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Family office expertise
IF YOUR family has substantial wealth, should you go the route of setting up a single family office (FO), or enlist the services of a multi-FO? Union Bancaire Privee (UBP) offers expertise for families at this particular crossroad. It has just expanded the FOSS Family Office Advisory service to Asia. It began to offer FOSS services actively in Switzerland in 2014.
Says Jan van Bueren, UBP's global head of family office advisory: "Since we began the service in Switzerland, we've seen a considerable number of requests for assistance from Asia. That made us realise the limitations (of working out of Switzerland for Asian clients).
"If you act as an adviser, it's an intense process. You need to be close to the culture and understand the client from a language point of view. Out of Switzerland it's difficult to work intensively for a client for more than a year."
FOSS takes pride in its independence and a structured approach to its advisory that emphasises control and risk management. Mr van Bueren says: "This is a service to families who are clients of the bank; we don't charge a fee. One of the reasons is that it takes a lot of time. A professional adviser can get quite expensive and wealthy families may in the end not be so willing to pay a huge fee. It can damage the process if you cut it short; you don't get the end result."
In Asia, the services will focus at the outset on advisory for a single FO, which may be appropriate for families with liquid assets of at least US$200 million-300 million for a start.
The process comprises 12 modules, starting with setting out the family office's objectives. The second module establishes the involvement of family members in the leadership structure. The family must also decide which of its assets will be within the scope of the family office, and so on.
"If you want to set up a proper single family office, we encourage families to be engaged. If there is no dedication to your private wealth, it will be very difficult to preserve it."
Setting objectives, he says, is akin to having a blueprint. "You decide your risk appetite as a family. We want to find common ground on how much risk to take, to define who makes decisions and who executes them. And then we look into the assets. A family may have different properties around the world. We have families that forget they have certain properties. In some situations, the property is not insured and families are not aware of the tax exposure."
Mr van Bueren says clients have a number of misconceptions about family offices. One is that a family office is often equated with investments. "In our process I don't think the word investment is mentioned," he says.
Clients also typically bring up issues of legal structure and a software to consolidate assets. "In our plan, step 9 is the structure and step 12, the software. There are eight other steps to address first. Those eight steps or questions are the reasons why in the long term a family office may not function as it should."
He adds: "There are not many ways to create wealth, but there are many ways to lose wealth ... A family office is there to make sure that the wealth you create does not get lost. You may increase the wealth, but managing the risks out there and making sure you have control are very important. In every step there must be the elements of control and risk management."
Many Asian families, he says, are in a limbo of sorts in terms of whether to go the route of a single or multi-FO. "If you have a single FO, you need dedication. You need to invest more time yourself. If a family has for instance US$35 million in assets, you almost always end up with a multi-FO. If you have US$200-300 million , you may set up a single FO." But he adds that families will need to be apprised of the cost scenarios.
A rule of thumb, he says, is that running costs may come to one to 1.25 per cent of assets. Such costs include internal staff, external advisers, lawyers and accountants, as well as execution and custody costs. "About eight years ago, we assumed that the more wealth you have the lower the cost, but that's not the case."
In Switzerland, the unit also advises on the choice of a multi-FO. FOSS has a database of over 450 multi-FOs in Switzerland. It will shortlist four for a family to choose from. The database is not a ranking exercise. Instead, FOSS categorises the entities according to size, focus markets, areas of expertise, types of investment services, cost structure and wealth planning capacities, among others.
Visits to shortlisted entities are arranged, and the firm aims to help select the multi-FO that has the philosophy, services and cost structure to best fit a family's needs.
"We like to have a multi-FO be active in different parts of advice – estate planning, philanthropy, help in private equity, have an in-house tax lawyer, for instance."
In Asia, the firm is building up its database of multi-FOs. "It takes time to build up the database; we need to meet them. We see there are more entities starting their business in Asia now, compared to five years ago when there were hardly any. Now there is a considerable number." W