A second engine of wealth creation?
Could a family office help you grow and preserve your family’s wealth and the values you stand for?
“A family office can provide infrastructure around the family, particularly where there is very significant wealth,” says Jeremy Franks, Managing Director, Head of Wealth Planning & Advisory, EMEA at HSBC Global Private Banking. “It can help with wealth preservation by ensuring that financial security is addressed and that risks are properly managed; it can provide opportunities for pooling assets and securing better deals from service providers.”
“A family office can also play a helpful role in regards to wealth creation, particularly in multi-generational families that are growing in size, by acting as an essential family resource to encourage family members setting up businesses to think about the right issues and to stack the odds in their favour.”
Creating an infrastructure
It’s a view shared by Russell Prior, Head of Family Governance and Family Office Advisory at HSBC Global Private Banking and underpins the concept of the family office as a second engine of wealth creation.
“Accepting that the first engine of wealth creation is the family business, what we’re tending to see is that the business owner has started to diversify that wealth, perhaps taking out some liquidity, and they’re looking to build a second engine to grow that wealth and to preserve or bolster what’s already there,” he explains. “Setting up a family office can be a way of helping to organise that – creating the infrastructure that Jeremy mentioned around people, systems, service providers, reporting and so on.”
Whether that second engine of growth includes stakes in multiple corporates, wide-ranging investments, or a broad property portfolio, the mechanism of a family office can increase control and oversight, as well as facilitating the acquisition of specialist skills or resources to optimise its management.
The right fit?
As the population of ultra high net worth individuals increases, the growing interest in family offices is unsurprising. Research shows that the number of family offices globally has increased by more than a third in recent years1. But, says Jeremy, they’re not necessarily right for every family, and there are important issues to consider, not least cost.
“There needs to be sufficient wealth to justify it commercially,” he explains, “but beyond that, you need to consider what you’re looking to achieve and why you think a family office is the right way to do that.”
Helping you to interrogate your objectives and work out whether a family office is the right fit is where HSBC’s Family Office Advisory service can make a real difference. Long experience of what works and what doesn’t, and the challenges and opportunities clients encounter in different global markets, means that there’s little the team hasn’t seen or heard.
“That shared experience is invaluable,” says Jeremy, “but so is our approach, which focuses very much on you as an individual, taking time to understand your aims and helping you to explore different options. We’re often in the privileged position of having worked with these families’ businesses for many years, which gives us a deep insight into how the wealth has been generated and the values that underpin the family. And, of course, our international connectivity means that we can support families as they grow and transcend national boundaries.”
With a variety of structural options, and choices around whether your family office is virtual or physical, single-family or multi-family, that level of understanding – and what Jeremy refers to as the ability to “constructively challenge” clients – can be particularly helpful.
Meeting your needs
The form a family office takes is as unique as the family itself, and just as the family and its dynamics change over time, the family office must also evolve. Whether it’s a seismic shift in the macro-environment or a family event that acts as a trigger, being able to review, reassess and transform is important to ensure that the family office continues to meet the family’s needs.
“We often come across structures that are no longer fit for purpose, something we’ve seen more frequently since the global pandemic,” says Jeremy. “Helping clients to re-evaluate their existing structure, looking at whether their original objectives have evolved, and considering any significant events around the transition of wealth and changes in control, is really important.”
As Jeremy points out, family offices are about more than managing investments – as important as that is – and also include the management, preservation and optimisation of the family’s wealth. To that effect, they can help with preparing the next generation, succession and estate planning, instilling core values, pursuing philanthropic aims and supporting the family’s long-term vision.
“At their best, family offices are about helping the family and future generations to enjoy the wealth that’s been created and hopefully to ensure that wealth is a force for good,” concludes Jeremy. “They can also provide some protections against that wealth dissipating and falling into the wrong hands. The common denominator is people and making sure that the support provided is tailored to the needs of different parts of the family. In that way, a family office can truly be seen as a second engine for wealth creation and preservation.”
At their best, family offices are about helping the family and future generations to enjoy the wealth that’s been created and hopefully to ensure that wealth is a force for good, - Jeremy Franks, Managing Director, Head of Wealth Planning & Advisory, EMEA at HSBC Global Private Banking.