Singapore, as a regional hub, has been favored by entrepreneurs and high-net-worth individuals (HNWIs) as an ideal location for the establishment of family offices, such that familial wealth may succeed and prosper. The blend of political stability, legal construct, reliable infrastructure, financial expertise, innovation, and sustainability, as well as the promise and continued endorsements in talent recognition and hunger in innovation, renders the city-state the regional hub of appeal. Furthermore, the recent enhancements in the local regulatory regime and non-existent capital gains tax on systematically managed investments are some of the packages that added flavor. The government’s investment into infrastructural and talent investments, as well as within a vibrant ecosystem, strategically arrive at the position where it is now. Furthermore, the growth of HNWIs, with their inherent demand for wealth management professionals and a diversification of asset management competencies, gives root to Singapore becoming a worldwide family office establishment venue.
The concept of family offices is not a new-age phenomenon. Its existence traces back to the 1830s, which later saw a widespread dispersion in the early 1970s. In today’s era, a family office’s core function centers around the long-term preservation of family wealth, as an intent of securing intergenerational wealth continuity. The inception, maturity, operational mode, and governance structure of a family office may differ from one another. Time, as well as the availability of professional expertise and applied knowledge, are pivotal. Despite this nuanced variation, a family office’s journey will inherently begin with the establishment of a family office. Hereafter, its persistent sustainability will move to become a prominent focus.
Understanding Family Offices
Several key considerations may need to be taken into account when establishing a family office, such as the preferred investment strategies, risk tolerance, and degree of involvement in family wealth and succession planning, among others. Most generic services that a family office provides include estate and wealth transfer planning and asset protection, strategic philanthropy, strategic tax-exempt portfolio management, and others. The family office can also act as the client’s trusted advisor, functioning as a sounding board and problem solver according to client needs and wants, and play a primary role in family and business governance structures for first-generation entrepreneurs, which involves creating forums for family members to communicate and work together on governance issues and helping client families overcome the challenges of designing governance systems. An integral part of the family office is in a collaborative practice of private client law in Singapore, helping wealthy individuals and families manage and grow their wealth during and beyond their lifetimes.
Family offices are private companies established to manage, grow, and transfer wealth across generations. Typically owned by wealthy families, family offices are set up to cater to the needs, objectives, and values unique to each family or individual, including preservation of family wealth, family governance, philanthropic planning, and tax efficiency. Many family offices are established to continue the family legacy and to provide a structure that offers comfort, security, and peace of mind for current as well as future family generations, and to provide a blueprint for the increase of wealth for future generations to come.
Definition and Purpose
Having all these, one may ask why these families should have to develop their private family offices, in particular their own capital and personal investments? Indeed, several key causes of applying family offices justify funding and their investment activities so as to enhance the multi-wealth of the family, for this demonstrates that when a company outperforms the company’s net profit and the family invests quite huge sums for about 20 to 30 years, it is possible that the world’s investors would surely be entitled to exceed profits as a joint multi-family wealth organization. Indeed, larger assets, home offices have also been used to secure other family wealth interests for charitable and/or philanthropic purposes by offering time, legal information, and other resources to enable them to concentrate on attaining development. As effective tax and inheritance planning agents, they may also perform important functions in minimizing general tax and inheritance planning. They can also boost household companies by drawing in private funds to establish or buy firms, thus offering the link family companies. Indeed, by enabling some family members to contribute time and some monies to run the companies or contribute to some areas of personal expertise, they also impact the family’s commitment to promoting industrial activities. In the sense that they were instrumental in helping families understand the value of establishing family company offices with long-term interests in the functions listed above, they have supported the family to ensure that their activities yielded better results in managing their assets.
A family office is a private exclusive firm that exclusively manages the financial affairs of an ultra-high net worth family. There is no direct definition for a family office, but the simplest description can be given as a family-run team with the sole focus to provide for its expanding family’s present and future financial needs. Other terms such as private wealth management, private portfolio management, and a single-family office are often used interchangeably, but responsibility permits such services. Quite all-encompassing, therefore, would tend to discredit family office accessibility worthwhile business as a pure group for the advisory. In fact, family offices generally have considerable advantages in terms of certain portfolio property objectives that have allowed them to deliver returns that are twice what is normally expected from markets. Those positive ‘excess’ return-voluntarily assigned family offices – are derived from longer-term investments with low costs, more tax-efficient returns, private equity profits, futures, and wealthy commodity acquisitions, venture capital investments, and funding.
Definition and Purpose of a Family Office
This section provides an overview of the different family office structures according to both jurisdiction and the specific profile of the family in the following sub-sections. Firstly, the definition as well as the purposes that gave rise to the establishment of family offices are presented. The second points out the most distinctive types of family offices. Furthermore, the key benefits and differences obtained from operating different family office structures as well as the evolution of the family offices and the regulatory environment are highlighted in the last section before the subsequent two sections jump to the responsibilities and challenges in which a family office might face.
Types of Family Offices
The difference in depth of services rendered between a single and multi-family office is often due to their primary focuses on the family. Through a single family office, more focus is given to the founding family, and family-specific paths to wealth maintenance and growth are established. A multi-family office is unable to offer specific family-based path solutions; however, it is able to offer a wide variety of products regardless of nationality, as well as portfolios, in contrast to typical independent advisors or banking wealth management employees, who keep their best offerings for the best clients where the portfolio is established to match the client’s unique requirements, and generally under an “investment-driven social enterprise” concept. A multi-family office does not restrict itself; some position themselves as independent financial advisors and provide the widest range of financial products on the market to clients of various industries. They are typically considered a client-centric model of investment and financial consulting.
A multi-family office refers to a core team of wealth engineers who offer financial advisory and investment-related services to a group of typically unrelated families, interestingly, including a number of substantial families not able to justify the massive costs and human resource needs of a single family office. Simply because resources are shared among a number of families, transactions with the external world are achieved at a much lower price through the multi-family office, sometimes as much as a quarter in some cases.
A single family office typically caters to the financial, investment, and wealth transfer needs of one substantial family. It presents itself in the form of a private limited company or limited partnership and thus assumes direct management of the assets of a family or a substantial part of them. Single family offices are set up with non-commercial motives, thus they are exempted from many formalities and capital requirements. Because of its dedication to just one family, it differs in every aspect from other existing private wealth management channels.
Benefits of Establishing a Family Office in Singapore
Protection of Family Wealth and Controlled International Holding Company: The strategic location of Singapore and its entry into multiple double tax treaties (DTAs) with other countries can reduce and manage tax on cross-border transactions and provide regulatory, legal, and financial support, making Singapore’s “1 Springleaf Avenue” (Gabriel) or “entanglement” a workable platform for family offices to operate an insurance or reinsurance business.
Use of Trusts: Through the offer of a Trust Option to enable the choice and use of Singapore law as the governing law of trust for any family office structure, family offices established as a unit trust could create effective private trust companies or purpose trusts to be used as alternative platforms for their family wealth management and succession planning of family assets.
Tax Benefits: There are comprehensive tax exemptions, reliefs, and incentives, advantageous tax rates, and other tax benefits for investment funds and fund managers, and for family offices under the Singapore Income Tax Act, Singapore Economic Expansion Incentives, and other tax provisions.
Singapore was listed as the most preferred location for family offices. It is clear why Singapore would be an attractive place to establish a family office. The benefits of setting up a family office in Singapore are as follows:
Tax Advantages
A family office can optimize its tax position by planning its structure. By locating the family office in Singapore, family members who wish to have day-to-day control over their investments can achieve more favorable tax rates. The financial industry in Singapore is strong, with experienced professionals in various areas, including fund managers, family office service providers, legal professionals, tax advisors, auditors, and financial institutions. As this industry is highly regulated, service providers are typically required to be constantly competent, experienced, and well-equipped to perform their role with sufficient care and control. This benefits family offices. The Monetary Authority of Singapore (MAS) is in charge of supervising and regulating these intermediaries, while administrators who maintain records and act on behalf of funds are regulated by the Accounting and Corporate Authority (ACRA) or MAS.
Singapore offers a robust tax regime with many benefits for family offices. Singapore has concluded more than 80 Avoidance of Double Taxation Agreements (DTAs) with jurisdictions around the world. By claiming treaty benefits, a family office can avoid double taxation on its gross income arising in Singapore. It should also be noted that Singapore taxes on a territorial basis and not on a worldwide basis. Investors and family offices should explore these options and plan their investments through tax-efficient holding structures. Family offices, which have hired fixed capital, can apply for the lower tax rates from the substantial shareholder exempt regime. This means no tax in Singapore for certain types of income, subject to the satisfaction of certain conditions.
Political Stability and Regulatory Environment
Easily mapped to asset value growth/generation-leveraged outsourcing, the single-family office can easily map to asset value growth/generation. Due to this mandate on real returns, the current investment markets have put family offices in a difficult position, especially with the relatively low yields of fixed income and equity instruments. The pressures on family officers to maintain returns have given rise to the growth of the multi-family office, professional management, and allocation of the various asset classes that this shift will require. The stronger regulatory oversight and infrastructure will increase family officer legitimacy, improving investor confidence and capturing a higher percentage of the overall wealth pool. The number of active single-family offices is expected to increase from 6,300 in 2017 to 10,500 by 2022.
Political Stability and Regulatory Environment: Singapore’s strong political leadership and successful transition of government have built a strong level of public confidence in both the government and the country’s legal and financial system, critical elements for wealth preservation. Collaboration between leading financial institutions and the Singapore government has created an environment that sets solid legal and regulatory frameworks, yet mandates certain flexibility to accommodate the unique financial needs and risk-return desired by high net worth individuals.
Access to Global Markets
Singapore has a sound legal framework that enables family businesses to remain strong and manage their wealth while securing appropriate estate planning for future generations. Furthermore, as a strong supporter of free trade and tax treaties between around 80 countries and territories, Singapore’s network offers portfolio diversification in different currencies and asset classes. Situated at the start of the family office, Asteya provides firsthand experiences with the pressing needs and opportunities for new family offices to access, and value for the family’s capital over generations, while finding that the business and regulatory environment in Singapore is simply among the best. A stable and developed global palette of currencies, commodities, and independent goods and services of a good life to cater to well-designed global political stability.
On top of enjoying a sound economic policy and gainful partnerships, family offices in Singapore can also access global markets through existing bilateral and regional trade agreements. Singapore was a founding member of the Association of Southeast Asian Nations (ASEAN) and subsequently its commitment to free trade and open markets. To date, it has established 27 regional and global trade agreements and is constantly seeking new trade partners to ensure that businesses and family offices based in Singapore can remain globally competitive. With increasing wealth generation occurring in emerging markets and in the East, Asteya recognizes this solidifies an existing and decides even greater urgency for continued Singapore-based partners with them, to help investors navigate investment and philanthropic opportunities. Hence, Singapore offers a wealth of opportunities for family offices and their funds, ventures, and philanthropic arms to have a sustained and widening impact in the world. The right partners and business environment can help navigate some of these challenges by multiplying resources and upholding goals and values.
Key Considerations for Setting Up a Family Office in Singapore
The foregoing in turn leads to the next set of national, regulatory, tax and reporting considerations. What will be the overarching legal framework underpinning the family office? How will the family office be structured, and in which locations will it be established/operate from? Will it be operated by family members or an independent team? How will the relevant functions and roles interplay? It must be remembered that as regulatory authorities worldwide focus on the risks of money laundering, tax evasion, and international fraud, various anti-money laundering/countering the financing of terrorism requirements, including the need to disclose beneficial ownership information, are increasingly being imposed upon family offices – including those that are set up as family advisory services rather than acting purely as asset managers. What value proposition and relationship model can the family office proffer to the relevant family jurisdiction(s)? A family office should ideally underscore and enforce the objective of ensuring an enduring commitment to the core values of the family. These are values and ideals that are ideationally important to the family, and based on shared goals and practices.
Key considerations for setting up a family office in Singapore. The setting up of a family office will need to be canvassed in a holistic manner, including the delineation of its objectives, scope and operations, as well as the governance and legal structuring considerations. Some key questions for deliberation include the following: Will the broad objective of the family office be to preserve and enhance generational wealth as an enduring legacy likely encompass various philanthropic endeavors? Or will it generally aim to sustain a family’s lifestyle and wealth for multiple generations? Will the family office primarily be tasked with investment and financial matters, or will it also have operational responsibility of the family’s affairs beyond investment and philanthropy, including the management of real business interests and lifestyle matters? What will be the specific areas of oversight? Has there been a deliberate plan to help, educate, encourage and prepare the family’s next generation in relation to their future participation, resourcefulness and authority over the wealth and its associated matters? Such considerations will help set the tone and trajectory of the family office, and consequently inform the setup and implementation process.
Legal and Regulatory Requirements
A single-family office setup in Singapore includes a family member who must ensure compliance with all statutory provisions under the Companies Act of Singapore. Section 171(1) of the Companies Act lists the extensive legal and regulatory responsibilities of the director under a company’s law. The PTC’s services include activities that significantly fall under the scope of operating a trust business regulated by the new TBA. Therefore, the MOPs, UHNW (including family members), family officers, trust companies, RMOs, and service providers are encouraged to carry out independent and in-depth evaluations and reviews of specific and unique structural considerations and requirements, and, where necessary, to obtain tailored guidance and advisory support from legal advisers, compliance or regulatory advisers, or any other suitably qualified professionals with specialized knowledge in the spaces in question.
Legal and Regulatory Requirements: Service Providers
From those external service providers, those seeking to establish a family office need to engage a range of professional advisors, such as lawyers, accountants, and tax advisors or consultants to ensure that the family office’s structure and activities are correctly set up and executed to protect family and professional interests. Singapore-based family offices may also need to engage regulatory and compliance advisers with regard to the type(s) of permissible products or securities that the family office may wish to trade in or invest into. Appointed service providers such as trust companies and banks may also provide regulated Fiduciary Services, as opposed to regulated Fiduciary Services activities, to accountable entities such as the family office that is excluded from the scope of IA. It is noted that an IA that also provides discretionary portfolio management (DPM) services has to meet additional capital requirements of S$250,000, as outlined in Section 67 of the SF(S) R.
Legal and Regulatory Requirements: Service Providers
Family offices are professional firms established by high-net-worth individuals and wealthy families to provide full-scale support in the managing, maintaining, and transferring of wealth and affluence across multiple generations. The interest in family offices is further fueled by wealthy Asian families’ increasing Western-like desires to institutionalize their family’s wealth management apparatus and business-like needs for governance and succession planning. Asia-Pacific’s wealth growth is expected to outpace that of all other region-specific markets over the mid-term horizon.
Choosing the Right Structure
Family intermediaries and the founding families should also ensure that the chosen compliance framework provides for succession planning, confidentiality, and family privacy. The Singapore legislation has time and again put the privacy and confidentiality of information as its unique selling point, and this remains relevant to families with complex cross-border ownership, estate planning, merchant banking, or trust investments. Careful thought should be devoted to choosing a structure that minimizes unintended disclosure of private family affairs. In practice, conversations with legal advisors would provide clear perspectives on the disclosure requirements, which develop the level of privacy and costs associated with registration and compliance activity.
A key decision is choosing the right structure. Traditionally, family offices have been set up as trusts, but with the changes in the legal landscape and estate tax frameworks in Singapore, families have the scope to set up a family office in a variety of forms, including local companies or Singapore Variable Capital Companies (‘S-VACCs’). This shapes the nature of the underlying family office operating entity and requires careful consideration of the reporting and compliance requirements, tax implications, and ease of transfer of assets across multiple jurisdictions. The chosen structure often impacts dual investment objectives, risk management considerations, and the lifestyles of family members.
Hiring Professionals and Service Providers
In choosing these service providers, the resources of Singapore will also need to balance cost and tax. The Future of Wealth and Family Offices in Singapore survey by UBS found that 93% of Singapore’s wealthy are satisfied with the professional services in Singapore, particularly in terms of quality, cost, and tax. Family offices in Singapore are generally smaller than those in the West due to the limited size of reference clients and the relatively small number of family businesses in the country. This has implications for the talent pool of professionals who can work in the family office. As family offices grow and become more established, there will be a growing need for senior professionals who can understand the complex business dynamics and what is needed. Recent changes in tax laws can have a significant impact on families and the professionals who advise them. Some families, who were previously able to afford the cost of the family office and may not have struggled with paying the GST, are forced to think more cost-effectively due to the new higher taxes.
Some of the professionals who may be hired to run the family office include custodians, investment managers, estate planners, specialists in tax and accounting, real estate managers, and philanthropy advisors. In hiring these professionals, family offices will need to identify the needs and goals of the family. For example, define objectives for their philanthropic activities, which will also dictate their mission. Only once the families are clear about what they are seeking from the family office can they design and implement appropriate infrastructure and processes. Indeed, a large percentage of wealthy families report that the lack of clarity about the purpose and objectives of the family office is a major obstacle to successful implementation. Oftentimes, the initial hiring of the family office professionals takes place along the lines of a traditional investment office model. However, in the future, family offices need to be ready to support the family in all areas of family governance, including philanthropic activities, and especially when it comes to the management of family dynamics.
Investment Strategies and Risk Management
Investment Strategies Generally, many empirical studies in relation to asset allocation guidance conclude that the portfolios returning attributed to strategic asset allocation and it can enhance over long-term investment orientations. To summarise, all the above-mentioned researches advocate the mean-variance (MV) analysis portfolio for an optimised investment decisions strategy. The finding is consistent. For the accumulation of wealth considerations, business owners might pursue more aggressive high expected return investment opportunities to increase the possibilities to accumulate wealth and to fulfill the necessity when inflation risk is exposed. Hence, the mainly recommended strategy for business owners would adopt the aggressive risky portfolio instead of conservative risky portfolio. Therefore, MV analysis continues to advocate aggressive risky portfolio as an optimised investment decision.
Ensuring continuity of family wealth from one generation to the next is a priority for business families. Return on investments becomes increasingly important as the wealth expands rapidly through more prudent asset allocations and proper risk controls. This section discusses various investment strategies and risk management tools commonly adopted by single-family offices.
