Family office insights this week:

• Seven crucial factors in deciding family office location

• Poll results on how much single family offices invest in crypto

• An awkward inheritance

• An entertaining hit piece on the world of the rich and powerful

• A TikTok theory on the next generation debunked

Prime Locations: Where to open your family office (Part One)

When selecting a country to locate their family office, wealthy families are increasingly looking beyond their own city and country.

This newfound mobility is being driven by various factors:

Globalization. Like any business, wealthy families are increasingly mobile, with family members often spread across continents. 

Tech. We are living in the Zoom age where secure networks can allow family offices to work and communicate seamlessly from numerous locations.

Government policy. Legislators are playing an increasingly important role, both positive and negative. Many countries around the world compete to attract global family offices. Conversely, a number of governments are implementing (self-defeating) policies to crack down on ultra-high-net-worth individuals. While targeting the rich may play well with some voters, such policies are ultimately counterproductive, leading to capital flight and missed investment opportunities.

Where governments have got it right, global hubs have emerged.

Next week in Part Two, we will assess the different locations for family offices.

Today, there's a look at the data. then the crucial factors in deciding where to locate a famiy office.

The Data

Although the family office landscape is continually evolving, the following data from 2023 gives a snapshot of the favored locations.

The top US states for family offices:

Top European countries for family offices (this picture is rapidly changing with wealthy families moving away from London - more on this next week)

Asia family offices:

Finally, the Middle East:

source: KPMG/Agreus 2023

Seven crucial factors in deciding family office location

When deciding where to locate a family office, the following factors should be considered:

1. Economic and Political Stability

2. Access to Professional Services and Infrastructure

3. Talent Pool

4. Regulatory Framework and Legal Structure

5. Tax Regime

6. Reputation

7. Quality of life

1. Economic and Political Stability

At the heart of any decision about where to locate a family office is the need for a stable environment.

Economic and political stability is essential. Assets need to be protected from unpredictable governmental changes and economic turmoil. In other words, a family office should be a safe haven for investments.

Countries with long-standing reputations for stability and robust legal systems are particularly attractive to family offices. Similarly, countries that respect and protect the privacy of families are particularly desirable. 

Families from emerging markets where economic and political stability cannot be taken for granted are particularly sensitive to the threats posed by changing governments. For decades, African family offices have made London their home to mitigate political risk and maintain privacy.

2. Access to Professional Services and Infrastructure

A family office requires sophisticated banking services, legal expertise, investment management, and more. Proximity to a well-developed financial sector and a smart professional services sector is crucial. Cities like New York, London, and Hong Kong, known for their advanced financial services infrastructure and have historically stood out as prime choices.

These hubs offer top-tier banking and legal services but also boast an ecosystem that supports wealth management at every level.

3. Talent Pool

The success of a family office heavily depends on the quality of its advisors and staff. Regions known for their educational institutions and professional training are fertile grounds for recruiting top-tier talent. Areas with a vibrant financial sector naturally attract skilled professionals in wealth management, tax planning, and estate planning. This creates a competitive environment but also offers a rich pool of potential hires.

In the US, New York and California stand out as the hubs of professional services. Wealth management companies, law firms, and accounting firms have the necessary expertise to serve family offices.

4. Regulatory Framework and Legal Structure

Regulatory environments vary dramatically across the globe, and understanding the nuances between them is critical.

It’s important to understand how local laws affect privacy, asset protection, and investment opportunities. Jurisdictions like Switzerland are renowned for their stringent privacy laws, making them attractive to those who prioritize confidentiality.

In the US, South Dakota and Nevada have enacted legislation designed to attract family offices and Private Trust Companies. These laws provide a favorable regulatory framework offering privacy and flexibility.

Smaller countries such as Liechtenstein and the Cayman Islands offer certain advantages to family offices. The family office, either directly, through their advisors or through local family office groups can lobby governments for changes such as implementing new double taxation treaties or expediting immigration applications for key staff. Smaller countries and states that favor family offices can often be pragmatic and flexible.

The ability to move freely in and out of a country where your family office is located is another key consideration. Countries that offer favorable visa rules for investors can be highly attractive. For instance, Portugal’s Golden Visa program provides a pathway to residency for those setting up a family office, giving them access to the country but also to the Schengen Zone in Europe.

It is not only important to understand residence and citizenship implications for the family, but also for the core family office team and family support teams (for example, the CEO, CIO, CFO, pilot, nanny, chef etc.)

Two practical considerations on where to locate a family office are time zones and common languages. If the family or the family business is not located in the same country as the family office, they will usually want to still be in the same or similar time zones.

5. Tax Regime

Tax considerations are invariably at the forefront of choosing a family office location.

Some regions offer significant advantages through low tax rates on income, capital gains, and inheritance, which can be pivotal in wealth preservation. Locations such as the Bahamas and the Cayman Islands offer tax-neutral environments, which can be highly advantageous for extensive portfolio management.

The tax rules in Florida, Texas, and Nevada are often attractive for high-net-worth individuals. Delaware is another popular choice due to its favorable trust laws and the ability to establish asset protection trusts, which can shield assets from creditors and lawsuits.

There is no one-size-fits-all solution. Family offices should collaborate closely with their tax advisors to understand the implications of different tax regimes and determine the most suitable location for their unique circumstances and investments.

Wealth protection is a major focus for family offices and while the tax tail should not wag the dog, tax optimization is an essential requirement.

6. Reputation

A country’s reputation is critical and contributes significantly to the trust placed in its financial and legal institutions. Establishing a family office in a region known for its integrity and ethical standards promotes confidence among business partners and clients alike. For instance, the robust regulatory environments of Luxembourg and Singapore protect assets but also assure partners of your operational credibility.

Families often reject jurisdictions that come with reputational risk. Family office brands can be damaged if they are perceived to be operating from locations with minimum transparency.

The Panama Papers leak led to a number of family offices re-evaluating their structures and locations to avoid being associated with tax havens or jurisdictions with lax regulations. The reputational fallout from such leaks can tarnish a family's brand and make it difficult to attract top talent or forge strategic partnerships.

7. Quality of Life

It would be misguided to focus purely on the financial implications of different locations. Wealthy families have more choices than most and they should consider how to maximize their quality of life.

Safety and security can be the most fundamental consideration for families when deciding where to base themselves.

The cultural environment and standard of living in a potential location are equally important. The personal comfort of family members, the schools, healthcare facilities, and overall quality of life play a significant role in the decision-making process. Cities that rank high in global livability indexes offer a conducive environment for business and ensure a high quality of life for family members.

Although we live in a digital world, proximity to family members can often influence where families decide to open shop.

Difficult choices, but nothing is forever

The decision where to locate a family office should never be one-off. 

It’s possible for family offices to operate with several hubs for varying reasons, for example having its investment structure in one jurisdiction, its investment team in another and concierge services in another.  

KPMG note that a common trigger point for assessing the best location comes during succession planning. Family offices should periodically consider whether they are operating in the most suitable location. Some families even have annual jurisdiction reviews. Moving a family office can be challenging as family members and staff will have ties to their locations, but if the circumstances change, the family office should be open to change.

It should be added that leaving a country is not always straightforward… a specialist “departure team” of advisors should be appointed to ensure there are no unexpected surprises when moving assets.

---

Choosing the right location for your family office is a crucial decision.

It is part art, part science, as families should weigh each factor carefully against their needs, lifestyle requirements and business objectives.

Families should conduct a professional strategic review to evaluate the considerations outlined above.

The right choice should align the family’s values and vision with the opportunities afforded by the location.

But while the decision is critical, nothing is forever.

𝕏 highlights

Everything is relative! (I was not being wholly serious here)

This one caused some discussions (additional research is needed on this topic):

📚 what to read

This week I read Too Famous by Michael Wolff. The Rich, The Powerful, The Notorious, The Damned. Depending on your point of view this is an exposé or hit piece (in my case, it seemed to be both in different parts). But an entertaining view of the rich and powerful.

📻 what to listen to

Scott Galloway is one of my favorite commentators. I don’t always agree with him, but his weekly markets podcast is an entertaining summary of the financial headlines. A welcome contrast to the usual dry financial news.

📺 what to watch

There’s a TikTok theory going around about a silent depression among the younger generation. Here Professor Brett House debunks the theory.

And finally…

Don’t forget, Part Two of the newsletter will come out next Friday. This assesses the pros and cons of a selection of locations.

Last week’s newsletter asked what do family offices really think of crypto? 

I asked the single family offices to let me know how much they invest in crypto. Here are the surprising results:

Family Office Buzz will be back on Monday with more of the best content on family offices and beyond.

Until next week, see you on 𝕏 or LinkedIn.

X

 in LinkedIn

✉️ [email protected]

📶 RSS feed

𝕏 @MrFamilyOffice

\