FAMILY OFFICES

Sooner or later your family finances will require expert guidance

Family investment offices not only require guidance in the current market, but also long-term strategic planning to unify their beneficiaries and sustain growth. PETER GUY reports

Family businesses and investment offices share unique strengths and challenges in today’s fast-moving, volatile and uncertain global business environment. Managing internal family relationships successfully in a sustainable business organisation while planning succession and a family office that invests family wealth outside the main operating business remain major challenges.

The development, consensus and direction of a shared vision of governance among all family members, whether or not they’re directly involved, is critical for success and stability.

Today family-office clients require strategic planning advice beyond investment portfolio planning. For a family business and investment office to interact with each other, strategic advice covers corporate governance, and the development, management and integration of business and investment strategies.

Each family office exhibits its own unique characteristics. Every generation has different personal priorities and expectations for their lifestyles. An advisor needs to be attuned to the client’s intellectual bandwidth and aspirations. Forward-looking viewpoints should lead a client’s thinking with meaningful and sincere advice. Private bankers say that effective, two-way communication requires a balance of family counselling, estate planning and corporate governance combined with investment strategy. An ongoing series of conversations is needed to understand and unify the expectations and values of first and successive generations.

Today, navigating each family’s process and requirements for transferring accumulated wealth and transitioning control from one generation of leaders to another along with beneficiaries has become a priority issue. Cultivating a family’s entrepreneurial heritage while preserving and distributing wealth demands formal planning and disciplined corporate governance.

Coordinating family company and

office governance requires customised and specialised structures and solutions. For example, mainland Chinese clients require new and innovative strategies compared to Southeast Asians because they operate in larger industries. Exit strategies are also unique because family succession is not necessarily the first choice for the business.

Family owners need a skilled private bank and professional advisers to examine and execute different kinds of business exits and expansion strategies. Selling or expanding a business is complex and challenging for a family-owned enterprise. Conflicting priorities and expectations may emerge among family members. Forming the family office from the proceeds of selling assets or a business raise key planning issues such as investment structuring, passing on wealth to future generations, and possibly securing the

Coordinating family company and office governance requires specialised structures and solutions

family legacy through philanthropy.

Today, environmental and social-and corporate-governance (ESG) issues represent important commitments passionately advanced by younger generations. Embracing high ethical standards and a commitment to society and the environment represent key values observed by employees and customers. A shared vision for corporate governance significantly lessens the likelihood of family miscommunication and disputes. ESG-based investment strategy has become more prominent. The new generation places great importance on practising this standard in their portfolio and in their philanthropic activities.

;ince the global financial crisis, low interest rates, financial and real asset volatility have made markets more uncertain. The coronavirus pandemic has also heightened uncertainty over the future. Dealing with multiple goals alongside changing local and international requirements represents an ongoing challenge for family offices.

Recent global and economic events have made clients realise the value of downside protection and pre-emptive planning of succession in response to sudden, haphazard change. More frequent reviews of estate plans are needed. Throughout all the market churning, it’s important not to sacrifice family governance while reacting to short-term market volatility.

Portfolio management should continue to emphasise capital preservation, risk management and downside protection. Trying to strike a sensible balance between a transactional, Asian investment style versus a long-term approach should be a priority. 0istorically, family offices required a substantial amount of capital – about US$500 million – to support a standalone investmentmanagement team across different asset classes. But technology can support a flexible back office and infrastructure where no minimum asset size is now required for a family office, as they can suit single or multiple families. Technology has increased the potential disintermediation in the delivering of all banking services. Unprecedented access to information and data is changing how clients perceive and utilise financial services. Private bankers argue that while technology brings benefits, relationship management will remain at the heart of private-banking services.

Computers can’t replace the need for human interaction.