Family Office

The FO Evolution, A View From Jersey

Jackie Bennion, Deputy Editor, 23 March 2020

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As their name suggests, family offices are driven by familial needs, and no two families are the same. Here, we observe how the offshore hub of Jersey views family office priorities, from staffing and governance to investment trends.

As part of our series looking at the role of family offices around the world and their unique place in wealth and succession planning, we hear from James Campbell, partner at Ogier in Jersey, a centre known for its offshore trusts business, about what is broadly on the mind of families and where investment interests are flowing. The firm, established in the Channel Islands back in 1922, acts for global financial institutions, investment managers, corporate entities and law firms. It also advises clients on British Virgin Islands and Cayman Islands law from its Jersey base.

What do you see as the dominant trends of how single and multi-family offices operate (more SFOs merging into multis, more recruitment of outsiders, taking a higher profile in the media, etc) and why?
Key wealth management reports have shown that direct investing by family offices outside the public markets is increasing year-on-year. Commercial and residential real estate are particularly attractive assets, providing both capital appreciation and solid investment returns in the form of rental income. And private equity investments have reportedly delivered the greatest returns for family offices, compared with indirect investments in the asset class.

What do you see as the biggest challenges for family offices today (costs of doing business, recruitment of the best staff, getting families to agree on goals, other)?
A family office is only as good as those running it and the right mix is crucial - both in terms of providing for the key professional services needed by a family office (such as accounting, legal and investment services) and the softer skills required for diffusing difficult family issues and ensuring individual family members buy into the family's vision for the future. It is also likely that new economic substance provisions will influence where ultra-high net worth individuals are locating their family office.

In your experience, what sort of structures do family offices typically use when they up (limited partnerships, trusts, foundations, corporate, other)?
A family office may take an almost unlimited range of legal forms – from a conventional company limited by shares to a protected cell company, to a limited partnership, to a limited liability partnership, to a unit trust, to some other form of trust, to a foundation or to some combination of these. There are multiple factors, which might affect the choice of legal structure, but some of the principal ones we see include:

The purpose of the family office. If the family office is directed at only specific purposes, certain structures may not be suitable. For example, where the family want to be able to make investment decisions, a fully discretionary trust may not be the appropriate investment vehicle, but a trust where the investment powers are reserved to a family investment committee might be.

Simplicity. As a general rule it is usually best to adopt the simplest possible structure consistent with achieving the desired purpose

Tax. The onshore tax position of family members may restrict what structures may be available, especially where family governance will involve family members in decision making.

Regulation. The structure and activities of the family office and its key individuals may need to be regulated for financial services business and/or under the anti-money laundering regime or may benefit from an exemption from regulation.
 
From what parts of the world do you expect to see the fastest growth in family offices and why?
We have assisted a number of wealthy families from East Asia and the Middle East to establish family offices in Jersey. Founders from these jurisdictions increasingly want to benefit from all a family office has to offer and, in particular, protect wealth in the face of political instability.

There has been a bit of a trend of family offices outsourcing functions, such as the chief investment officer role. Where do you see most outsourcing taking place in coming months and years and what limits are there to how much can be farmed out?
Having determined what range of services the family office will provide, the next issue is how it will provide them. By way of example, will it employ its own full-time staff to do everything, or will it outsource everything to third-party specialists, or some combination of these?

In our experience, most family offices make a pragmatic compromise on this issue and employ their own staff in critical roles and outsource for those matters where in-house expertise is either not available or not efficient. For example, a family may determine that it is better to employ their own team of investment professionals, but to outsource accounting and corporate secretarial services to third-party providers.

A regular complaint is about terms and definitions. Organisations that call themselves family offices might be appendages to another organisation, or only really focus on investment and don’t deal with issues such as family governance, bill payments, tax, etc. What in your view can or should be done to tighten definitions and help drive benchmarks and make it easier to make comparisons?
The Family Office Council defines a single-family office as a private organisation that manages the investments for a single wealthy family. The assets are the family’s own wealth, often accumulated over many family generations.

In addition to investment management, some family offices provide personal services such as managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning.

How significant in your view are family offices as players in fields such as impact investing and sustainability?
We are seeing a much greater desire from HNW families to establish meaningful charitable legacies and charitable structures. In addition to more traditional philanthropic structuring we are also using our experience in investment funds, such as private funds, to help clients meet their philanthropic goals.

Impact investing is an increasingly popular alternative. Broadly, this is investing which is intended to generate measurable social and environmental impact alongside a financial return. Traditional investment funds function as a collective investment structure and a way for investors to pool their money together and invest in a project, or multiple projects. We are seeing the same type of vehicle being used by a single investor or family to invest in one or more charitable projects.
 
Are there other points you would like to make about the sector?
Families come in all shapes and sizes and it follows that there is no one-size-fits-all approach when it comes to establishing an effective governance framework for a single family office (being a private organisation that manages the investments for a single wealthy family) or a multi-family office (being a private organisation which looks after the investments of multiple families). Every family office is different and reflects the needs and interests of the family or families that it serves.

Nonetheless, the research is clear that early investment in an effective governance structure is likely to pay dividends for the family in the long term.

Establishing a robust framework of family governance is plainly essential to ensuring the long-term success of the family office. Aside from avoiding corporate failure by introducing a robust system of internal controls, family governance also has the following benefits:

-- It formalises the chosen ownership structure for the long term;
-- it creates a workable framework between family member shareholders and professional executives managing the family office;
-- if there is no governance framework at all, the family office may struggle to borrow or attract outside capital;
-- it should provide a clear mechanism for resolving disputes amongst family members;
-- it helps embed the family culture for the long term and, in so doing, the family mission and vision becomes engrained;
-- it provides a framework for making decisions and the key factors to consider when making decisions;
-- it may improve investment performance if consistent strategy based on the family's culture and values taken forward; compare with a random ad hoc investment strategy.
 

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