What are the best international destinations for family offices considering a move or an expansion of their network? It’s a good question, considering that four in five family offices have opened offices in other countries over the past five years, according to a recent global survey.
But there is no clear answer, at least not anymore.
In fact, the experts are likely to tell you that the top global destinations for any family office depend entirely on what goals it hopes to achieve, the cost of expansion or transfer of assets, and the relative risk of moving to that jurisdiction.
Jonathan Flack, global and U.S. leader of PwC’s family office and family business practice, notes that his firm may have been able to recommend a top five 15 years ago. This year’s PwC Family Office Location Guide, however, analyzes more than a dozen countries that might make good homes for a family office.
So what’s changed?
“Some of those top five countries we might have listed 15 years ago would have included more European countries,” he says. “Those differentiators are harder to find with efforts by the European Union, for example, to level the tax playing field for all of Europe.”
At the same time, countries such as Singapore are initiating business-friendly policies to attract wealth and investment in ways they hadn’t before.
Complicating the landscape further is the fact that the game has changed for one of the primary drivers of overseas expansion in the past: tax mitigation.
Having a secret bank account anywhere on the planet is much harder to do
MNP’s Steve Ivacko
Steve Ivacko, a partner in family office services with MNP, says that former offshore tax havens have become more transparent in terms of financial regulation, thanks to a greater level of international cooperation and information-sharing among governments.
“Having a secret bank account anywhere on the planet is much harder to do,” he says.
PwC’s current location guide includes detailed analyses of 13 countries: Australia, Germany, Hong Kong, Luxembourg, Singapore, Switzerland, the UK, the US, the UAE, Austria, the Netherlands, New Zealand and Canada. Each country is rated according to access to professional services and related infrastructures; access to talent and skilled professionals; regulatory framework and legal structures; tax regime; immigration rules, investment and visa availability; cultural landscape, living standards and connectivity; reputation; and economic and political stability.
“We ask our clients to look at these eight dimensions and balance the cost of moving their assets against what they’re getting for that cost,” Flack says. “For example, there’s a high cost to moving your assets to Switzerland, but there’s also a high degree of asset protection, and a high degree of sophistication of services, banks and institutions with a long history. Families may be willing to pay that cost because there are a lot of benefits that come with it.”
The sheer size of the U.S. and its business-friendly policies tend to make [it] the No. 1 destination
RSM Canada’s Sam Tabrizi
On the other hand, a family might be willing to balance a lower cost of transfer of assets against a marginally lower level of domestic stability and a higher level of risk.
Whichever path to expansion a family chooses, a smooth transition means that everything in the destination country must be in order. That typically includes retaining tax, accounting and legal services to oversee every detail of the move, with experts located in the originating country as well as on the ground in destination countries.
However, even something as seemingly mundane as staffing a family office can undermine the best-laid plans.
“If it’s a satellite office and the principals of the family aren’t there day-to-day, how do you know you have the checks and balances and the proper governance in place to make sure that everything is running smoothly and that people are doing their jobs?” Ivacko asks. “You may not experience the same type of work culture that you’re used to and may have to bring your own staff, hire expats or import other people to manage it.”
He notes that cross-border regulations may even stand in the way of normal co-operation between various family office functions. In some cases, for example, a Canadian money manager may not be legally permitted to take instructions from a non-resident, depending on the money manager’s licensing.
Sam Tabrizi, national private company tax leader for assurance, tax and consulting services provider RSM Canada, asks family offices to complete a questionnaire to identify locations they may want to consider.
“This enables us to understand the goals and wants of the family members, and how the various financial pieces of the family office work together,” he says. “We want to ensure that we have the right people on the team, both local and outside the country, to help our clients navigate any pitfalls. That includes providing traditional consulting services to family offices, as well as non-traditional services such as cybersecurity, governance and CFO outsourcing services.”
While more exotic locales sometimes beckon, most of RSM Canada’s family office clients are considering a move south of the border, he says.
“Overall, the sheer size of the U.S. economy and its business-friendly policies tend to make the country the No. 1 destination for Canadian family offices looking to expand or move their operations abroad,” Tabrizi adds.
Flack says that although a specific event usually triggers a move by a family office, it isn’t typically a decision that comes up all at once. In most cases, a partial transfer of assets precedes any move.
“This is what we would describe as an evergreen issue for families as part of their overall wealth preservation strategy,” he says. “Whether they’re motivated by tax laws, regulatory changes or geopolitical shifts, it’s a conversation that should never go quiet.”
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