Do I Need a Family Office?

A family office exists to support the financial needs of a family, often following the sale of a large portion of a business. Having to manage a vast amount of cash in addition to running their business, Ultra High Net Worth individuals and families in Hong Kong and China create a dedicated family office to execute a long-term strategy aimed at meeting the financial and lifestyle needs of the family for generations to come.

Unlike most of their peers in the West, many entrepreneurs in Hong Kong and China became billionaires within a single generation. Still in control of their businesses, most (especially in China) have one or maybe two children. Preoccupied about succession, they have the advantage of not having to cater to the demands of a multi-generational group of owners representing different branches of an extended family (for example, the ownership of the Ford family in the eponymous car company is owned by 86 people, while the Rockfeller fortune is controlled by 170 heirs who belong to the family’s seventh generation).

Why do some families decide to form a family office while others are content with relying on financial services institutions and professional advisors? In addition to having a fortune of more than US$100 mln to manage, these are some of factors that can justify the creation of a dedicated family office:

Separate the needs of the business from the demands of family: Many wealthy entrepreneurs like Amazon’s Steve Bezos and Alibaba’s Joseph Tsai remain fully engaged in their businesses yet have vast fortunes to manage. In addition, practices acceptable in private companies such as having staff arrange holidays for a spouse are not appropriate once the business is listed on a stock exchange. “By using a family office like ours, business owners can segregate the management of the business from the affairs of the family,” says Dimitrios Kavvathas, Chief Investment Officer with Harmony Advisors. Tasking the family office to manage their wealth, work on transferring assets to the next generation and help family members with lifestyle issues such as buying a house in Hong Kong, choosing a boarding school in Switzerland and other similar concierge services also helps enhance corporate governance at the business level.

Desire to retain control: Creating a family office allows entrepreneurs to maintain control of the long-term financial security of the family as part of a coherent, holistic strategy that may include everything from children education to philanthropy. By nature, many business founders in China and Hong Kong prefer to stay involved in most major decisions and are thus reluctant to rely on private banks and fund managers that may not be privy to all their objectives.

Not ready to retire: Unlike 6th generation heirs happy to receive a monthly dividend check, many billionaires, especially in China, are too young to retire. “Let’s face it. Whether it’s Bill Gates and Peter Thiel in America or Jack Ma and Joseph Tsai in China, these business visionaries brim with ideas and have too much energy to stop exploring new busineseses or promoting social causes that matter to them.” says Kavvathas. As majority owner of Ant Group, Jack Ma – already China’s second wealthiest individual – is set to get even richer as Ant Group continues to expand the business lines. Meanwhile, Tsai opted to indulge his passion for sports by investing in the NBA’s Brooklyn Nets, the NFL’s Carolina Panthers and the MLS’ Los Angeles FC while funding the Tsai Center for Innovative Thinking at Yale University.

Work with trusted, professional and independent professionals: Unlike financial services firms that are incentivized to push products or sell services,  professionals employed by the family office are solely dedicated to designing and implementing an overall strategy set forth together with relevant members of the family. Hand-picked by the family, the team usually enjoys its full confidence and can be trusted with sensitive information on issues like succession planning or the health and relationship issues affecting family members.

Integrated approach to wealth and lifestyle management: Beyond wealth management, using a family office can ensure that each decision—from asset allocation in Hong Kong and the opening of External Asset Management to charitable donations in China and the selection of a Swiss boarding school— remain within the strategic objectives set forth by the family. After all, many successful entrepreneurs have ambitions other than making money. Dr Charles Chen Yidan, the co-founder of Tencent devoted a large portion of his fortune to launch the Yidan Prize, a charity supporting education initiatives globally, while the work of the Bill and Melinda Gates Foundation is well known. Part of a family’s legacy, these philanthropic activities are best conducted as part of a holistic plan managed by a dedicated family office.

Desire to specialise on a few fundamental activities: A family office may choose to perform what it views as core activities in-house, while outsourcing the rest for cost reasons. Thus, certain activities such as direct investments, philanthropy and portfolio management may be performed internally, while most of the legal, accounting and reporting work be outsourced to third-party providers.

Preserving the Privacy and Harmony of the Family : A dedicated business entity provides the best protection for the family’s privacy and security of financial information. A family office can also be instrumental in nurturing family harmony, notes Angel Young, Founder and CEO of Harmony Advicors: “By ensuring that all family members receive and understand the information they need to make objective decisions while also helping everyone to agree of what services and allowances they can expect to receive, firms like ours help foster the greater interests of the family,”