One of the prevailing
aims of a family office is to organise the network of a family’s
assets so that they are protected for future generations and
importantly that the real value of the assets is maintained over
the longer term.

There are many factors
that can contribute to the erosion of family assets which are
unconnected to the investment performance. These include:

  • claims and
  • political and jurisdictional
  • counter-party
  • tax
  • unwise spending
  • family conflict and

The traditional defence
to some of these factors is to choose one of more jurisdictions and
then “wrap” the assets in suitable vehicles.

The over-riding aim
should be to structure the families’ affairs as tax efficiently,
flexibly and simply as possible while taking account of their
current and likely future economic and social needs.

For an international
family, typically this will involve one or more of the

  • a private trust company,
    owned by a foundation; a new vehicle,
    the Bahamas executive entity (BEE);
    or a purpose trust;
  • trusts, in suitable
  • companies and other
    again in suitable jurisdictions.
    Sometimes companies may act as

In some jurisdictions,
other wrappers such as limited partnerships (LPs), open ended
investment companies (OEICs) or protected cell companies (PCCs)
will be appropriate vehicles.

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 The choice of
jurisdiction is important and advice from experts familiar with the
different legal systems around the world is essential.

A significant part of a
family office service is to act as the family’s ‘financial
director’ independently of the family, with this role including the
management of family conflict.

This might be against the
background of a family governance framework as expressed in a
family policy.

A number of potential
pitfalls can be avoided by maintaining harmony between family
members by giving a clear breakdown of the assets and regular

Factions within the
family are most likely to evolve on the back of suspicion rather
than fact, and simple transparency can overcome this problem.

Once the structure to
hold a family’s assets is in place, then establishing the correct
investment mandate is paramount to long-term preservation.

Even family assets where
there is no intention to sell in the near term need to have
suitable investment and governance structures in place.



For more liquid assets,
the investment options to protect the assets are more diverse.

Inflation has, over time,
proved to be one of the significant risks to the preservation of
wealth. One way to mitigate it is through index-linked sovereign

However, like many
investments, a long-term approach is necessary.

Some of the other
investments that may be appropriate, as well as fixed income and
equities, are alternative investments such as gold, hedge funds and
private equity.

Their suitability will
depend on the individual requirements of each of the family

Given the diverse nature
of many families, individuals should be looked at on a standalone
basis so that their investment mandate is pertinent to them.

Many family office
strategies are built on long-term horizons, however the need for
liquidity of investments is key to be able to exploit the
opportunities that changing market condition provide.

The objective of a family
office is to protect assets for future generations. This is complex
and must be driven by the legal and tax structures in which the
assets are held.

From that, the
composition of the investment portfolios will follow.

What is as important is
that no one member of a family has the exact needs and risk
parameters of another.

Hence the family office
must recognise the needs of individual family members as well as
the family collectively.

The key, then, to
long-term protection of the assets is a close relationship between
the family and their advisers, and the flexibility to adapt as
circumstances change. <

The article’s authors,
Charles Gowlland, Mark McMullen and Tommy Shillington, are
directors of investment management at UK investment management and
accountancy group Smith & Williamson