What is a Family Office?
‘Family office’ is a term that is now used extensively by a number of financial organisations including major banks, hedge funds, asset managers and others. In essence the term refers to the provision of financial services to wealthy families. It can be seen as something of a status symbol for clients and a marketing tool for organisations to differentiate their ultra high net worth offering from their private banking proposition that no longer carries the prestige that it once did.
Family office services are extremely varied. Single family offices have a dedicated staff whose only priority is the interest of their client family. The drivers for establishing a private office are many, but often include control, confidentiality and the consolidation of the family’s complex affairs. The services provided range from succession planning, property management, accounting and trustee services to travel management, family governance, philanthropy and next generation education. Some family offices also source private equity and venture capital opportunities for their family, occasionally in concert with other family offices.
In the banking and asset management world the family office proposition tends to be an additional layer in their segmentation model, somewhere above private banking and below sovereign wealth funds. In truth, these organisations are service providers to the trustees and professional advisers of family offices with the major focus being on their cash, treasury and investment management needs.
A private family office can cost anything upwards of £500k per annum and therefore normally makes financial sense for clients with assets over £100m given the costs involved in establishing an in house team. Multi family offices where overheads are shared across a number of client families also provide a cost effective offering for wealthy families.
Exact numbers of family offices are hard to calculate, particularly because of the confidential nature of single family offices. What is clear though is that the number is increasing and it is driven by a variety of factors for example increasing wealth creation in Asia, the Middle East and other emerging markets; dissatisfaction with the service provision from banks; political unrest in certain jurisdictions; cultural changes affecting the family dynamic; improving technology and an increasingly international footprint for many businesses and families.
Key location criteria for a Family Office
In view of these factors, choosing a location for the family office is important. Criteria should include:
- The availability of high quality professional advisers in the key sectors of law, accounting and fiduciary services
- The legal infrastructure
- The personal and corporate tax regime
- The political environment
- Strong IT and technical infrastructure
- Quality of life if they are planning to reside in the jurisdiction
The benefits offered by the Isle of Man
With excellent air links to London, a track record of thirty years of continuous economic growth, a stable legal infrastructure, the longest serving unbroken parliament in the world and an attractive tax regime, the Isle of Man is an increasingly popular jurisdiction for family offices to locate. What’s more, for people who choose to relocate to the island, they benefit from an incredibly safe environment, excellent private and state schools, beautiful scenery and a fantastic standard of living. The island’s parliament, Tynwald, has been in operation since 979 AD and as a British Crown Dependency has the autonomy to set its own laws and tax rates.
The island has worked hard over recent years to diversify its economy and in addition to its strong financial services sector has become a centre for shipping, aviation and eCommerce. The eGaming sector on the island now generates a significant percentage of GDP which means there is an outstanding IT infrastructure of data hosting, data warehouses and others supplying global giants such as Microgaming and Pokerstars. What’s more, the excellent technological infrastructure also lends itself to the island being the base for a family office, or a virtual family office, where family members may actually be located all over the world.
The Island has advantages for its residents, with low income taxes including a maximum income tax liability (a ‘tax cap’) of £200,000 for High Net Worth Individuals. Additionally there are no inheritance, capital gains or wealth taxes and most trading companies pay 0% corporate tax.
Tynwald has a constitutional requirement to budget for a surplus annually which has served the Isle of Man well during the past few years of challenging times.
The combination of the island’s political and legal stability, quality of life, attractive tax regime, availability of professional services and technological infrastructure combine to make the Isle of Man a compelling jurisdiction as a base for family offices.