Running in the family
Consolidating clients' assets is one of the main priorities of a family office. This is not an easy task because wealth tends to be widely dispersed. But help is on the way. Luxembourg-based Wealth@Work intends to deliver a neutral consolidation platform for wealth management to family offices. In an interview with LFF, Diana Diels-Kneip, founding partner, speaks about Wealth@Work and the future of the family office business in Luxembourg.
What is the Wealth@Work platform about?
Because of the wealth dispersion among several custodian banks with several external asset managers, it is oftentimes difficult for family officers to consolidate all of a family’s wealth in one place. The goal of our platform is to make life easier for them. Wealth@Work will be a Financial Sector Professional supervised by the Luxembourg banking regulatory authorities (CSSF) and independent from any financial institution or IT provider.
It is easy to use: the platform will offer the Portfolio Management System on a standard set of functions directly available to the end user over a secured internet access. It is cost-effective: the platform will be available for a monthly subscription fee defined as a flat fee per user and/or as a percentage of the assets under management.
Who will interact with the platform?
The family office controlling the asset allocation, the asset managers working on behalf of family offices, and the banks which feed the platform with data every day will be using it. So you have access all the time wherever you are to be able to intervene if you have to.
There will be a portfolio management system, financial data feed, risk management tools, consolidated reporting and also some consolidated fiscal reporting at a later stage.
What is the definition of a family office?
A family office is an office dedicated to one family or several families looking for the viability and long term sustainability of the patrimony of a wealthy family which would include real estate and art, amongst other types of wealth. The goal is to respect the politics of each family. This means that everything will be monitored on a long-term vision, not a short-term one, and it will focus on the protection of the family fortune.
You could have, for example, a family office of a hundred people that is in charge of philanthropy, tax, domiciliation of businesses in several countries and guaranteeing the continuity of the wealth from one generation to the next.
Are there different family office models?
According to Wharton, in the United States there are about four different models ranging from internal to external offices. You can have a trusted advisor ruling and coordinating with external lawyers, notaries and investment advisors - or you can have a family office, which has all the experts in-house.
How many people do you need to make a family office work?
It depends on the size of the family but usually a small office employs at least ten people. On top of the office you have a CEO. Running a family office costs at least EUR 2 million a year.
What should the relationship between the family officer and the family look like? Is this an exclusively professional relationship?
Family officers are also involved in the family’s private life – aspects such as the family’s social life or the children’s education- so this relationship is going beyond professional ties. It is a lot about trusting people. You have to be at the disposal of a family 24 hours a day. The family office will help when members of a family are stuck at an airport, just to give you this example. So this implies a wide range of services.
What are the different positions within a family office?
The latest trends in Europe and the United States have revealed that wealthy people trust the banks less and less, partly because of the financial crisis. This is why more and more family offices are being set up. The trusted people hired to run family offices can be lawyers or ex-senior private bankers, even chartered accountants. These are the most common profiles working for a family office.
So independence is really the key of a family officer?
This is without a doubt the most important characteristic. The role of the family office is more the supervision of asset allocations rather than their management.
Is a family office intervening directly?
The family office plays the role of central coordinator for a very wide range of services. This advice can be various: fiscal, consolidation reporting, analysis of the fortune, transmission, divorces, trust, and family foundations. You also have advice on real estate and art, which makes up about 8% of the wealth. Then you have risk management, managing assets such as yachts and so on. Not to forget the education, you have to look for schools for the children.
Is the goal right now more about wealth preservation than creation?
Absolutely. Wealthy people are very concerned about the preservation of their wealth. They have gotten the impression in the last few years, with the financial crisis and scandals like the Madoff affair that banks haven’t really cared about the issue of preservation. A lack of confidence in banks has been the consequence.
What are the latest trends in Luxembourg?
In Luxembourg is it a relatively new business, though there are some family offices domiciled here already. The general trend is a move from banks to family offices. Luxembourg is an ideal financial centre for this kind of business because there is political and economic stability. Besides, there are a lot of service providers and professionals in the financial sector who have gained a lot of expertise in multijurisdictional matters from handling the assets of clients from various countries.
The support of the government is also a key element, with the creation of the free port and a planned law on private foundations. With the free port at the airport, Luxembourg will play an increasingly important role in the art business with the transport and storage of art items and other valuable goods like wine or jewellery. This is also an added value for the fund industry.
I would like to mention Elite Advisers, a Luxembourg based company that has launched three investment funds: one investing in fine and rare wines, another one in collectible watches and a third one in precious stones and jewelleries. We have also a lot of legal advisers, chartered accountants, domiciliation companies and so on in Luxembourg. We have a lot of expertise to be truly competitive with other financial centres. CW