Regulation

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REGULATION

Both Singapore and Hong Kong are placing a strong emphasis on cultivating a competitive and supportive environment for family offices. What further initiatives should each/either regulator undertake to nurture the development of a family office-supportive ecosystem?

Tee Fong Seng, Pictet Wealth Management Asia

Both Singapore and Hong Kong have developed attractive offerings for the set-up of family offices in the Greater Bay Area and Southeast Asia areas. Singapore can rely on its stable political environment and efficiency in the asset management industry, while an active stock market, rule of law and free flow of capital and information have made Hong Kong a natural choice for mainland wealthy families to set up offices there. Both financial hubs have carried measures to attract family offices to come to the region, from attractive tax exemptions on specific types of income in Singapore, to new ways for investment funds to be set up in the form of Variable Capital companies in Singapore and limited partnership structure in Hong Kong. We believe that streamlining regulations on family offices will be key for both Hong Kong and Singapore to continue attracting UHNWI. Less bureaucracy will also be a strong argument for both financial hubs.

Lam Leong Yip, Bank Julius Baer

The relevant authorities have provided a robust platform in both Singapore and Hong Kong to promote the establishment of family offices. The growth of the capital markets and the newly created wealth for many families in the region, do necessitate facilitating the development of family offices.

The robust legal and regulatory framework and stable financial infrastructure, will enable the industry to build trust and confidence to the wealthy families and family office advisers in the region. The key is to protect the long term interests of clients, and having a sustainable family office industry.

The governments should continue to build the confidence in the industry by promoting the highest qualified and talented participants in the industry, while issuing guidelines for the long term needs of family offices by having appropriate guidance regarding disclosures on potential conflicts, transparent fees structures and ethical conduct, with the primary focus on clients’ interests.

Steven Lo, Citi Private Bank Asia Pacific

We have to recognise that not every family office is the same. In the past, the focus was on a good product platform with an open architecture. Now we have to recognise that family offices are increasingly sophisticated and their needs extend beyond the investments product capabilities.

We have seen that the interest from family offices is not just in personal investments but in corporate activities as well. They are often quite sizeable and global in their outlook and requirements. We understand this trend and our extensive platform across the Citi franchise and our globality has allowed us to accommodate and work with these institutional-size family offices.

This trend is something the regulators should recognise — and also acknowledge that not all institutions will be equipped to handle the wider needs of this segment.

Michael Blake, UBP

The attributes that make Singapore and Hong Kong attractive as international financial centres also make them attractive as family office jurisdictions. The priority now is to build on this strong foundation by developing the legal, tax and wealth structuring sectors, encouraging centres of expertise on family governance and family offices and supporting the emergence of family office networks across the region.

Anupam Guha, ICICI Securities Limited

One of the key aspects of the family office business model is an alignment of interests. The regulators in India have taken key steps in this regard. New regulations regarding investment advisory or portfolio management services have resulted in increased transparency and alignment of fee structures.

Lok Yim, Deutsche Bank

We believe it is important for both Hong Kong and Singapore to maintain their competitiveness. We support education to nurture more talented people to join the industry.

Shang Xiao, CreditEase Wealth Management

We noticed that a lot of family offices have global asset allocation needs. Instead of focusing on a single local market, they seek services to help allocate family assets around the globe and across asset classes. We believe it is critical to have a cooperative and healthy relationship between regulators from different jurisdictions in order to nurture the development of a family office-supportive ecosystem.

Therefore, we think one thing that regulators can do is to improve dialogue between each other across jurisdictions to harmonise rules and regulations around cross-border investment.

We believe support for investment advisory licensing and registration is key to nurturing a family office-friendly ecosystem. We have seen that in the US there are many registered investment advisors (“RIAs”), and in Hong Kong investment advisory services are licensed and regulated by the SFC under type 4 regulated activities. We hope a similar licence category can be granted in mainland China to allow more qualified professional investment advisors to support family offices.

Arnaud Tellier, BNP Paribas Wealth Management

Asian financial hubs are eager to promote themselves as a place of business, but would be well-advised to delineate more clearly their unique selling propositions in terms of their location for both Asian families and non-Asian families seeking to build an Asian presence.

For both categories, a leaner, more actionable framework to sophisticated private investment offices would be desirable. This could take the form of a dedicated regulation enabling families to be

THE FINAL WORD

REGULATION

treated like institutional investors and be allowed access to relevant content.

Regional and global family offices would gain from a moderated platform to network and share best practices and deal flows, notably for Asian ESG and SRI [socially responsible investing] related investments, including articulating best practices and opportunities for philanthropy — which is a common ‘ask’ by most family offices.

Most of the Asian entrepreneurial wealth remains firmly held in the hands of family patriarchs and the transfer of both wealth and business is still very much unfolding. In this context, regional financial hubs would benefit from educating UHNW families about the advantages of timely planning and structuring the transition to the next generation of wealth holders (family governance, wealth planning). Particularly, a strong focus on NextGen education and enablement would be desirable (e.g. a family office chair at a leading university).

Omar Shokur, Indosuez Wealth Management

In Hong Kong, the Hong Kong Monetary Authority (HKMA) has actively been promoting the city as a family office hub and is working with the industry through a three-pronged approach: talent development, platform building and outreach. With regards to outreach, the regulator is working with the Private Wealth Management Association (PWMA) and other industry stakeholders and government agencies to increase efforts showcasing Hong Kong's attractiveness as a family office hub.

Meanwhile, the Monetary Authority of Singapore (MAS), together with the Singapore Economic Development Board (EDB), have formed a family office development team. As such, the development of a professional and family office friendly environment has the attention of the highest authorities in both cities with a strong focus on long-term development of their countries' development and competitiveness as a family office hub. In other words, there's not much more in this area we can ask for from the regulators as they are making all the right moves. (This is in line with the continued development of Singapore and Hong Kong as leading offshore wealth centres, as alluded to earlier.)

Tan Siew Meng, HSBC Private Banking Asia

In Hong Kong and Singapore, the regulators are putting in place and refining a slew of measures to attract family offices, and the economic value of family offices to both jurisdictions cannot be underestimated. These measures do drive towards a professionalisation of the family office landscape — for instance, by formalising the investment structures, promoting the hiring of professionals, and overall moving towards a clearer definition of what a family office is.

Where they differ is that each jurisdiction offers unique advantages for families and family offices that cannot be replicated. Therefore it bears careful consideration as to which — if not both — jurisdiction could serve a family’s best interests and fit its longer term strategy.

In the turmoil of 2020, the family office became much more than an investment management operation. Increasingly, we saw families seeking to further formalise their ownership structures, putting in place family governance rules, diversifying locations, diversifying from core businesses, seeking new growth opportunities, both for their businesses and their wealth.

In this light, the role of the family office has taken on a new maturity, and regulators would do well to continue to listen to the families, seek feedback from industry practitioners, so as to expand their focus over and above the legal, taxation, human resource and education fronts currently.

Private Banking Department of China Merchants Bank – special comments on Family Office & Trusts

Q: What are your observations and advice regarding the rise of Family Offices in China?

We see this positive development as an awakening of the demands of China's extremely high-net-worth population. Different institutions have their own understanding of the family office business and therefore apply different business models. In our view, the family office space is a dynamic sector that not only offers clients abundant choice, but also represents a process of client education. For institutions, it also brings an opportunity to restart and reshuffle. Looking back at the development of the Chinese private banking market, we expect that the family office business will soon enter an era where the strong will remain strong forever.

Q: How should clients choose the right family office institution in the face of so many choices?

Choosing the right institution is an act — and art — of balance. It is about balance between function and cost, and between supply and demand. Clients can come to a decision from the following two perspectives: First, they choose an institution that can provide family governance services. The decay of a family business will not be turned around if the institution only cares about allocation and material wealth management. Second, they should also choose an institution with a powerful platform and deep resources. That said, no one institution will be able to provide all the services that a client needs, which means that it is necessary to work with a number of institutions.

Q. What should the social mission and responsibility of family offices in China be?

Family businesses have become an important part of the Chinese economy. If the elites among them withdraw from the stage due to a failure in inheritance, it would be a major loss for entrepreneurial families, corporate employees, and Chinese economy as a whole. Therefore, private banks should help Chinese entrepreneurs plan for inheritance and not just offer purely financial management services. Family offices also carry a responsibility to give back to society and promote social development.