FAMILY offices go wherever wealth goes, and accompanying Asia's tectonic rise over the past decades as a global economic powerhouse is the corresponding surge of wealth and family offices in the region.
We expect this trend to persist as Asia's fundamentals stay primed for robust growth; also fuelling this is the region's maturing wealth, as we sit on the cusp of an intergenerational wealth transfer in the coming 10 to 20 years.
As Asia's family offices are mostly in their first or second generation, and only now approaching their first wealth transfer, this is sparking a surge in demand for family office services such as succession planning.
Against this backdrop, Singapore has risen on the radar for many family offices, which are dedicated teams or structures that manage an ultra high net worth (UHNW) family's financial, and sometimes non-financial, affairs.
According to the Monetary Authority of Singapore, the number of family offices in the little red dot rose five-fold between 2017 and 2019.
This reflects the appeal of "Singapore Inc": the nation's strong force of law, political and economic stability, friendly tax regime and high quality of life, among other factors. Along with Singapore's strong regional connectivity and expertise in navigating cross-cultural and cross-jurisdictional complexities, more family offices are coming to view Singapore as the gateway to Asia's opportunities, and an ideal neutral place from which to invest in the region.
The Pandemic, a Turning Point (and Wake-up Call) for Many UHNW Families
Family offices may have sufficient capital buffers to emerge from the pandemic with their wealth intact, but they've still been impacted in other ways. For one, Covid-19 has triggered in them a sense of vulnerability, be it in terms of mortality or the possible transience of their assets.
This has prompted many families to place greater urgency on structural, long-term needs such as wealth preservation and governance, which may not have been top-of-mind previously.
Secondly, the pandemic (along with its indirect side effects, such as intensifying populist sentiments and extraordinary monetary policies) has heightened the possibility that we are en route to a world where tightened regulatory regimes and higher wealth taxes are on the cards. This has triggered families to explore more tax-efficient structuring options.
On a more positive note, the pandemic has also prompted families to rethink their role in society. Over the past year, we've had more clients express intentions to help communities in their home countries, or to do good by funding or mentoring social enterprises, which are dual bottom-line companies, or setting up philanthropy trusts.
Covid-19 has been a turning point, and we expect it to reshape the way forward for many wealthy families.
Already, we're seeing a mindset shift in wealth management - more are now planning with stability and longevity in mind, and taking a broader view of their legacy across all four pillars of business, financial, family, and philanthropy, rather than just the first two in the past.
The pandemic has also accentuated Singapore's appeal to these families, many of whom were impressed by its transparency and tenacity in handling the crisis in contrast to efforts in their home countries, and the agility throughout Singapore's family office ecosystem.
The Transformative Evolution of Singapore's Family Office Proposition
Being a family office hub makes good sense for Singapore. While family offices may only hire a small number of staff directly, they can potentially generate a wide-reaching impact through their extensive suite of services and activities.
This in turn triggers a multiplier effect on the ecosystem, affecting many more stakeholders and service providers such as asset managers, custodians, trustees, corporate service providers, lawyers and technology providers, just to name a few - thus creating significant employment and growth opportunities for the PMET space, and potentially engineering hugely beneficial outcomes for Singapore's economy.
Singapore has long emerged as a front runner in this space, ranking second only to Switzerland in the 2018 Deloitte International Wealth Management Centre Rankings. It continues to progress rapidly, driven by the collective commitment of the authorities and wider ecosystem towards making Singapore the destination of choice for family offices. Referencing the I.D.E.A. framework (representing Innovators, Disruptors, Enablers and Adaptors), which was presented by our Chief Investment Office to pick winners in the new economy, Singapore's family office proposition ticks all four boxes.
Innovator: Tax is a pertinent concern for many, if not all, family offices. Singapore has reinvigorated traditional frameworks by introducing various innovative tax incentive schemes to attract foreign families to base their family office investment activities here. These include the likes of Section 13CA, Section 13R and Section 13X of the Income Tax Act, which allow family investment vehicles (both in and outside the city state) to enjoy Singapore tax exemption on specified income derived from designated investments.
Of course, family offices consider a whole host of non-fiscal factors beyond tax when choosing a sustainable long-term landing point for their families and assets.
In fact, over the past years we've seen tax diminish as a factor; families are instead prioritising factors such as the ability to diversify jurisdictional risk, strong and transparent rule of law, proximity and connectivity to attractive investment opportunities, and an established financial centre with a large pool of professionals, among others.
The beauty of "Singapore Inc" thus comes into play here, as it provides families with a one-stop solution to address all these needs.
Disruptor: Conventionally, family offices were used for the primary purposes of family governance and succession. Singapore has disrupted this by offering a new angle - residency, by providing families that are investing substantially in Singapore the ability to pivot to an employment pass or Singapore permanent residency status, depending on the family office scheme for which they qualify.
Domiciliation concerns have come to the fore with Covid-19, since crises highlight the need to park our loved ones in safe jurisdictions, and we can expect this optionality to go a long way for many families.
Enabler: Singapore's family office proposition also serves as an enabler in ramping up the social impact and ESG narrative, and can over time help develop Asia's venture philanthropy landscape. This is a space that DBS Private Bank feels strongly for too.
So beyond working closely with the key agencies driving Singapore's family office journey to advance on this front, we also have in place a suite of in-house efforts - these include helping clients to integrate an ESG lens when making investment decisions, and partnering DBS Foundation, which is dedicated to nurturing social enterprises in the region, to connect social enterprises with the families we work with for venture philanthropy opportunities or other forms of support.
Beyond doing good, this also benefits the families in the long-run: it builds goodwill, strengthens the family legacy and values, and can also help the next gens, who tend to be more socially conscious, to start adopting a bigger role within the family business.
Adaptor: Adaptability is essential, especially in such fast-changing times. To this end, key agencies such as the Monetary Authority of Singapore and the Economic Development Board have proven that they are nimbly staying atop of change.
Take, for example, family office applications - these usually require in-person meetings, which weren't possible when the pandemic hit and put travel on a standstill. In response, they nimbly launched new workarounds such as virtual interviews, to keep business moving and continue serving the needs of these families.
They're also progressive on the legislative front. Last year, they launched a new wealth planning tool for multi-family offices in the form of the Variable Capital Company (VCC) regime, to leverage growing interest in Singapore's family office proposition.
Beyond providing a competitive framework to structure private equity investments and extended family succession planning, VCC also facilitates ease of asset management for multiple cross-border families, and allows them to flexibly move from one region to another should a future crisis occur.
A Strong Runway for Growth Ahead
We must all evolve to face issues that are pertinent today and lying ahead, and family offices are no exception. Already, we're seeing the rise of "modern" family offices that are relooking their structures and plans given growing globalisation of their wealth, and focusing on being agile in times of change.
This is evidenced by the spike in Western family offices that are setting up satellite family office outposts in Asia, as well as families embracing the option of relocating key investment teams and even strategic family members in Singapore.
We see a strong runway for Singapore's family office landscape moving forward, given its "Singapore Inc" appeal, and its ability to pre-empt, pivot, and ready itself for whatever the future holds.
With wealth becoming increasingly internationalised and families becoming more globally dispersed, Singapore's strength as a wealth management hub that markedly blends Eastern and Western cultural norms will undoubtedly continue to be a compelling magnet for UHNW families worldwide.
DBS Private Bank, as a key piece of the "Singapore Inc" narrative and a trusted advisor to these families, stands committed to working alongside the wider family office ecosystem to fuel its growth, and power its continued ascent on the global stage.
The author Lee Woon Shiu is group head of Wealth Planning, Family Office and Insurance Solutions, DBS Private Bank.
Republished with permission.
