The strength of Jersey’s family office sector was given very visible definition at last week’s businesslife.co ‘Family Offices: Past, Present and Future’ conference. A large contingent of professionals from the Channel Islands, the UK and Europe, attended the event which was held in partnership with Deutsche Bank at St Helier’s Pomme d’Or Hotel on 17 March.
The conference included a mixture of speakers, workshops and panel discussions, enabling coverage of subjects that ranged from the need for family offices to adapt to cultural and generational differences to the very nature of what defines a family office.
After a warm welcome from businesslife.co Editor-in-Chief, Nick Kirby, the event began with an expert panel examining the challenges presented by the changing demographics of family wealth. Gavin Wilkins, Client Relationship Director at Jersey-based trust company, Minerva explained the differences in demands placed on family offices by families from the West compared to those from the East.
"The western model mindset tends to look after investments of the family rather than the business. In the East, they tend to be overarching."
Matthew Norman, Deputy Chairman of the Family Office Council, said that there was a stark difference in views around the world on how much wealth is needed before a family office becomes worthwhile.
"In South America, there is an awareness of the family office but there tends to be a value difference in what they perceive a family office to be in terms of wealth. In Chile, when they talk about family offices, they are talking about, one, two or three billion dollars at least. Whereas in London, you’ve got a lower starting level of $50 million to $100 million."
The changing priorities and attitudes between generations were also discussed, with Edward Stone, Group Partner at Collas Crill, saying that families have different ideas about inter-generational control.
"Some people do want to set up dynasties and insert strong clauses which prevent the sale of businesses but others want to see the next generation do it on their own."
Regardless of cultural or generational differences, the panel agreed that there is one thing that will not change – regulation. In response to a question from moderator and Partner at Ogier, Steve Meiklejohn, about the future challenges and opportunities, Edward Stone concluded: "There will be more and more regulation. Families that adapt to regulation will succeed."
The next generation
Following on from the opening panel came a fascinating presentation from Deutsche Bank’s Rolf Bauer, Managing Director and Head of International Family Office Services in Zurich, who looked at the transition of wealth to the next generation.
Using the metaphor of a fruit salad, he explained that every family is different in their needs and ambitions.
"In every country, a fruit salad is different and in every family that you talk with, the outcomes they discuss are different," he said. "Like a fruit salad which has hard pieces and soft pieces, with the family, it is the successful combination of hard and soft factors that help with the successful transition of wealth to the next generation."
After pointing out that 90 per cent of wealth is lost by the third generation, Bauer said that families need to focus on people when the generational transition occurs.
"The most successful families preserve their wealth by focussing on human capital as much as they focus on financial capital."
The risks of social media
Taking the conference onto a completely different tack, Frank Morey, CEO of Virtus Risk Management, gave a 'lightning talk' about the risks that social media brings to wealthy families.
He explained that it is the nature of the information which we place on social media that makes us vulnerable. "This information can be a goldmine for anyone looking to exploit you financially, and it’s not just what we can see online but also the hidden information such as geotags on photos, that can be dangerous."
Asserting that high-net-worth individuals and families will attract sophisticated attackers, Morey outlined the four stages of the attack cycle, which includes the gathering of information which can be found on social media.
According to Morey, it’s vital that families "manage risks effectively and take a considered approach to social media use". Ultimately, if the risks are to be minimised, then "social media must be part of the family security plan."
Talking investment
After the mid-morning interval, delegates were invited to attend one of two breakout sessions. Many chose to attend a session where businesslife.co Editor-in-Chief was in conversation with Richard Nunneley, Chairman of Impact Investment Partners.
The pair explored Nunneley’s dealings in the family office space, not least as adviser to the largest family office in the UK, with a particular focus on the investment challenges. Nunneley cited a couple of instances where he felt he had to walk away from families when conflicts arose over investment strategy.
They also addressed the pros and cons of managing investments in-house or outsourcing to an investment manager, something that Nunneley indicated was very much dependent on the size and needs of the family.
Delegates then contributed their own experiences in the family office/investment space, as well as addressing some of the legal aspects of investment responsibility and liability.
Tax and the family office
Other delegates enjoyed a workshop examining the role of tax considerations when choosing a jurisdiction and structure for a family investment office. The session was led by Arabella Murphy, Partner at London-based law firm, Maurice Turnor Gardner, who was assisted by Nick Colston, Senior Associate at law firm, Simmons & Simmons.
Using a real client example Murphy explained that the client wanted a family investment office but did not know where to locate it. After a great deal of consideration, the decision was taken to locate the office in London for a number of reasons, including visa issues concerning existing staff members.
The need for a degree of separation between the family office and its investment management office was highlighted, including the need for the investment office to be taxed only on its third-party management fee. To achieve this, the team undertook a large transfer pricing exercise and ensured that the investment office could not be seen as investing its own money, a fact that is key to the office maintaining its role as the 'servant' to the family office’s 'master' on investment decisions.
Nick Colston discussed the regulatory issues, particularly in light of the European regulatory aspect to the structure. He highlighted two questions that needed answering: "What is the regulatory status of the onshore management entity? What is the regulatory status of the offshore family office?"
Investing directly
After the break-out sessions, Reginald Mills, Head of Corporate Finance Partnership, EMEA, for Deutsche Bank introduced the audience to the idea of directly investing in businesses as a way to diversify a family’s investment portfolio.
Setting his thoughts against a background in which hedge funds have failed to perform whilst their costs have simultaneously risen, he proposed direct investment as an engaging alternative but warned: "Clients should stick to what they know. There are different characteristics to every business and these can be an obstacle to success."
Direct investments can provide healthy dividends alongside typical 10%-15% returns and whilst "funds will always be there, direct investment opportunities are viable and offer interesting and rewarding opportunities for families," Mills concluded.
Managing family conflict
The penultimate session of the day focused on the need for family offices to be able to manage conflicts within the family. Mark Biddlecombe, Director of Guernsey-based Nerine Trust and Konrad Friedlaender, Partner at Channel Island law firm, Carey Olsen, used the example of one of their own clients to explain how a structure can be used to manage and minimise conflict.
Friedlaender explained how they had created a structure of three personal trusts, one for each child, with each trust being a beneficiary of the main trust which contained the family’s principal asset - the family business.
As well as ensuring that the children would benefit from the business whilst not being able to individually sell the company, Friedlaender explained how the structure was used to maintain power for the father, who reserved investment powers and board appointments for himself.
In summing up, Mark Biddlecombe said that "the family will be better off if they work together rather than against each other."
Isn’t everyone a family office now?
The conference ended as it began, with a panel discussion. This time, the focus was on the definition of the term 'family office'.
Moderated by Steffiana Claiden, CEO of Family Office Review, the speakers were Jessica Crane, Executive Director, Head of Trusts at London & Capital; Michael Powell, Director at wealth managers Hawksford; and Ian Slack, Director of Bedell Family Office.
"The term family office was coined mid-19th century by the big US dynasties and it was used to refer to the entity looking after the family investments," said Jessica Crane. "The term is over used. At London & Capital we use the term Private Investment Office."
Steffiana Claiden asked why so many people are calling themselves family offices. "There’s a snob factor," answered Michel Powell and this was backed up by Jessica Crane saying that the term "sounds quite grand and is aspirational."
Ultimately, explained Powell, "a family office presents a coherent face for the family."
The panel then looked at whether this overuse of the term causes confusion.
"No", was Ian Slack’s short answer before referring to possible regulation of the term. "When someone calls themselves a family office, we just need to dig a bit deeper. I don’t think we can ever regulate the term."
Before concluding, Claiden suggested that the island could carve another niche within the family office industry by playing a role in upholding certain standards. "A family office due diligence service in Jersey would be great because nobody wants to ask the questions directly," she said.
In conclusion, she gave the audience her own vote of confidence. "This is a fine place for any family to have its office," she said. "I think you’ve got a great thing going here."
From someone so heavily involved in the global family office sector, such words can only have given the delegates the belief they need to continue developing the Channel Islands as a reputable location for family offices.