Plus ca change! The role of the family office

Plus ca change! The role of the family office

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This article was kindly provided by Howard Lewis 

As a little boy, my linguistic challenges were confined to my mother tongue and the art of gesticulation. When I was eight or nine, I went all continental, flirting with French and Latin though never German or Spanish, let alone the exotica of Arabic or Mandarin. Life was simpler then. Britain still ruled the waves, at least according to my geography text book, and our language was our greatest export. Everybody spoke English, or at least their own interpretation of it! Yet the world has moved on. Other languages have come to the fore as a cultural reference point. And so it is that London has its first dedicated English Mandarin bilingual school, Kensington Wade, open to kids from three to thirteen. Not a bad career move, bearing in mind the inexorable advance of Chinese influence. And if you really want to encourage a fast track approach for your progeny, you could send them to Hatching Dragons, a nursery in the City for budding sinophiles. This is not a new phenomenon, however. Some 25 English Mandarin schools already exist in US but the most revealing aspect about Kensington Wade is that the majority of its pupils are not Chinese.

The language of family management acknowledges more than the mere need to communicate. The modern world brings many complexities, one of which is the abundance of choice. Families used to be largely concentrated in one place, engaged in similar activities, but nowadays are often dispersed far and wide through the ubiquity of both air travel and opportunity. As wealth generation has grown so exponentially over the past quarter century, the conventional checks and balances have required a more calibrated approach. An army of private advisors has emerged you never knew you needed. Some are designed to organise your finances, others your life, but their sheer multitude act as a reminder of the busy, complicated, international lives we all appear to lead. Once upon a time, they were called bankers, solicitors and accountants but that is so very 20th century. Do keep up at the back! Nobody could have conceived of social media management as a serious profession five years ago yet some people now regard it as an indispensable part of their armoury. They struggle to survive without it as, equally, do those who enlist the support of family offices.

The concept of the family office originated in America to help administer the vast fortunes accumulated by the descendants of the fabled 19th century industrial barons, such as Morgan and Rockefeller, Gould and Vanderbilt. The social demands of that gilded age meant their beneficiaries, typically, had neither the time nor the inclination to sully themselves with the minutiae of everyday life. Responsibility for the distribution of their dividends and maintenance of their living conditions was devolved to a select group of trusted retainers. These custodians, versed in managing money and the vagaries of wealth, were the forerunners of the multifaceted concierge services available today. The principal focus of such offices is overseeing the preservation and growth of capital for families of substance. But it encompasses so much more besides including, inter alia, advice on structuring trusts and similar entities, tax and domicile, legal jurisdiction, succession planning, philanthropy and aligning the collective interests of the client. The language of money, spoken or otherwise, has been transformed.

In the financial sector, all the usual suspects offer an array of private banking and wealth management services. However, the creation of family offices is a step beyond and they fall into two categories: single family offices (SFO) and multi family offices (MFO). The former normally handle the affairs of an individual family with a net worth of c £25,000,000 and upwards. There may be many competing issues to tackle at that level. The value of its assets may be tied up in an operating business, the beneficiaries of that fortune may have conflicting desires in realising it or perhaps a sudden liquidity event has the potential to change fiduciary status. Seasoned executives, with appropriate professional qualifications, are often hired externally to run SFO, although concerns about fees and investment returns have led to some families assuming greater personal involvement in their affairs over recent years. Nonetheless, the endless imposition of compliance, governance and due diligence requirements can overwhelm even the brightest minds.

MFO are effectively a supercharged version of SFO, whereby a group of families pool their resources to provide economies of scale and access significant investment deals as a collective. They may be based in different regions and guided by different principles but, ultimately, they reflect a wish for the supervision of their affairs with like minded people. Many such investments are mainstream and cautious, via the public markets, but those with a greater appetite for risk often lean towards, for example, private equity, impact investing and emerging markets. It is the role of the family office to evaluate the appropriateness of that risk in the context of the wider family construct but, equally, provide a window onto the world. An international perspective is vital as, indeed, is a command of shifting cultural and societal trends. The consulting group EY suggests there are some 3,000 family offices in existence today, half of which have been formed in the past 15 years. This figure excludes the vast majority of wealth managed on behalf of Asian families, many of whom still grapple with the very idea of giving strangers their money!

Family ties are deeply embedded in Asia. Honour, pride, loyalty, respect for tradition and a sense of place all play their part, as does a deep appreciation for the patriarch who started it. The Chinese and their Asian cousins do not share our short term horizons. That is how they forge their business dynasties! Moreover, they are not shy to travel to new countries and absorb new experiences. English as a language is now pursuing a parallel path to the United States as a nation. Each retains a seat at the top table but neither is completely dominant any longer, merely very important. However, English as a business language remains primus inter pares, albeit the Brexit vote suggests we are more insular in that regard than we might care to admit. It will be interesting to observe whether the Chinese model of financial management is colonised across the globe and what lessons we may learn from it. There is often a strange reluctance to embrace fresh thinking if it takes us beyond our comfort zone. The family office universe has demonstrated innovation in its emphasis on wealth protection and strategic planning but ought to take a look at my old geography text book to recognise that, if the world is to stay the same, everything must change!

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