Wealthy families are becoming increasingly global. Banks and wealth managers report a rapidly deepening international footprint among their clients. As a result, wealth firms are setting out their stalls to mirror the structure of the clans they aim to service. In effect, the biggest global families are starting to resemble cross-border companies.
Risks around succession planning, regulation, data management, geopolitical events and family reputations together prompt a fundamental question: is the global family’s operational infrastructure advanced, robust and effective enough to meet these challenges?
Citi Private Bank, one of the early players to identify this globalisation trend, has tailored its own offering – the Global Client Service – around a specialist support system for such clients, assisting them in multiple jurisdictions and geographies.
The bank provides the client’s family with a local team for each jurisdiction in which they operate, be it in Asia, Emea or the US. Citi links up the work of these teams to consolidate the client’s assets and give them a holistic view of both investments and business assets.
“We can provide clients with a complete picture of their wealth, enabling them to see across all their accounts through one integrated system,” claims Luigi Pigorini, regional CEO for Emea at Citi Private Bank. “We ensure strategic decisions made in one location are implemented tactically across all others.”
Swiss bank Mirabaud believes a firm’s family ethos and heritage is paramount, alongside expertise in the hubs where it operates. “A family that is global is attracted to an institution which can speak in family-like tones, demonstrating family-like values,” says Etienne d’Arenberg, head of UK wealth management at Mirabaud, promising fast access to decision-makers and portfolio managers.
Entrepreneurial private clients typically maintain a “family flavour” to their business ventures, he says. “It’s very agreeable for a family-owned bank to talk to a family with its own operations in different countries,” he says, offering clients a variety of booking centres, including Dubai, Switzerland, Luxembourg and Canada.
Asian families, in particular, are getting acquainted with a much more international approach to managing assets, according to the bank. “Instead of keeping 100 per cent of their assets in their home country, they want to experience buying property outside their country of residence – that is the first thing they do – and invest in liquid assets too.”
Younger family members are also physically relocating to be educated abroad and often meet partners in different countries. This leads eventually to families becoming less bound to their nationalities, locating businesses and assets independently of each other.
Ties that bind
The greatest challenge such migration presents is keeping a family united, says Ari Tatos, managing partner of Stonehage Fleming.
“When you have people growing up in different places and being exposed to different life experiences, a family has to work a lot harder to keep moving in the same direction,” he says.
This includes helping family members gather round a table for birthdays and religious holidays, followed by a sit-down to discuss business affairs the following day. This can combine technical, emotional and strategic approaches to planning a family’s wealth and appreciating its meaning and purpose.
In its 2018 report, ‘Four pillars of capital: Practical wisdom and leadership for changing times,’ the firm found ultra-high net worth families are not only becoming more sophisticated and better structured, but taking an increasingly democratic approach to leadership, emphasising training and development of young people to keep families united.
Most banks offer ‘bootcamps’ to acquaint younger members with issues of both finance and family governance. “We have found that people in charge of families often have children with no interest whatsoever in financial assets,” warns Mirabaud’s Mr d’Arenberg. “So we offer our families private tutoring on what finance is all about through a crash course.”
The so-called ‘Finance 101’ module aims to furnish the next generation with basic building blocks. This education means much more than hanging a diploma from a highly regarded institution on the family office’s wall, he suggests, with the new generation obligated to forge a name for themselves and establish competence through experience. “This is a right they must gain,” says Mr d’Arenberg. “This can be very difficult if you already have an overpowering father or mother figure above you.”
Drawing up a constitution to help bind a family can be important in these instances, as can effective long-term planning. Stonehage Fleming’s research found the primary concern of most wealthy families is shifting from capital preservation to succession planning, with 69 per cent of respondents identifying succession planning as a top-three concern.
Succession planning is also entering a whole new dimension as global families realise they must take account of each jurisdiction they operate in having its own laws regarding heirship, estate taxes and recognition of wealth planning structures.
“For example, civil law countries such as France, Spain and Italy restrict the ways in which certain assets may be left to beneficiaries,” says Camilla Stowell, managing director at Coutts, the London-based private bank. “Some countries levy taxes on an estate when it is left, others on those who receive it. Countries such as France do not recognise trust structures and hence other methods must be used to hold assets for those who are resident there.”
Families owning assets in a variety of jurisdictions often seek expertise in fiduciary structures to make their planning more effective. This is typically found in hubs such as the Channel Islands, UK Crown Dependencies which have separate legal system from the mainland. “This can help ensure the wishes of the older generation can be implemented, even when younger generations are living all over the world,” suggests Ms Stowell.
All in order
SGG Group, which serves family clients around the world, who prioritise wealth preservation, asset protection and succession planning, reports increased need for holding structures with transparent governance and reporting, fuelled by regulations such as Fatca and the Common Reporting Standards.
“The complexities and rising standards associated with these regimes are reinforcing the reliance on stable and reputable offshore jurisdictions such as the UK Crown Dependencies of Jersey, Guernsey and the Isle of Man,” says Kevin O’Connell, group chief commercial officer at SGG Group. “These possess robust regulatory and legislative regimes as well as world-class communities of expert advisers and service providers.”
Failure to draw up a valid succession plan is identified by the firm as a real risk for future family prosperity. Close second comes geopolitical risk and its impact on financial assets, particularly when it comes to Brexit, the euro and President Trump’s policies on China.
Another powerful factor which families must consider is negative publicity surrounding wealthy families and individuals. “Reputational risk can become a factor in the event that the family’s company – on its own or through partners – engages in methods seen as unsavoury either in the host country or in the eyes of global onlookers,” says Rochelle Clarke, founder of Succession Strength, a US consultancy which prepares businesses for inter-generational transfers.
“This can lead to hostility and pressure on people to make a greater contribution to society,” ventures Mr Tatos at Stonehage Fleming. It is this key societal pressure, along with a differing mentality of the millennial generation as compared to their parents, which is leading families to put in place formal, philanthropic arrangements to benefit society.
High-impact philanthropy and impact investing are gaining fast in popularity, reports Mr O’Connell of the SGG Group. “In Asia, we have seen millennials are driving a move away from charitable donations to impact investing. They seem to be leapfrogging over the US as the driver of innovation in philanthropy.”
Most banks talk about younger clients wanting to do things their own way. “The next generation invests with emotions, which are more sensitive to today’s issues,” says Mirabaud’s Mr d’Arenberg. “They are interested in good governance and energy investments.”
Co-investment is a particularly popular route for these alternatives, allowing global families to take a hands-on approach within the chosen investment strategy. “We help families meet other families, taking into account their appetite and local regulations. Co-investments often require qualified intermediary status in some jurisdictions,” he adds.
Many families are also concerned with risks associated with the digital age, including loss of privacy. This can include how a client’s assets are held and whether they have a secure title to them. “One wrong transaction can ruin years of careful planning,” warns Ms Stowell at Coutts.
As more globally savvy younger generations take the helm of family businesses, it appears there is a greater willingness to seek professional, external help for the families than in the past, when patriarchs liked to keep family secrets very much in-house.
“Families should not shy away from bringing on board a trusted party, from outside the family, who may provide a diverging or contrarian view, and who can provide the requisite degree of challenge to a family patriarch,” says SGG Group’s Mr O’Connell.
No love lost
One thing is certain in an ever-changing world of family businesses and wealth structures: the war of words between private banks and global family offices – both competing for the same clients – is set to continue.
“Few family offices develop and deploy strategic plans and robust governance processes,” says Citi’s Emea boss Mr Pigorini, despite the sophisticated nature of the entrepreneurs and business owners who manage these offices. Because the offices are built around the needs of a founding family, robust governance structures can be seen as unnecessary and premature by family principals.
The view from the other side of the divide can be even harsher. “In our view, banks have, for the most part, become gigantic businesses offering efficient and commoditised services,” says Elisabeth Dana, CEO of cross-border advisers Infinity Wealth. “They are not able to cater for clients who require complex and bespoke advice.”
What the two do agree on, is the totally different character of each family they serve. “When it comes to clients, there is no formula,” says Ms Dana. “Complex, mysterious, remarkable. Each family is unique.”
Diversifying citizenships
Banks, family offices and service providers interviewed by PWM affirmed a trend of clients based in the faster growing areas of the world – typically the emerging markets – looking to hedge their bets by diversifying citizenships. Concerns about political instability and uncertainty, plus rival business-connected groups coming to power, pre-occupy many families in developing nations.
“We continue to see clients from more politically unstable countries wanting to increase their global footprint in more politically safe countries to diversify their wealth,” states Camilla Stowell, managing director at Coutts.
For entrepreneurs in Russia and other parts of Eastern Europe and those in Asia or Africa, perceived to have relations with ruling political elites, access to global private banking players is often restricted.
“Opening bank accounts is becoming increasingly difficult due to international transparency and anti-money laundering initiatives,” says Eric Manu, managing director of EM Brokerage Group, a “luxury brokerage” firm advising Chinese and African clients. “Since [the Global Financial Crisis of] 2008, this has become more difficult for international wealthy families due to some of these families living in sanctioned countries.”
Demand for an alternative passport are clearly being voiced by clients to their relationship managers, according to banks including Coutts, Citi and Julius Baer. Several Swiss banks have opened residence planning desks as an advisory service.
Brexit is an example of a political event leading to a surge in applications for second passports, with 200,00 British people having sought Irish citizenship, according to migration specialists Henley & Partners. For many wealthy families, a second or third passport is now a diversification play.
“For many clients, the decision to get a Tier 1 Investor Visa is now an asset allocation move,” says Christian Kälin, chairman of Henley & Partners. “To obtain the visa, they are effectively taking money out of one asset class and re-deploying it in another.”
Technology and mobility have also fuelled this trend to diversify citizenships. “You can now run a global business from a mobile device or laptop,” says Mr Kälin. “An Asian tech entrepreneur, a Bangladeshi textile manufacturer or trader from the Middle East can now sit in London, Singapore, Abu Dhabi or Zurich and run their business.”
But this story is not all positive. Some practitioners warn about a reputational risk associated with citizenship portfolios, with clampdowns on ‘golden visa’ schemes expected from international bodies, including the OECD.
Another problem from families adding to the number of citizenships they hold is that it can actually exacerbate problems of complexity, especially regarding tax arrangements.
