Family Offices in 2022 - Adapting to the 'new normal'​

Family Offices in 2022 - Adapting to the 'new normal'

On the 22nd November we hosted a Family Office Symposium at our offices in London. The theme of the day focused on single Family Offices and examined what now constituted the 'new normal', with experts in the field coming together to present and discuss ideas and trends. It was great to see so many people attending and representing a wide range of family offices from around the UK and across the globe.

The day started with some quickfire technical updates on UK tax and regulatory changes specific to family offices. After Lunch there were several panel discussions with BDO and guest speakers reflecting on some of the more strategic considerations facing family offices today.

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Some of the key themes, topics and take aways from the day include:

Governance

To last the tests of time, family offices should be built on strong and purposeful foundations with strategy, structure and resources forming the building blocks. Governance acts as the cement that holds all these different elements together. What form this governance takes will depend and needs to be adapted to the need and circumstances as no one size fits all. Different issues face a typical founders office (where the wealth creator typically still has full control) in comparison to a family office with non-family leadership. Consequently different governance mechanisms should be employed to address these. With the former, things are likely to be quite informal and rely mainly on natural governance. In contrast, as complexity increases more thought needs to be given to how aspects such as decision making, communication, and oversight are intended to operate. This is something I spend a lot of my working days advising around.

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Khaled Said also spoke about the importance of Governance. His unique perspective combined his current role as Co-founder of Capital Generation Partners as well as his experience as a 2nd generation family member with his own family office. Khaled stressed it was important to have clear lines of distinction between family members and those running the family office to address accountability and clear any conflicts of interest. Khaled also echoed my comments on the importance of clarifying the purpose of your family office. He spoke openly about his own family office purpose and also those of some of his clients with a common theme being how to handle wealth responsibly.

At a more operational level, governance within the family office entity also plays an important function. For example, a typical family office could look after the interests of family members with different tax profiles across several countries, multiple investment vehicles and different asset holding structures. Therefore it can be particularly helpful if the family office has some governance in place around this so it is able to take a consistent approach, ensuring internal stakeholders and well as external advisors have a clear outline and that it ultimately aligns with the family’s values. James Egert spoke about setting a tax policy as part of this process, what can be included in such a policy and how to assess your current position.

How to make the family office sustainable for the long term

Most families have a multi-generational outlook when setting up their family offices. Key to the success of this will be whether or not the model being adopted is sustainable - in this context meaning that over time it adds more value than it costs. This is something that many family offices are currently wrestling with.

Over an above intending that investment returns will exceed family office running costs, one solution we hear frequently is to commercialise some part of the family office. This might mean setting up some co-investments, establishing a fund or even becoming a multi-family office over time.

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We heard from Ed Peters in the context of the UK commercial property market that some of his family office clients are moving away from investing directly and instead establishing funds. The blurring of the lines between and family office and a fund house was then the entire focus of one of the afternoon's session with Helen Jones and Emily Haithwaite looked as some of the practicalities of establishing your own fund from both a UK and Jersey perspective.

Closing the day Khaled Said shared his journey co-founding the award-winning private investment office Capital Generation Partners from his own family office. Attendees were left with a very clear impression of the hard work and patience it took to deliver on this vision in real life.

Political & economic climate

It has been hard to keep up with the ever evolving landscape of the recent economic and political changes and so it was a welcome relief for many that the UK autumn statement a few days before the conference focused more on trying to deliver stability. The most significant announcement for personal tax payers was likely to be the reduction in the threshold for the highest rate of income tax from £150,000 to £125,140 otherwise the focus was on frozen thresholds and reducing allowances for dividend income and the annual CGT exemption. However it was interesting to hear from Lee Bijoux about what wasn’t in the recent autumn statement, particularly the potential changes to CGT and IHT which had been the subject of much speculation. Lee also spoke about the political landscape around Domicile and some of the considerations for those family offices who had family members moving to or leaving the UK.

A Corporate M&A panel in the afternoon then focused on what the current economic and political landscape meant for the mergers and acquisition market. Steve Carr , an expert in debt advisory, spoke of how it was still possible for some to raise funds in the current market and how family offices might think about strategically building and nurturing relationships with banks. Another key message from the panel was the availability of ever improving technology to assisting with modelling and more generally that being on top of their data would be essential to family offices with a growing direct investment portfolio and enable them to be adaptable in such a changing environment with real time information.

ESG

Shawn Healy discussed the tax incentives available in relation to electric vehicles which seemed to be of interest to many of the attendees. He also discussed the national living wage which was increased recently in the autumn statement. James Egert spoke about how tax strategy should not be forgotten when it comes to a family office’s ESG policy.

An increasing interest in societal impact is pushing some wealthy individuals to go beyond simply ‘playing by the rules’ and consider how their approach is consistent with their values and purpose.

For example, next generation family members are increasingly calling on their family office to be able to articulate why a particular approach to tax and structuring is appropriate.

Incentives

Competition for talent remains high in the family office market. Family Offices often have to deal with a particularly complex landscape when it comes to incentivising the people who work for them. The need to incentivise at different levels, for example at family office level or at portfolio level, identifying who has what role, especially when people wear multiple hats and the personal nature of the portfolio all play a part in this. Then there also needs to be consideration as to the different aims and models of the different investment vehicles and assets they hold, with varying strategies around longevity and value realisation creating further potential differences to take into account. This all needs to be considered in light of the attitude the family has towards different incentivisation options. David Ellis recognised this and then introduced the incentive playbook he has created to help design the overarching principles for a family office to adhere too, to provide clarity and efficiency.

The importance of keeping good records

Dawn Register discussed some of the topical issues affecting family offices when it comes to HMRC. Dawn debunked the myths surrounding HMRC’s lack of resources and stressed that volume of data at their disposal was impressive. The was recognition from the attendees of the approach HMRC now take issuing 'nudge letters'. Further discussions raised concerns in delays with correspondence over the last several years.

The key take-away from Dawn was that evidence is key and the advice was to build a folder documenting any transaction at the time it is undertaken as memories can fade fast, exasperated by changes of personnel. A KC recently said that 95% of the lost cases she sees were lost due to a lack of evidence. A similar narrative came from Shawn Healy in relation to tracing the personal and collectable assets the family office managed and cross-referencing which structures owned them and who the directors were to pick up on any potential benefit in kind issues early). A powerful message to take home from the morning sessions.

BDO

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BDO’s global organisation extends across 164 countries and territories, with 95,414 people working out of 1,713 offices – and they’re all working towards one goal: to provide our clients with exceptional service. BDO provides tax, audit and assurance, advisory and business outsourcing services to many family office clients. Our Global Private Client Services team deliver a comprehensive set of services to private individuals including asset structuring, succession planning, will planning, trust services, tax compliance, risk management, family business advisory, family governance and family office services on a national and international scale.

Please do reach out if you would like to discuss further. 

Seonaid (pronounce Shona) Mackenzie FCSI, CF

Founder and CIO of Sturgeon Ventures LLP Pioneer of Regulatory Incubation which launched originally as a Family Office in 1998. Founder of Sturgeon Compliance Services, was the Compliance Officer of SV for many years

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