Family offices have been through a period of evolution in recent years. What used to simply be a private office set up to deal with a wealthy family’s investments, usually fairly safe and traditional in nature and decided by one single family leader, is now more complex and much more exciting than ever before.
Over the last decade, Jersey has seen a significant increase in the number of family offices, not only establishing on-Island, but also migrating to Jersey from other jurisdictions. This is because families are seeing the numerous benefits of having a bespoke, personal and professional service at their beck and call, particularly given the 24/7, on-call and international lifestyles many wealthy individuals now lead.
A New Definition of ‘Family’
Jersey Finance’s 2018 report ‘Flourishing Futures: Making Succession a Success’, in partnership with Bedell Cristin (click this paragraph to view) highlighted that around US$30 trillion of wealth will change hands in the next 30 to 40 years.
The recipients of this wealth transfer are vital in shaping the way family offices operate, due to the considerably different dynamic of families compared to that of the previous generation. Families now are much more tech-savvy and expect to be able to access information whenever they need it, demonstrating a preference for communicating digitally, transacting online, and managing their finances via apps. Furthermore, new generation families are more international, with members living further apart from each other and they tend to feature more complex relationship arrangements such as same sex marriages, non-marital long-term relationships, pre-nuptial agreements and divorces.
Of course, with such a multifaceted dynamic, there is a higher chance of disagreements in where and how the family’s wealth should be invested and for what purpose. This is pertinent, given that the last year saw a continuation of family offices’ drive towards higher risk, more illiquid investments in their pursuit of yield, according to the Global Family Office Report 2018 (click here to view). As part of this, nearly half (46 percent) of the average family office portfolio is now allocated to alternative investments.
This is where the new, innovative family office comes into play; with professionals on hand to advise on a wealth management plan best suited to the whole family, with the future firmly in mind.
A Jurisdiction of Substance
High-net worth families understandably place a huge amount of importance on their jurisdiction of choice, with regulatory substance and cutting-edge professionalism coming top of their must-haves list.
In Jersey Finance’s ‘Jersey: A Clear Choice for Family Offices’ (2019) (click here to view), it is noted that there are four key aspects to a modern family office, based on demand and trends: wealth preservation, asset protection, philanthropy and privacy. Within these, technology and infrastructure, regulation and legal certainty play a vital supporting role in a successful family office arrangement.
Jersey offers a modern and sophisticated legal framework and a world-class offering of private wealth solutions, designed to suit the increasingly varied situations which families now face. These range from simple trusts and underlying company structures for UK families, through to high value and complex structures working with trusts, companies, limited partnerships and foundations for international families. In addition, the establishment of ‘virtual’ offices for ultra-high net worth families are also available, as are structures for corporates looking to support and reward staff.
Jersey has £400 billion in trusts which have been established by private individuals (Capital Economics, 2016), and an ever-increasing uptake of the Jersey Foundation. The Jersey Foundation has become a popular choice, created for charitable or non-charitable purposes, or a mixture of both. A foundation has a number of benefits. It is flexible and infinite in duration, if necessary. Foundations are clearly and unambiguously registered with the Jersey Financial Services Commission. Their council of members structures are flexible in terms of composition, and Foundations provide a ‘guardian’ safeguard, making certain that the council of members maintain a clear charitable focus. Since their launch in 2009, 384 Jersey Foundations have been formed (as at August 2019) and it is expected that with the upward popularity of philanthropy these will see further interest.
Jersey’s trust and private wealth offering is incredibly substantial, with the jurisdiction’s business community holding 1,282 members of the worldwide membership for The Society of Trust and Estate Practitioners (STEP) – one of the largest branches globally – and is gradually becoming one of the most popular destinations for seeking private wealth expertise, from across the globe.
Supporting the finance and legal sector as a whole is Jersey’s robust regulatory framework and flexible yet solid legal system, which many clients find reassuring when deciding where to manage their wealth. As one of the best regulated international finance centres (IFCs), Jersey has been acknowledged by independent assessments from some of the world’s leading bodies, including the World Bank and IMF, as well as scoring top marks from the OECD on tax transparency. The jurisdiction was also subject to a Mutual Evaluation by MONEYVAL in 2016 and found to be ‘compliant’ or ‘largely compliant’, with 48 out of 49 of the FATF recommendations, the highest score amongst all states assessed.
No Longer One-Size-Fits All
Family offices come in all shapes and sizes, with varying designs and intentions, which is what has brought them back into popularity for high-net worth individuals.
Jersey Finance’s publication ‘‘The Clear Choice for Family Offices’. ’ (click here to view) highlights both the diversity of family offices currently present on the Island, as well as the compelling reasons why they have chosen to base their offices in Jersey. For instance, when discussing the legal certainty of basing a family office in Jersey, one Principal said:
“We did not choose Jersey as a jurisdiction for tax reasons. Instead, we wanted reassurance that we would be able to preserve the foundation’s wealth and make sure the assets are protected.”
Another noted that the IFCs strong connectivity credentials helped them decide Jersey was the right jurisdiction for them: “Jersey feels like an extension of London – I can leave Jersey and fly to London and be at the London family office within 2 ½ hours. The family members also visit often and can fly commercially or fly over in their private plane.”
Family offices, though differing in nature, all tend to have one or two things in common. One is that, while they may have several family offices in multiple jurisdictions, they see Jersey as the main hub for their family’s wealth as well as the additional concierge services which manage travel, schooling and other family-based administration. Another common thread is that of philanthropic investment, which is often a key consideration for modern ultra-high net worth families. This is usually included in the overall work of a family office based in Jersey, and some family offices specifically choose to base their philanthropic arm in the jurisdiction due to its clear expertise and investment in this area.
According to the Global Family Office Report 2018, nearly two-thirds of next generation heirs are expected to take over within the next 10 to 15 years, and the future of how wealth is managed is becoming increasingly intertwined with purpose. The report found that more than 1/3 of family offices already invest in impact investing, and 39% expect that the next generation will increase their allocations to socially responsible or environmental, social and governance (ESG) investing in future.
With such trust in Jersey’s talent pool and professionalism as an IFC, wealthy families frequently find themselves coming to see Jersey as a safe, secure and private jurisdiction to set up a home in too. One example, the patriarch of a first generation ultra-high net worth family, moved to Jersey with his family over 10 years ago. They chose Jersey due to lifestyle, the high-quality education options available and the ease of travelling to and from the UK, and then set up a private company in Jersey, which subsequently became regulated.
It seems that with many of the next generation of investors gradually taking up management or executive roles within the family office structure, the new trends for philanthropic and alternative investments must be considered key priorities within the private wealth community. Legal professionals, in particular, need to ensure they are ahead of the rapidly developing impact investment space as well as being aware of the complex dynamic which wealthy families now present.
It may be evolving faster than ever before, but family offices are probably going through their most challenging and exciting time yet and jurisdictions like Jersey are ready and armed with specialist knowledge to help families look to the future with confidence.
With a career in financial services spanning four decades, Joe has a strong commitment to the future success of the industry in Jersey.
Joe commenced his professional life in the banking sector, rising to the position of CEO of Jersey and the Isle of Man for a major bank, which included responsibilities for trusts and investments. In recent years, he expanded his focus as Director of Financial Services within the Government of Jersey, where he worked closely with industry and regulator to ensure the Island’s position as a leading international finance centre (IFC). Before joining Jersey Finance in February 2019, Joe was working to establish high-reputation regulatory frameworks and business models for IFCs in the Middle East and Africa.