There is a paradigm shift in wealth preservation of high-net-worth (HNW) families in Asia. But what has caused this shift and what really is the goal of family offices at the end of the day? Having worked extensively with a number of HNW families, Rudy Tan, Director at Ocorian Singapore Trust Company Pte Ltd, a wholly owned subsidiary of Ocorian, shares his thoughts.
Let's begin with the goal of a family office. What exactly is it? When the concept of family office became popular less than a decade ago, the goal was simple - preserve the wealth that had been created by past or present generations. Astute investment management was the key to achieve this goal and everything else was secondary.
In recent years, the world has changed dramatically. Escalating geopolitical tensions, climate change awareness and technological development are just a few factors that have caused families to alter their approach to preserving wealth.
Families now attest that while investment returns are important, harmony in the family is the most important goal. Harmony is not an item that can be bought with money but an activity that requires the wholehearted participation of family members. A harmonious family is thus the motivation behind wealth preservation. Some families have gone as far as to mandate in their Family Charter that should prescribed dispute mediation fail over a length of time, the entire family wealth goes to appointed charities. This mechanism forces the present and future generations to work together or risk losing it all.
The impact of technology
In the last decade, two main factors have changed the way wealth preservation is managed. The first is technology.
Technology has made the entire investment universe accessible through a flat screen. It brings global opportunities to the fore faster and more transparently. Where wealth was once concentrated in a region or even a single country, it is now to be found throughout the world: business expansion in different countries; overseas properties purchased for children studying abroad; leisure assets leased in far-flung places and so on. However, the management of assets on a global scale is not straightforward; naturally, complexities creep in and this will continue unabated.
With technology, information asymmetry is eliminated. Professional investment managers have no information advantage over family individuals who are not professional investment managers. The newer generations in families have also become more educated and technologically savvy. Whatever information one needs can be found instantly on the web. With increased awareness, they now want their say in the construct and running of family structures. Even the most traditional patriarch or matriarch recognises this and for the sake of family harmony, this phenomenon is being managed delicately. The older generations are giving up elements of control and superiority in an effort to bridge the gap with the present generation. For an Asian family, this is not easy, but it is being done.
The dawn of a transparent world
The second factor changing the wealth preservation industry is the increase of regulation and tax transparency.
With the wealth industry settling into a full-blown global Common Reporting Standard regime, customer due diligence and anti-money laundering checks by financial institutions are at an absurd high. Opening a bank account has become more challenging than applying for a visa to enter a country. For an Asian household where control of personal and financial information rests with only a few individuals in the family, this is hard to stomach.
Keeping up with new regulations and tax laws emerging around the world has become more than a full time job. Interpreting them is another problem. Family offices are grappling with this situation but one thing is clear; families no longer want to leave disclosure of their individual information or wealth structures to financial institutions. Families are now becoming more proactive and want to control the reporting to regulators and tax authorities around the world.
What do family office experts bring to the table?
Such is the pace and magnitude of this paradigm shift in wealth preservation, no one can be labelled an expert. What family office professionals do bring to the table is a wealth of first-hand experience of working with families with the goal of harmony and hence, wealth preservation.
Every family is different. But by being humble and attentive, we endeavour to listen and share our resources, network of professional intermediaries and best practices. We too are constantly learning from families and we do not profess to be 'experts'. Rather, our role is to be a trusted individual that families can rely on when they embark on a quest to create a structure to maintain harmony for generations to come.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
