Jersey focus | Location, location, location

High net worth individuals have tended to set up their family offices in their home jurisdiction. Nowadays, however, wealthy families have a more international outlook with members from different generations often based in various locations. Family offices, therefore, are being established in a select number of global hubs or offshore locations based on various key factors.

Although tax is not the main consideration, it is one of the first questions to ask. Whether the office
needs to be onshore or offshore will filter out a large number of possible locations.

A holistic, global approach to tax management can help the family preserve capital and enhance income. This needs to be balanced with the availability of the right expertise and may lead to an onshore investment advisory arm of an offshore family office with an appropriate market rate investment management fee paid.

In practice, recruiting and retaining the best professionals is one of the primary issues for family offices. Furthermore, they are often established by long-standing trusted advisers of the family principal. It is sometimes these advisers’ home location that will determine where the office is established with structures put in place to ensure tax-efficient management.

The family office’s nature may have an impact on the types of professional required. There are a number of types from investment-centric family investment offices to offices that are focused on succession where trustee and legal expertise is required. Staff in a family investment office will often need to be based in or close to one of the world’s main financial centres, such as London or New York, where they can network with top investment experts.

Communication links

The family will want to maintain a close relationship with the family office staff to retain control over their assets. The best way to do this is through regular calls and face-to-face meetings.

Much of our working day involves speaking to clients – this is only practical as we tend to be in similar time zones and use a common language. If there is a family business, the family office’s involvement in that business and the location of that family business management will also need to be factored in.

Any family office must be in a jurisdiction with good communication links and great infrastructure, including banking facilities, accounting, tax, legal and other specialist professionals.

A stable legal and political system is especially relevant if ownership structures are going to be based in the family office jurisdiction. In certain cases, this may drive the family office location to being outside the jurisdiction where the wealth has been earned, notably for certain families from emerging markets.

Likewise, some of these families may have privacy and security concerns about having their wealth managed in their home jurisdiction.

While a stable legal system would seem to be a given for most western European and North American jurisdictions, there is a constant array of new tax and regulatory standards that the US, EU, Organisation for Economic Co-operation and Development (OECD), other countries and international bodies are implementing with the latest being a move towards global exchange of information along US Foreign Account Tax Compliance Act (FATCA) lines.

This necessarily puts pressure on banking secrecy jurisdictions such as Switzerland and Austria. It is therefore important to look at how the jurisdiction is viewed by the OECD, EU and other tax and regulatory bodies to assess the long-term sustainability of the current financial regime.

Legal structures

When setting up a single family office, it should be possible to find a suitable jurisdiction where there is no or little regulation and therefore no regulatory cost to the family. Indeed, this is part of the attraction.

However, specialist advice on this point will be required early on as governments try to regulate more financial activities post-credit crunch: the Dodd-Frank Act in the US, for example, increased reporting requirements for private advisers and created additional reporting burdens for many single family offices. Multi-family offices operating as a business will generally need to be regulated wherever they are based.

The legal structure used to run the family office and employ staff will also be important to share ownership and control among family members, limit liability and create a tax effective structure e.g. to allow the family to obtain a tax deduction for the cost of running the office. This may be a partnership, limited liability company or an ‘S’ corporation in the US. It could also be worthwhile looking at a private trust company, which can assist with control over trust structures, or a Bahamas executive entity.

Single and multi-family offices in Jersey are seeing growth, helped by an increasing number of international families moving to London and using Jersey as a convenient jurisdiction for their asset ownership structures. It makes sense in this case to base the family office in Jersey to manage the assets (in accordance with the family’s wishes) and outsource investment management requirements to specialists in London.

Richard Joynt and Ian Slack are directors of Bedell Family Office, providing multi-family office services