With rising affluence and wealth transfer comes a growing number of ultra-high-net-worth (UHNW) families and individuals seeking professional help to manage and protect their wealth.
With the average assets under management (AUM) globally higher than ever before, it's no surprise that families are looking internationally for greater sophistication and personalisation for their wealth management needs, often beyond their immediate jurisdiction.
The globalisation of wealth creates countless opportunities for UHNW families to access tailor made investment options around the world that align with their wealth ambitions.
This is particularly true in Asia, where significant family office growth has taken place over the last decade, with locations such as Singapore and Hong Kong continuing to gain international popularity.
An evolving picture
Singapore is well established as one of the leading private banking and wealth management centres globally and holds a lot of gravitas within Asia.
Traditionally speaking, Singapore was viewed as a destination of choice for predominantly Asian HNW families, but this has changed considerably in recent years. The origin of wealth owners setting up single family offices (SFOs) in Singapore is now distinctively more diverse, with an increasing number of European families choosing the jurisdiction for their SFOs and family trusts.
Its strong track record as a robust and politically stable jurisdiction with a transparent legal system, underpinned by a supportive and responsive government encouraging the growth in the private wealth sector makes Singapore a highly attractive jurisdiction for investors.
With one of the most competitive tax regimes globally with no capital gains or estate tax, and a roster of incentives and schemes ensuring the efficient wealth transfer and consolidation of SFO investments, Singapore provides added confidence among investors. Its robust financial licensing frameworks with shared reporting standards to the EU and US, and an extensive pool of multi-lingual professionals also offer a level of familiarity to many international families.
Recent developments
From 18 April 2022, the Monetary Authority of Singapore (MAS) set a stricter criterion around (AUM), local investments and business spending of family offices to qualify for tax incentives under sections 13O, (Onshore Fund Tax Incentive Scheme) and 13U (Enhanced Tier Tax Incentive Scheme) of the Income Tax Act (ITA).
Both sections have become a common feature in the design of Singapore family office structures. Both section 13O and 13U require approval from the MAS, and both require minimum annual business spending of SG$200,000. The AUM requirement for S13O has been raised to SG$20m while the AUM requirement for S13U is at SG$50m.
As a result of these changes, we believe that the quality and sophistication of Singapore SFOs will improve due to the level of commitment needed. There will be increasing professionalisation as they hire more full-time experts, invest in technology, risk management and governance infrastructure.
What's next for Singapore?
"As an established financial hub, Singapore will continue to grow opportunities for wealth management and support the evolving needs of family offices...We also believe that the best legacy that those with greater means can leave behind is a positive impact on society"
These were the words of Lawrence Wong, Deputy Prime Minister and Minister for Finance, and Deputy Chairman of the Monetary Authority of Singapore, at The Owner's Symposium of The Global-Asia Family Office Summit on 29 September 2022.
In his speech, he highlighted several key factors relating to Singapore's growth opportunities, including:
- The growing presence of family offices in Singapore and around the world due to the global wealth growth in recent decades.
- The fact that Southeast Asia is becoming a key hub in Asia, with Singapore's sudden increase in family offices from 100 to 700 within five years.
- Singapore's continued commitment to ensuring it remains a stable, reliable and trusted hub in Asia. This includes the strengthening of its family office ecosystem, by improving and growing a strong pool of professional talent through education, practical research and capability building programmes.
- The many opportunities for family offices to support innovation companies in Singapore, as well as a good launchpad to support the global net-zero agenda.
- The fact that Singapore is well-placed to help family offices pivot to sustain investing, as a regional base for many global financial institutions and multilateral banks.
- How the government helps family offices contribute to society through philanthropy and its ambition to become a leading centre for philanthropy in Asia.
As the need for family office experts grows, so too will the need for independent trust companies, law firms and accounting firms, and it is likely that more senior private bankers will increasingly look to work for single and multi-family offices rather than traditional banks.
As most of Asia’s family-owned businesses are in their first or second generation, the business owners recognise an inherent need for succession planning. Setting up a family trust enables these business owners to effectively pass the baton and their wealth to the next generation, while setting up a SFOs enables the family to consolidate their assets and bring together to manage these assets.
This helps to mitigate potential areas of conflict between family members, and fosters a stronger bond amongst the family members as they come together to manage these assets.
A generational shift
In some family run businesses, not all family members will be involved in the family business, and points of conflict tend to emerge between the family members who run the business and those who hold an equity stake in it.
Those with equity stakes can often feel frustrated and left out as family members involved in decisions making at the board level can use this to their advantage. For instance, the board could approve a large bonus to the management team, thus favouring certain family members.
Intergenerational transfers of assets, mainly linked to male-preference primogeniture, favouring the eldest born male over younger or female siblings, is another contentious issue that families seek to avoid by establishing an SFO.
Historically, many wealth owners would find it challenging to start a conversation with an external party in fear of creating conflict and disharmony within the family. However, this mindset is shifting, and there is now more confidence in seeking expertise and guidance to resolve concerns around transferring wealth to the next generation.
The needs of younger entrepreneurs and the second-generation wealth holders have encouraged a healthy attitude shift in the market and are actively creating a precedent for best practice.
These individuals are already more internationally mobile with many holding more than one passport or multiple tax residencies, truly embracing the benefits of globalisation and what it can offer their wealth.
With the increased international mobility comes the need to consider the impact of FATCA and CRS on family structures to ensure international compliance, with many now realising the value expert advice can provide.
These young wealth holders are bolder in their investment philosophies and increasingly seek sustainable investments and emerging entrepreneurial opportunities in the digital and alternative investment classes including, private equity, artificial intelligence, and healthcare.
They recognise that wealth management is more sophisticated than before, and in the era of social media and public scrutiny, there is less room to get things wrong, so investments need to be right the first time around.
Likewise, transparency around the governance of one’s family wealth is becoming equally important, ensuring the right legal structures and experts are in place to support the family office. The notion of what success looks like is changing as the younger generation of wealth owners step up to get involved with the family office, and their impact is being noticed.
SFOs are, like other areas of finance, becoming more conscious and seeking benefits beyond immediate or long-term financial gain, realising the importance of reputation and the social and environmental impact of their wealth.
Their strategic impact and sophisticated approach to wealth are creating modern and forward-thinking SFOs, that are attracted by the lure of Singapore’s equally ambitious and forward-thinking financial market.
Navigating challenges, now and for the future
Covid-19 was a wake-up call for many wealthy families and their advisers, encouraging a shift of focus; from establishing new business ventures to protecting the family wealth. The pandemic not only reinforced the need for families to have robust succession plans in place, but it accentuated Singapore’s appeal in a world where wealth owners value transparency, agility and stability, moving beyond the traditional realms of a traditional single-family office.
The jurisdiction’s diverse and wide-ranging financial expertise, political and financial stability coupled with its competitive investment benefits, are becoming increasing appealing to more UHNW families from around the world.
With the needs of wealth holders rapidly evolving, it’s important to recognise innovative thinking and service. This is where Singapore offers a competitive edge, enticing further families to seek its benefits for their SFOs.
Alice Quek is the Head of Private and Client Services in Asia for Hawksford Group, in supporting ultra-high-net-worth individuals, families, and intermediaries across the region to support the efficient management of their wealth and their succession plans.
This article is intended for general information only and is not intended to apply to constitute legal advice. Hawksford accepts no liability for any errors or for any loss, of any nature, to any person by reliance on this article.
Contact our trust specialist in Singapore:
Alice Quek
Head of Private Client Services, Asia
T: +65 9027 1670 | E: alice.quek@hawksford.com
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