‘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.
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 for a family office
A private family office can cost anything upwards of £500k per annum and therefore normally only makes financial sense for clients with assets over £100m, given the costs involved in establishing an in-house team, to establish a family office. Multi-family offices where overheads are shared across several client families provide a cost-effective offering for wealthy families.
Choosing a location for a family office is important. Key location criteria should include:
- The availability of high-quality professional advisers and 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 the jurisdiction
The Isle of Man a key location – what are the benefits?
The Island is a great place to relocate your family benefiting 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 taxes.
The Island has a strong and vibrant economy, a stable legal infrastructure, the longest serving unbroken parliament in the world and an attractive tax regime, and as such the Isle of Man is an increasingly popular jurisdiction for family offices to locate.
The Island has advantages for its residents with low-income taxes including a maximum income tax liability (a ‘tax cap’) of £200K (jointly assessed couple is £400K maximum) 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.
Relocating or a Start-up Business
In addition to its strong financial services sector the island has become a centre for e-gaming and e-business, aviation, manufacturing, and shipping. The excellent technological infrastructure lends itself to being a base for a family office, or a virtual family office, where family members may be located all over the world.
Relocating or starting a business in the Isle of Man offers a rewarding place for individuals and businesses with many incentives available. The immigration system is straightforward and there are several visa options for entrepreneurs and investors considering setting up home on the Island.
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 to base for family offices, to relocate or start-up a new business.