For the very wealthy, the safety down under is just one good reason to move, writes Jason Murphy.
Family offices – those mysterious organisations managing the wealth of the world’s richest –don’t always stay put.
Because of investment, personal or even personnel issues, these offices sometimes have reason to move to new locations and operate in a new environment. One of the most common times a family office will move is when a family member moves.
And Australia is one place seen as an attractive destination for family offices.
Quick explanation: What is a family office?
Family offices are still a new enough concept to necessitate an introduction. A wealthy family – most often a very wealthy one – decides to in-source their wealth management and a range of other services. They establish a family office to manage the family’s assets but also provide services to the family hard to obtain elsewhere.
A family office can maintain and preserve not only wealth but family harmony. It can work over a long period to set and negotiate expectations over distributions, inheritances, and succession planning in the family businesses. It can establish agreed-on ways to manage disputes. A family office is often the centre of the family’s philanthropic pursuits and can also provide day-to-day administrative services to family members.
Whether it’s a one-person or full-scale operation with dozens of professional employees, family offices are only for the very wealthy. The most well-established and widely-known family office in Australia is that of famous retailing family Myer, which is worth an estimated $2.8 billion.
Family offices are not costless. The minimum asset level required to prudently establish a family office is said to be around $200 million. To defray costs, one family office may serve multiple families, and indeed the Myer family office does so, being what is known as a multi-family office. In 2017 it further expanded, merging with the Baillieu family office, known as the Mutual Trust.
Why move a family office to Australia?
There is no legal need to set up a family office in the same jurisdiction a family inhabits. Some may choose other jurisdictions for their legal advantages, political stability or because they are a profitable investment environment.
James Burkitt, chief executive officer of family office network group, The Table Club, is aware of a family office that moved to Australia because of a serendipitous move by a staff member.
“The chief investment officer for the family moved to Australia – maybe for lifestyle reasons – and the family kept them. And then the family realised the jurisdiction is quite a safe jurisdiction, and a gateway into Asia.”
He has also seen family offices follow Australian émigrés to the US or Britain. But most moves, Burkiit says, are for investment reasons. “We have seen quite a lot of activity from China and from South Africa into Australia. On the Chinese side it probably represents investment opportunity.”
ANZ Private international segment head Grace Bacon explains that wealthy Asian families can end up moving a family office after their offspring decide to live in Australia.
“The kids have come here and spent three or four years in tertiary education, some of them do postgrad, they become very assimilated and integrated into Australian society and end up staying here and establishing roots here. Then mum and dad think OK my child wants to stay here, how do I help them get established and how do I get them set up for success? A lot of them consider potentially setting up a family office,” she says.
Family office tax planning is not the point
The tax implications of keeping assets in multiple jurisdictions are something to be mindful of, however, says ANZ Private established wealth director George Johnston.
Recently introduced estate taxes in South Korea and Japan might be a factor in moving family offices out of those countries, but flight to tax havens is not a priority for most established families, especially in the wake of recent leaks of accounts held in Caribbean jurisdictions.
“[Family offices] are set up so there is no issues or problems going forward. I think you see that more. They are not looking for complexity, they are looking for simplicity. And reputational risk is prominent in everything they do,” Johnston says.
Asia’s new family offices seek safety
While family offices are a regular feature in Europe, where the concept stretches back for many generations among the aristocracy, it is relatively new to most of Asia.
Bacon points out that high-net-worth Asian families are at a point where setting up a family office is starting to become worthwhile. While the fortunes in Asia are far newer than those of Europe, they are no less large, and family structures are starting to exhibit complexity as the second generation begins to contemplate generation three.
“Those families that are the first high-net-worth families in China - their kids are now in their 30s. So they are thinking through their own succession planning,“ Bacon says.
Australia’s rates of return and low political risk are attractive for many Asian investors. Australia also has a cadre of reliable professionals from which newly arrived family offices can hire and draw expertise, Burkitt explains.
“Several family offices actually have used local big four accounting firms to assist the move. And in one case a major law firm partner and a major accounting firm partner have joined the board of the Australian family office as independents. That is I think quite a sensible approach,” he adds.
The whole office doesn’t have to move
One of the big constraints to moving a family office is trusted staff. Families who have built trust are reluctant to have to do so again in a new environment, explains Johnston.
“They usually have a lot of trusted advisors and staff where they are and they have to sometimes re-engage and re-establish with accountants, lawyers, higher family office staff, and they send some of their existing staff across, which I’ve seen them do as well.
“Sometimes that’s why you have the dual family offices, because the staff don’t want to come to a new country but they are still employed by the family because with communication technology they can work for the family but be located somewhere else,” Johnston says.