In this article, as a follow-up to my article in this publication[i] entitled “Where does Hong Kong stand as a family office hub?”, I explain why, in my opinion, the question (certainly for families with an Asian connection) should not be “Hong Kong or Singapore?” but, in many cases, Hong Kong and Singapore and several other jurisdictions!
The family office concept is often much wider than a single jurisdiction. Diversification at all levels of structuring for an ultra-high net worth family should be considered, if not implemented. The current crisis has accelerated such a review.
The timing of this article coincides with the launch of a paper by the Hong Kong Financial Services Development Council entitled “Family Wisdom: A Family Office Hub in Hong Kong”. There has also been increased activity in the family office sector in Singapore, revised regulations in Mauritius[ii], removal of an exemption for single family offices is in the Cayman Islands[iii] and an examination of family office regulation in Jersey. The UBS Global Family Office Report 2020 was also published earlier in July 2020 and illustrates a number of interesting trends relating to investment strategies.
It is necessary to (briefly) revisit the question of what exactly a family office is. To speak about “setting -up” a family office and “regulation” of a family office, it is necessary to know what this means.
Along with many in the family office space, I believe that a family office is not, in most cases, a single, identifiable entity and it may be somewhat misleading to describe a family office as being “located” in a single jurisdiction. That said, there will most likely be a “main centre” of the family office attaching to a particular jurisdiction or, in many cases, to specific decision makers (who themselves may be located in multiple jurisdictions throughout a year). In addition, the control and ownership of the “family office” is as important as the family office itself – and could be the true family office.
Therefore, by looking at what a family office may entail and how a family office may operate, it is possible to give some thought as to the types of jurisdiction which may be utilised. Of course, the basis for consideration of jurisdictions and choosing between them is a very wide and subjective list of criteria. The oft-maligned phrase about no two family offices being the same, can certainly apply to families. Global wealthy families can encompass a wide range of connections in terms of size, generations, residence(s), ethnicity, citizenship(s), religion(s), cultural and philanthropic interests, financial acumen, marital systems, need for privacy and other specific needs.
Thus the below comments are directed at what would generally accepted to be a single family office offering a full suite of services to or for a particular family (as well as the family themselves). Such services could include some or all of the following: investment management, a number of the investment holding entities[iv], philanthropy[v], succession planning, trustee services, fiduciary services, captive insurance, concierge, legal, tax, accounting, reputation management and data privacy. It is highly unlikely that these would be carried out by the same entities or persons and therefore would not automatically be carried out from the same jurisdiction.
The various criteria will have different importance (if any) to different families. The families may have to carry out a form of “three-dimensional chess” to balance various factors. It is also crucial to be able to change structures or to have multiple structures from the start – events and circumstances can change very easily, as is currently being witnessed. Below are some potential factors which will necessitate multiple jurisdictions to be used in most cases.
It can be seen, therefore, from a very quick overview of the potential issues that a complex wealthy family is likely to have connections to multiple jurisdictions and this needs to be carefully crafted together. For clients with an Asian connection, both Hong Kong and Singapore will feature prominently in the discussion but so will traditional “onshore” centres such as London, New York[viii], Switzerland and “offshore” centres such as the Cayman Islands, Bermuda, Jersey and Guernsey.
[i] April 2020
[ii] The Financial Services Commission (FSC) issued the Financial Services (Family Office) Rules 2020 on 7 March 2020.
[iii] SFOs will require to be registered under the Securities Investment Business Law if they are conducting securities investment business.
[iv] Whether or not collective investment vehicles or single investment vehicles
[v] Or charity
[vi] These will also need to be owned and registered in a suitable jurisdiction.
[vii] See, for example, the one year incentives for Barbados and Bermuda announced recently.
[viii] Per the FINTRX Family Office Industry Briefing Series 2020, New York is the top city in the US market but there is national coverage. (https://www.fintrx.com/fintrx-charles-schwab-2020-family-office-report)
Richard has worked as a lawyer in Jersey, UK, Cayman Islands and Hong Kong, and is a leading offshore private wealth adviser in Asia. He specialises in private wealth, succession planning, trusts, family office, offshore structuring, economic substance, governance and related matters. Member of STEP global steering committees for Business Families and International Client. Member of STEP Hong Kong Branch Executive Committee. Member of the International Academy of Estate and Trust Law.