Each Family Office is different, what it does, how it does it and who it does it for is driven by the family (or families) for whose benefit it provides services. Whatever the structure and whatever services it provides, the Family Office and its clients face risks from many directions and these risks should not be ignored. The mitigation and balancing of risk in all its forms is of paramount importance for many family office clients. These risks should not be considered and dealt with in isolation, what is done in one sphere can impact upon another.
When looking at any risk analysis it is necessary to consider both the big picture and the detail. Consideration must be given both to the wood and to the trees.
We help manage risk for a wide cross-section of Family Office clients. These include the offices of substantial international families with assets and family members in numerous countries, as well as more traditional families with large landed estates or entrepreneurial interests in the UK and the US. We also work on risk issues with the families themselves and the fiduciaries connected with their Family Offices.
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Each of the elements in the diagram above are explained in more detail below.
What structure is used for the Family Office is a decision taken at the outset based on facts and circumstances then existing. Whether it remains the most appropriate structure over time is a different question. What may have worked at the outset may no longer be appropriate as a result of changes, for example, to family circumstances (family members may have moved internationally), to legal, regulatory or disclosure requirements or to the tax environment. Keeping abreast of what changes which affect the Family Offices we advise enables us to take appropriate action to enable them to adapt with changing circumstances.
Whatever structure is used for the Family Office, how it works in practice will have a substantial impact on its regulatory, reporting and tax status. Making sure the Family Office has appropriate internal management and control systems ensures problems can be avoided.
The staff of any Family Office are key to how the Family Office functions. Looking at how they fit into the structure and how they are compensated, rewarded and protected enables the Family Office to retain and motivate key staff. Having appropriate internal employment systems ensures that confidentiality can be protected and problems with unsatisfactory staff resolved.
The Family Office may look after one family (whether a small family group or a much extended family) or a number of different unconnected families. With family members in different jurisdictions, with different tax profiles and different goals, it is essential that an international, consistent and open view is taken as to the issues affecting the family members so that structures and arrangements can adapt as and when necessary.
Like the family, family holding structures come in all shapes and sizes and in different jurisdictions, be they companies, partnerships, trusts, foundations, or other corporate or fiduciary arrangements. The Family Office is likely to have a role in relation to these structures which can range for simply a go-between between the structure and the family to being actively involved in the administration or investment. Again, an in depth understanding of all these types of structures is an essential element of understanding how the Family Office will interact with the structure.
The family may retain assets - be they investments or interests in family businesses - outside family structures. The family office may be more directly involved in the administration of these assets and this role must not be forgotten when looking at the other duties of the Family Office.
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Sumita Chakravarty
DD: +44 (0)20 7597 6684
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Patricia Milner
DD: +44 (0)20 7597 6092
Christopher R. Uzpen
DD: +1 203 302 4076
Karen E. Yates
DD: +1 203 302 4095