The family office : is it time to go global?

Layve Rabinowitz, Director at Stonehage Fleming.

According to the New World Wealth South African Wealth Report for 2018, family offices are a rapidly growing wealth management segment in South Africa. High Net-Worth Individual’s (HNWI’s) wealth represents over 40% of total private wealth in South Africa and the number of South African HNWI’s is expected to grow by 28% to reach 56,000 over the next decade. The Wealth Report also predicts an increase in HNWI’s offshore wealth allocation from 17% to 22% by 2027, due to increased allocations to foreign property, foreign cash and foreign equities.

With this expected increase in foreign allocation of assets, it is critical to understand how the preservation and management of wealth may differ from one family office to the next. To guide wealthy families in their advisory choices, independent, international family office Stonehage Fleming categorises the family office into three types; namely onshore, offshore and global, and distinguishes the primary challenges and benefits associated with each model.

Onshore

Onshore family offices operating within South Africa allow for close relationship management and constant face-to-face interaction, given the proximity and familiarity with the local operating environment. However, limitations arise in the ability to manage foreign assets from inside South Africa and provide in-house offshore services. Such skills will often be outsourced to global partners, which commonly translates to significantly more travel and therefore a higher cost input.

Offshore

Offshore family offices offer wealthy families the benefit of international capabilities on investment management and professional in-house fiduciary. However, high minimum entry criteria are expected due to Rand generated wealth that incurs management costs in hard currency. Client relationship management may be continuous due to the ease of digital communication; however client contact is still considered to be low touch due to a lack of face-to-face interaction. Additionally, dislocation from local happenings and operating environments may lead to cost inefficiencies and the inability to be proactive in the face of changing market laws and conditions.

Global

International family offices offer the best of both global offshore capabilities alongside local expertise, due to their international presence and skill base. They facilitate a close working relationship between families and investment practitioners, which provides a supportive environment in which to deal with issues such as family dynamics and succession planning. Families also benefit from international expertise at limited additional cost, due to an existing global infrastructure and vast knowledge base. The challenges of a global office arise in the matching of costs to requirements, which may be with a high cost base if a client base doesn’t adequately represent jurisdictional location.

Due to the high barriers to entry as well as experience in multiple onshore fields required, there are only a few family offices of such nature around the world.

Layve Rabinowitz, Director at Stonehage Fleming in South Africa, says:

“It is clear that the role of the family office in South Africa is becoming more prominent, with HNWI’s looking for a more hands-on, personalised approach when dealing with the growth and preservation of their wealth. When selecting a suitable family office, much of the choice depends on the services a client is looking for as well as the depth of relationship required.”