Aside from running a business, it is critical to understand how to manage your money. Juancho Robles teaches you the fundamentals of a family office—not a literal office space—and whether it's the right fit for you.
I was recently in Singapore on a personal trip. I contacted a close friend, who later introduced me to the CEO of a highly regarded family office in Singapore that caters to Ultra-high-net-worth individuals (UHNWI) and affluent families. We eventually discussed the possibility of providing similar services in the Philippines.
We also discussed the peculiarities of local family businesses, in which future wealth distribution to family members is not really planned for or discussed. I am aware of a few large local family businesses in the Philippines that have made succession plans, but they still fall short in the areas of family governance and wealth management. Our discussions also include how family offices can help wealthy families better plan and manage their wealth so that their children and subsequent generations do not waste it—interesting topics, to say the least.
Family Offices, Defined
Family offices are still a "new" thing in the Philippines. A family office, in general, is a privately held company or consulting firm that handles investment management and wealth management for affluent people with more than $100 million in investable assets. Most “local” family offices (if you can call them that) in this country are set up internally by the patriarchs or founders of the families and run by trusted individuals—usually senior officers employed by the family business.
The problem is that these senior officers may not have the necessary skills and expertise to optimize the family's wealth potential. Furthermore, they may be unfamiliar with dealing with the complexities of running a full-fledged family office. There is also the issue of confidentiality, as family members may prefer that their wealth be managed discreetly by themselves. As a result, wealth management receives insufficient attention because trusted individuals or even family members are more concerned with operating and running the family business.
The Benefits
A good family office is usually made up of professionals who are experts in a variety of fields, such as investments, family relationships, and even family conflicts. They will have legal experts, psychologists, and even health professionals on board, in addition to investment advisors, to address the various expectations and mindsets of each family member. These professionals work closely with families to help them design and execute the strategies necessary to protect family members and assets both now and in the future. They also offer support services by assisting families in professionalizing the administration of their relations, including privately-owned businesses and private wealth arrangements.
Affluent families in Asia, including the Philippines, have traditionally held their investments through holding companies or Special Purpose Vehicles (SPVs). Many times, this was motivated by the desire to ensure the confidentiality and the perception of ease in establishing a business in tax haven jurisdictions. In many cases, the ultimate goal of these SPVs is to reduce taxes (as a tax planning tool). Families are increasingly discovering that the use of these complex structures can become cumbersome (due to unconsolidated management and reporting) and exposes them to a slew of risks from tax authorities.
According to a Credit Suisse report from 2018, there are more than 50,000 people in the world with a net worth of more than $100 million. Many of these people manage their investable assets on their own. In 2019, the Philippines had approximately 15 billionaires, and the number of our local UHNWIs with more than $30 million was approximately 569. (according to a Statista report). Credit Suisse estimates that there are between 6,500 and 10,500 individual family offices in the world. Recently, there has been a growing trend of family offices in other jurisdictions, such as South America, where family offices began to cater to families with excess investible funds ranging from $1 million to $10 million, with a focus on early-stage investment opportunities.
What Does a Family Office Do?
To put it simply, a family office is a wealthy family's single point of contact for managing a variety of issues depending on their focus. A family office, for example, can handle the following:
Wealth planning encompasses succession planning, business continuity planning, estate planning, life insurance, prenuptial agreements, living and last wills and testaments, and lifetime gifts.
Investment strategies and asset allocation, private equity, investment advisory services, and consolidated wealth reporting are all part of wealth management.
Tax planning services include tax advice, international relocation structures, real estate structures, and double tax treaty planning.
Family governance includes the formation of a family constitution, a family council, family assemblies, internal family rules and regulations, equitable family wealth distribution, and family dispute resolution.
Trust and Corporate Services: incorporations, trust administration, nominee services, family structures and shareholding arrangements, real estate management, yacht and aircraft vehicle property management
Charity and philanthropy include strategies for gift-giving, grant-making, donations, and foundations.
The Most Important Takeaway
As you can see above, a wealthy family has a lot of options for preserving their legacy and wealth. Rather than having to deal with and communicate with a plethora of individual professionals, working with a reputable firm that provides family office services or can assist you in establishing your family office will simplify a plethora of things for family members. This allows your family to focus on running the business, or it may allow you to relax and even retire knowing that your family's wealth is in good hands.
Whether or not you decide to set up a family office, the most important goal for a family is to stay together. This includes developing meaningful relationships with family members and refraining from burdening one another with squabbles over inequitable wealth distribution. If family relationships are not in order, wealth protection and accumulation will be futile.
“A family that plans together, stays together,” as my own saying goes.
Keep safe, everyone.
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