared to independent MFO. Nontheless the pressure will stay high.
Philantrophy is an area in which family offices are increasingly helping their clients – not just for their clients’ benefit, but for others’. “I have seen an example of a charity that has a number of private equity investors using their skill of managing private equity funds to help other charities,” Grum notes. Philantrophy has become more visible over the past decade due to some initiatives encouraged by the ultra wealthy.
Sources: The Global Family Office Report, UBS, Campden Research, Major FO Zurich