Realities of the Family Office

`It is neither wealth nor splendour; but tranquillity and occupation which give you happiness`, so said Thomas Jefferson. 

The responsibilities of wealth are manifold and can impose on the pursuit of tranquillity and happiness if they are not actively managed.

These responsibilities can change and develop in each family wealth cycle.  The founder generation builds the wealth, and the next generation and every subsequent generation has a role to play.

The first responsibility is the most intuitive – to ensure the wealth keeps growing in line with the family and its aspirations.   The second responsibility is less obvious, but equally important – to make sure we are not the generation to let the wealth diminish beyond what will sustain the family.

So we are talking about growth of wealth on one hand and sustainability of the wealth on the other hand.

Many individuals and families struggle to establish a clear process that can be easily maintained and overseen, within which they can grow the wealth and protect the wealth.  Wealth owners who have done this successfully, have reaped the reward of making time for family and community, and time to pursue an occupation of their choosing, that brings fulfilment, as in the words of Thomas Jefferson.

Making Money

For most wealth owners, the education around wealth management begins with a familiarity with banking and asset management products and services.  It’s important to have the ability to read and understand investment reports as well, and to learn to navigate throught  different cycles offinancial markets successfully in order to maintain the most substantial returns over the longest period of time.  This is not easy and it certainly is time-consuming to do well.

As a first step, it is helpful to take the picture of the overall wealth. How much there is, the distribution between liquid and illiquid assets, and a deeper dive into the allocation across various asset classes. 

The second step is to understand where the ownership of the assets lie within the family, and how family members will make investment decisions going forward.  What the risks and expected returns will be. And what families expect in their relationships with asset managers, including with regard to fees.

Banks and asset managers provide access to timely market opportunities, but an external and objective advisor can also help families take that picture of the overall assets, understand where both marketable and real assets can be leveraged effectively within a risk profile that suits the family, and measure the outcomes over the long-term.

Protecting Money

The second step focuses on protection of the wealth.  How to ensure the assets are administered correctly in an era where there are increasingly complex regulatory requirements for tax, reporting, and banking relationships.  

In the not so distant past, matters such as record keeping, account compilations and tax preparation could be carried out by administrative staff in a small private office.  The level of complexity in this area today, as well as the multi-jurisdictional nature of many families these days, means that skilled technical administrators are needed to work with principals and their advisors to ensure that accuracy and timeliness are maintained.  There is considerable risk in not getting this piece right, and the price to pay, even for mistakes made in good faith, can be very high – the 2018 HMRC ruling on Requirement to Correct has raised several examples.

Using fiduciary structures including trusts also becomes increasingly important, given the political uncertainty which is such a feature of the world we live in today.  They can be a good way to ring-fence assets against confiscation, if organised correctly.

Trust structures are also a highly effective tool for families who want to organise their wealth transfers efficiently, and protect assets against infighting, lack of common vision, and other threats to the maintenance of the wealth.

Process, Process, Process

The tasks outlined here under the dual responsibilities of wealth creation and sustainability, are numerous.  Many are technical, requiring regulatory, legal, tax and accounting expertise.  Many are time-consuming, requiring regular reviews of investment risk and returns.  And all are detail-oriented, requiring commitment to execute well.  

To ensure these tasks are carried out to the highest standards in a centralised and confidential manner, wealth owners are looking to family office advisors who are not driven by asset gathering, but instead wish to help alleviate the burden of organising this process, and who can bring technical expertise to the decision-making.  It is a role that requires depth of knowledge in various areas including asset structuring, legal requirements, tax and regulatory changes, reporting and accounting capabilities.

Most importantly though, is the ability to listen to the wealth owner, acknowledge the risks, fears, and opportunities, and put in place a practical, and sustainable plan to manage the outcomes.  When that is done, we know that wealth does not control us but that we control the wealth.


2018 Eprivateclient Switzerland Report, December 2018

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