As part of our series delving into the world of family offices, we talk to Crestbridge in the Cayman Islands.

As part of our series of articles looking at the dynamics shaping single- and multi-family offices, we interviewed Dominic Lawton-Smith, who is director of family office services for Crestbridge, based in the Cayman Islands. We aim to bring perspectives from different parts of the world, in the hope that advisors and clients can learn from experiences in other regions. As always, feedback is welcome: email the editors at tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The family office sector is, depending on how one measures it, as large as 10,000 family offices in total (although there is considerabloe debate about the specific figure). It continues to grow, and hotspots include regions such as Asia. In general, what’s your view on the overall health of the family office sector?
Lawton-Smith: The most remarkable characteristics of change in the family office sector in the last ten years are in its size and diversity as well as the increased sophistication of those within it. 

There are lots of reasons for change including increased regulation and transparency (the end of banking secrecy in some onshore jurisdictions) driving the need for better quality, legally robust solutions that need to be regularly reviewed and the emergence of new wealth over the last 50 years, particularly in Asia which creates the need for new family offices as well as the need for more international arrangements to reflect the international nature of many wealthy families. Advisors and fiduciaries must be able to do more with less, and with more sensitivity to the needs of the family as well as the challenges that their international nature create.

These changes continue to fuel a healthy and growing family office sector although this comes at a substantial financial cost to many families, so it is incumbent on service providers to work harder than ever to ensure that there is benefit for those paying for services.

What do you think drives the creation of most family offices and are these drivers changing? If so, how?
The impetus to establish a family office is often from one or both of two sources being: 

1)    The perceived benefit of assembling a dedicated team of in-house asset management professionals to manage the family’s assets; and/or
2)    The results of a planning process (which may or may not include an external advisor) to consider the family’s cultural values and what it wants to achieve, both for itself and increasingly often, for others. 

When detailed requirements and aims have been determined any role(s) for family members can be identified and a plan for the acquisition of any employees or external service providers can be put in place. I’m not sure that these drivers have changed although the trigger points for 1) and 2) may sometimes come sooner as a result of greater international dispersion of family members and assets.

Do you think it is likely that viable FOs will continue to have higher minimum amounts of assets under management? Is regulation and complexity going to keep driving the AuM baseline higher?
After a decade of profound change in regulation and transparency, it is difficult to imagine that this trend is going to cease now; the upcoming Mandatory Disclosure Rules (MDR) will add a level of new complexity and reporting to existing CRS requirements. Inevitably, this will add some cost, although I would have thought that the marginal increase in fees from this point forward will not compare with the proportionate increases that have taken place in the last ten years. 

It is noteworthy that much of what regulators and tax authorities set out to accomplish has now been implemented; it will be interesting to see whether new goals are now set out. 

I would expect that the next decade will include two dominant themes:

I) The conflict between the human right to a private life (noting new data protection laws such as GDPR) versus the drive towards public registers of beneficial ownership and the implementation of MDR; and

II) With the exception of the US, it is likely that it will be increasingly difficult for jurisdictions that do not comply with CRS, Economic Substance and other new requirements to remain fully engaged as international financial centres.

How are FOs changing and adapting from your viewpoint in terms of recruitment of non-family members to run things, use of external services, outsourcing of functions such as investment, bill-paying, reporting, other? How much can a family office outsource while keeping track efficiently of what is going on?
It’s a very interesting question. As family offices become more sophisticated, their ability to monitor outsourcing arrangements inevitably becomes more complex. Whether they have the capacity to monitor such supervision internally or whether the family office should also outsource that supervisory responsibility (normally to a well-regulated fiduciary in a strong jurisdiction) is a matter for the family office concerned.

We have had a few stories about cybersecurity breaches and how FOs are often highly vulnerable, given their relatively tight resources. What is your take on the state of play here?
IT vulnerability is another key area of risk that needs to be carefully managed through the use of high quality outsourcing solutions – just as lawyers and accountants are required to run an effective family office, high quality IT specialists are as well.

Are the structures of family offices changing much in your view, such as mostly gravitating to a limited partner structure akin to a private equity firm, or in some cases adopting a more corporate structure?
As a general approach, my observation is that combining trusts (whether for purposes or people or both) with controlled companies is the dominant approach although there is a growing number of options and private trust companies which remain popular, particularly in jurisdictions with limited purpose trust laws.

How much of a trend is there of single FOs becoming multi-FOs? Are some families pausing before joining multi-family offices or are they driven by the need for cost and efficiency?
I'd say it’s a matter of the extent of the wealth and the alignment and depth of relationship between families. The better the relationship and strategic alignment, the less compromise there is in joining forces in order to make significant cost savings.

Awareness of FOs has risen a lot - we journalists write a lot about them these days! What in your view is the awareness level by people about FOs, what they can do, their limitations, etc? 
In terms of awareness of FOs, the general public is largely unaware of what they are, and the business community tends to think of them solely as investors. The terminology is unhelpful as investment houses also call themselves family offices. We deal with family offices that are in effect an extension of a family’s wealth in an organised form.