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While families ponder the question of whether to set up their own family office (“SFO”) or use the services of an existing multi-family office (“MFO”), as discussed in part I of this series, they often overlook the matter regarding the jurisdiction where the family office should be located or established. In reality, this is an essential element of the process that deserves a serious look.
Choosing the jurisdiction for a family office
There are quite a few questions that need answering when deciding on the jurisdiction for a family office:
- In which jurisdiction does the family need to receive support?
- What are the family’s goals?
- What should the office’s legal form be?
- Which of the family’s (corporate) entities need to be managed, and by whom?
- Which assets need to be preserved/protected?
All these considerations apply when establishing an SFO or using an MFO.
A common mistake families make is to choose or create a family office located in the same jurisdiction as where they live. Although this can be very practical from a communication point of view, this is often not the best choice when examined from a wealth-preservation perspective.
One of the primary roles of a family office is to safeguard assets and to be able to assist the family under all kinds of circumstances. This means that the family office needs to be able to protect the family’s assets against geographical, political, religious, personal and economic risks, while remaining fully operational under any circumstance. Therefore, it is only logical that the family office be located in a secure jurisdiction. Because the number of unstable and unsafe jurisdictions outnumber the stable and safe ones, the majority of family offices will need to be located outside their home jurisdiction. This does not necessarily mean that the entire staff or services must be located in foreign territory; roles as local secretarial support, lifestyle management services and local real estate management can be based in the family’s original jurisdiction.
In addition to stability, the jurisdiction of the family office must also:
- Allow the office to manage the family’s entities (holding companies, trusts, foundations, etc.)
- Provide competent staff
- Have a solid infrastructure
- Be easily reachable
- Be tax-efficient.
Of course this is all closely connected to the actual assets of the family and the location of those assets. Finally, most family offices prefer to be located in a jurisdiction known for having a reputable financial centre. It considerably simplifies the activities of a family office when it is in the vicinity of stable banks and financial specialists with solid reputations and lots of experience.
The essential requirements highlighted above ultimately limit the best possible jurisdictions to only a few and that is exactly why you will find the majority of SFO’s and MFO’s in only a handful of jurisdictions, such as the United States of America, Switzerland, the United Kingdom and Luxembourgan>. As such, those four countries along with about a dozen others are also the only jurisdictions in which native families could consider establishing their family office in their home jurisdiction rather than relying on foreign territory.
In the next part of this series of articles, we discuss what type of family office services one might actually need or want. For families considering setting up an SFO, this is a topic that is closely connected to the actual costs of the overall set-up. But for families opting for an MFO, it is much more about managing expectations and selecting the right provider.
Jan van Bueren & Thomas Ming are Co-Founders of FOSS Family Office Services Switzerland & Senior Wealth Planners in Zurich at Union Bancaire Privée, UBP SA.
For more information go to: www.switzerland-family-office.com