Prêt-à-porter does not fit
The Luxembourg financial centre is attractive because of its expertise, its multicultural environment and its pragmatism. However, it is not a premium choice for wealthy families as a country of residence. Despite this fact, the Grand Duchy could become a centre of excellence for family offices. This was one of the conclusions at the Deloitte conference in Luxembourg on family offices and wealth management.
So far, there are only two jurisdictions in the world where family offices services are regulated: the USA and Dubai. Luxembourg could be the third country on this exclusive list. Serge Krancenblum is vice chairman of L.A.F.O., the Luxembourg Association for Family Offices. He said at the Deloitte conference that if the bill on family offices is adopted by Parliament, the country could uphold its reputation as a sound financial centre and put itself on the map for family office activities. There is another important argument to be considered, “At the same time, once the law is passed, clients would be protected because professional secrecy would be imposed”. The bill is likely to be adopted in 2012.
In order to render Luxembourg more competitive in this area, you have to know what the local market looks like. That is why Deloitte Luxembourg has conducted a survey, where 35 players have been interviewed. There are 4 different types of players: single-family offices, multifamily offices, banks and other service providers like lawyers and notaries. Interviewees most often defined a family office as a coordinator and supervisor with the ability to deliver a global view of the family’s matters. Stéphane Césari is Partner, Audit, and PSF Industry Leader. He underlined than more than 75% of interviewees said they only speak about financial wealth and he named three existing categories of clients: wealthy entrepreneurs, wealthy families and medium wealth individuals with less than 2 million euros at their disposal. He stressed that for clients, qualitative factors are more essential than quantitative ones. “There is a simple reason to this. You find yourselves in a situation of trust and confidence, at the end of the day you are dealing with people. Because wealthy clients are strongly educated and well-informed, tailor-made solutions are preferred rather than prêt-à-porter ones”. He added that cost transparency is the most important factor for the client, more than the independence of the family offices. “In order to remain competitive, family officers should not forget what their mission is: to advise, not to sell”, he remarks. Frédéric Ribler is Senior Manager, Audit at Deloitte. He confirmed that the notion of a coordinator is a recurring concept throughout the survey, as well as that of a director, leading the office like a conductor leads an orchestra. He said that the main countries of origin for clients are Benelux, Switzerland and France. But there are two other trends not to be neglected: “Eastern Europe is coming on strong, with countries like Russia; beyond that China and Monaco are also becoming more relevant. In addition, we see new target markets like Germany, Singapore, Hong-Kong and Latin America, especially Brazil”.
Separate yourself from the crowd
Stéphane Césari underlined the importance of long-lasting relationships between family offices and their clients. Some have lasted more than 20 years. The measurement of satisfaction was one of the key factors in the Deloitte study. Stéphane Césari revealed the most important ones to the audience.“A long-term relationship is the most important satisfaction indicator. If a family office manages the transfer of wealth from one generation to another, it has succeeded in its mission. The second factor is network efficiency. Word of mouth marketing is undoubtedly the most powerful tool. So it is crucial for family offices to be recommended to other potential clientele by its current clients”.
Ruth Bültmann is Partner, Strategy & Corporate Finance and Family Office Co-Leader at Deloitte. She spoke about competition between different financial centres, likely to play an important role in family office activities. “There is a competition between Switzerland, the UK, Luxembourg and Singapore. Every centre profits from location-specific advantages. Switzerland is perceived as a private banking centre, the UK and Channel Islands for asset management activities, Luxembourg is a hub for private banking and investment funds and Singapore and Hong Kong are hubs for South East Asia”. A wealthy family’s country of residence is one of the factors driving competition between different financial centres, a – by the majority- very subjective and individual one. The choice of location of the family office is, on the other hand, a very rational one.
According to the 2012 Wealth Report by Citibank and Knight Franck, the most important criteria for wealthy families are personnel safety and security, openness, social stability, housing availability, presence of other wealthy families, an excellent educational system and access to other cities.
Ruth Bültman sums up Luxembourg’s strengths and weaknesses: “Luxembourg has a competitive advantage in its business and regulatory environment as well as a pragmatic and a solution-driven framework. Its other assets are its legal certainty and well-established service providers. Areas of improvement include limits in transportation infrastructure, access to customers and labour costs. The differentiation factors are the vehicles and structuring, but also the tax-related aspects”.
The Deloitte experts suggest that the country’s strategy to excel in the family office business has to include taking advantage of its wide range of investment vehicles and its favourable tax treatment. Regarding soft factors, it would be helpful to offer luxury housing facilities, improve transportation services and provide upper-class education. All in all, the conclusion is that Luxembourg has all the assets necessary to become a premium wealth management centre, but it needs to change its model for wealthy families from a purely analytical and passive model to a one-stop-shop solution that can address all of its clients’ needs. CW