Compliance, wealth transfer top family office concerns
Dealing with an ever-growing load of regulations and business succession planning are the two top issues occupying the attention of Asian family offices, delegates at AsianInvestor’s Family Office Forum in Hong Kong heard on Tuesday.
At one panel discussion the consensus among the speakers was that that family offices are spending more time handling compliance matters rather than offering advice, managing investments or helping families draw up succession plans.
Even the simple act of opening a bank account can now be bogged down by lengthy know-your-client requirements and lead to growing frustration among wealthy clients, the managing director of a multi-family office (MFO) based in Hong Kong said at the event.
AsianInvestor’s Family Office Forum, which brought together a range of multi- and single-family office executives at the Ritz Carlton, took place under Chatham House rules, meaning any comments could be reported but not attributed.
The fact compliance requirements have grown and become more complicated is hardly new, but the forum discussions underlined how much of a challenge they remain for the wealth management industry.
A survey AsianInvestor reported on last year highlighted how it was taking considerably longer to open wealth management accounts in Hong Kong.
And the compliance challenges are magnified when wealthy families undertake more complex activities such as setting up trust structures or making an overseas acquisition overseas, the MFO managing director said.
In most cases, fulfilling compliance requirements can lead to delays of anywhere from four to eight weeks, hindering the pace of business for wealthy families, he added.
Adding to these issues is the fact that wealthy families in Asia have to comply with not just local regulations but also global ones, especially if they deal with international private or investment banks.
“When our private bank had to adopt Mifid II rules, we had to adopt them too. Irrespective of domicile or base, you don’t have a choice,” the MFO managing director said.
Mifid II — the European Union's second Markets in Financial Instruments Directive — came into force on January 3 this year. The directive’s key goals include achieving greater market transparency, improved best execution and more explicit costs of trading and investing.
Still, it's not all bad for the industry.
As the chief executive of another MFO acknowledged, the deluge of compliance paperwork is what keeps companies like theirs in business: “We wouldn’t be here if clients were confident and excited about doing reams of paperwork."
“They can’t stand this stuff and don’t want to deal with it," she told delegates at the event. "That's why they come to us.”
NO FINTECH HIGH
The idea that financial technology will make life easier was also played down at the event.
For all its promise of making the wealth management experience a seamless one, from the know-your-client induction to subsequently managing investments and legacy planning, there was some scepticism among those gathered.
“I haven’t found anything in the [fintech] market that suits our families’ needs,” the CEO of a third MFO told AsianInvestor on the sidelines of the event.
Nevertheless, speakers at the event said they were open to technology that could help in areas ranging from consolidated account reporting to artificial intelligence that could power portfolios.
The MFO managing director also said he was keen to see digital banks offering wealth management and corporate banking services. “We would invest in a bank like that,” he said.
SUCCESSION PLANNING
Another high-priority topic for Asian family offices is succession planning.
Most wealth clients are not too fussed about whether they get a few percentage points more on their investments or not. Instead, they are more concerned about what happens to the business after they relinquish control, said another family office CEO.
If the next generation isn’t keen on taking over, a decision needs to be made on whether the family retains the business and if so, whether the reins have to be handed over to professional managers, he said. “Most families are either in the early stage or late stage of being preoccupied with succession.”
The family office executive added that in cases where the family is looking at handing over operational control to professionals, the firm is now looking at private equity firms in the US and other developed markets with expertise in running businesses and hiring professionals.
The importance of succession planning hit the public spotlight recently after Hong Kong’s richest man, Li Ka-shing, announced his retirement after nearly seven decades running his property-to-transportation business empire.
Victor Li, the eldest of two sons, will take over as chairman of the group’s two flagship companies.
The lack of a clear succession plan can result in messy and highly public legal battles, which can rattle investor confidence in the family’s businesses.
Take Macau gambling tycoon Stanley Ho, for example. He recently announced he was stepping back from the business empire that he had built up over decades, passing the reins to daughter Daisy Ho, who takes over as chairman and executive director.
The Ho family has been at the centre of a very public feud between Ho’s four wives and multiple children for control over the family business empire.