Family Office: Hong Kong or Singapore or?

In this article, as a follow-up to my article in this publication[i] entitled “Where does Hong Kong stand as a family office hub?”,  I explain why, in my opinion, the question (certainly for families with an Asian connection) should not be “Hong Kong or Singapore?” but, in many cases, Hong Kong and Singapore and several other jurisdictions!

The family office concept is often much wider than a single jurisdiction. Diversification at all levels of structuring for an ultra-high net worth family should be considered, if not implemented. The current crisis has accelerated such a review.

The timing of this article coincides with the launch of a paper by the Hong Kong Financial Services Development Council entitled “Family Wisdom: A Family Office Hub in Hong Kong”. There has also been increased activity in the family office sector in Singapore, revised regulations in Mauritius[ii], removal of an exemption for single family offices is in the Cayman Islands[iii] and an examination of family office regulation in Jersey. The UBS Global Family Office Report 2020 was also published earlier in July 2020 and illustrates a number of interesting trends relating to investment strategies.  

It is necessary to (briefly) revisit the question of what exactly a family office is. To speak about “setting -up” a family office and “regulation” of a family office, it is necessary to know what this means.

Along with many in the family office space,  I believe that a family office is not, in most cases, a single, identifiable entity and it may be somewhat misleading to describe a family office as being “located” in a single jurisdiction. That said, there will most likely be a “main centre” of the family office attaching to a particular jurisdiction or, in many cases, to specific decision makers (who themselves may be located in multiple jurisdictions throughout a year). In addition, the control and ownership of the “family office” is as important as the family office itself – and could be the true family office.

Therefore, by looking at what a family office may entail and how a family office may operate, it is possible to give some thought as to the types of jurisdiction which may be utilised. Of course, the basis for consideration of jurisdictions and choosing between them is a very wide and subjective list of criteria. The oft-maligned phrase about no two family offices being the same, can certainly apply to families. Global wealthy families can encompass a wide range of connections in terms of size, generations, residence(s), ethnicity, citizenship(s), religion(s), cultural and philanthropic interests, financial acumen, marital systems, need for privacy and other specific needs.

Thus the below comments are directed at what would generally accepted to be a single family office offering a full suite of services to or for a particular family (as well as the family themselves). Such services could include some or all of the following: investment management, a number of the investment holding entities[iv], philanthropy[v], succession planning, trustee services, fiduciary services, captive insurance, concierge, legal, tax, accounting, reputation management and data privacy.  It is highly unlikely that these would be carried out by the same entities or persons and therefore would not automatically be carried out from the same jurisdiction.

The various criteria will have different importance (if any) to different families. The families may have to carry out a form of “three-dimensional chess” to balance various factors. It is also crucial to be able to change structures or to have multiple structures from the start – events and circumstances can change very easily, as is currently being witnessed. Below are some potential factors which will necessitate multiple jurisdictions to be used in most cases.

1. Regulatory regime. What is the regulatory regime of a jurisdiction in terms of what the family requires to be done? How is investment management treated? What about private trust companies? Captive insurance companies? Perhaps there used to be a trend to try and avoid regulation but this is changing. Are there requirements for certain activities to take place in a particular jurisdiction? Any blacklists / punitive tax rates for dealing with or acting from particular jurisdictions? Distrust or ownership restrictions in respect of particular markets perhaps from regulators / counterparties?
2. Banking / financial system. How safe are the banks or other custodians? Is the currency freely convertible? Are correspondent banks needed? What is the level of supervision? Where should assets be booked?
3. Taxation regime. What is the level of tax on investment activities? What about passive income? Gains? Salaries? Inheritance tax? Stamp taxes? Wealth tax? Mind and management issues? Availability of double taxation treaties and if so, requirements to qualify for such? What about multi-resident family members? What about taxation for employees who may not be as nomadic as the family members?
4. Safety / security / legal system / tolerance. Physical safety for family members and employees? Safety of property from theft? Safety of assets from seizure / nationalisation? Access to investment treaties? Political stability? Independence and quality of the judiciary? Recognition of other judgments? Community property? Forced heirship? Divorce position by virtue of connecting factors? Attitude to same sex couples? Racial tensions?
5. Location / accessibility / climate. Easy to get to? Do the family use private jets / yachts / helicopters[vi] and if so what is the infrastructure for same? Are there hurricanes or similar? Is it crowded? Offer privacy or not? Good healthcare? What about the need for visas or automatic rights of entry? Ability for long term stay? What about employees? Difference for mobile employees such as pilot, chef, bodyguard versus permanent employees? Do the family need to ski, be close to opera, or a certain sports team? What about different generations?
6. Market accessibility. Which time zone? Need to correlate to certain jurisdictions? Need to regularly visit certain jurisdictions? This lends to multiple centres to cover N America / Europe/ APAC. Certainly with the prominence of private equity deals, accessibility to the managers and the investee companies is a high priority.
7. Language / culture. Will the family and employees feel comfortable? Are there other UHNWs using such jurisdiction? Do the family like high-end retail and cuisine or a private island?
8. Availability of employees and service providers. What is the depth of employees in a particular place? How easy is it to attract suitable persons and get the necessary permits? How good are the service providers? How well supervised are they? This could be from accountants, lawyers to gardeners, mechanics, chefs and security guards.
9. Specific structures. For a Cayman STAR trust for example, there would need to be a Cayman trustee and certain documentation kept in the Cayman Islands.  Likewise, for a tax efficient Singapore fund structure there would need to be a certain amount of expenditure in Singapore. There are many other examples.
10. Data connectivity / security / disaster recovery. Mobile working is increasingly popular[vii] but only where connectivity and privacy can be relied upon.
11. Flexibility. Things can change and the structure needs to be able to cope.

It can be seen, therefore,  from a very quick overview of the potential issues that a complex wealthy family is likely to have connections to multiple jurisdictions and this needs to be carefully crafted together. For clients with an Asian connection, both Hong Kong and Singapore will feature prominently in the discussion but so will traditional “onshore” centres such as London, New York[viii], Switzerland and “offshore” centres such as the Cayman Islands, Bermuda, Jersey and Guernsey.

Footnotes:

[i] April 2020

[ii] The Financial Services Commission (FSC) issued the Financial Services (Family Office) Rules 2020 on 7 March 2020.

[iii] SFOs will require to be registered under the Securities Investment Business Law if they are conducting securities investment business.

[iv] Whether or not collective investment vehicles or single investment vehicles

[v] Or charity

[vi] These will also need to be owned and registered in a suitable jurisdiction.

[vii] See, for example, the one year incentives for Barbados and Bermuda announced recently.

[viii] Per the FINTRX Family Office Industry Briefing Series 2020, New York is the top city in the US market but there is national coverage. (https://www.fintrx.com/fintrx-charles-schwab-2020-family-office-report)

Richard Grasby
Richard Grasby is a Partner in Appleby’s Hong Kong office, leading the Private Client, Trusts and Family Office practice. Richard advises trustees, ultra-high net worth individuals, private trust companies and family offices on the establishment, restructuring and administration of trusts, including special trusts i.e. BVI VISTA, Cayman STAR and Employee Benefit Trusts. He regularly assists in estate administration, succession planning and family governance. Private clients and family offices instruct Richard to advise on the use of corporate vehicles for asset holding and succession planning purposes. Richard is an expert in regulatory law including AML, AEOI, economic substance and licensing and risk management for trust companies. He also advises on collective investment funds, particularly unit trusts and private label funds. Richard has acted for many of the world’s leading trust companies, financial institutions, wealthy individuals and related structures. He has experience with dealing with clients and advisors across the globe. Richard has over 20 years’ post qualification experience with the majority spent in offshore firms. Richard has lived and worked in Jersey, London, the Cayman Islands and (since 2009) Hong Kong. He is admitted as a solicitor in England and Wales and the British Virgin Islands and is a Registered Foreign Lawyer in Hong Kong. He has also been admitted as an Attorney in the Cayman Islands. Richard is an active member of STEP. He has been on the local executive committee since 2012 and is a former chair. He is on the global steering committees for the Business Families and International Client Special Interest Groups. He is a member of the Academic Community. Richard is an elected Academician of the International Academy of Estate and Trust Law (the only such offshore practitioner in APAC). He is also a Certified Anti Money Laundering Specialist. Richard is a lecturer on trusts and family offices for the Hong Kong Securities and Investment Institute and for the Hong Kong University of Science and Technology. He is a member of the Hong Kong Trustee Association, the Family Firm Institute the International Bar Association and the Investment Migration Council. Richard is an active speaker at events across the world and a writer for many journals.