Overall, family offices, he asserts, have come
out of the crisis in “good shape” and have picked up a bigger share
of the total wealth pie.

Stonehage has seen more business as a result
of the upheavals, and now deals with “in excess” of 1,000 families
worldwide.

Market talk has it that the company manages
some €20 billion ($27.4 billion) of client assets, although it is
not a figure that Stonehage is comfortable with. Factors like
assets held in trust administration makes it difficult to put a
“global” figure on Stonehage’s total business, measured by
volume.

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

Learn more about Strategic Intelligence

What is clear is that the financial crisis has
prompted many families to fundamentally reassess their businesses,
the jurisdictions they choose and the deployment of their personal
wealth.

In an interview, Rodger explains: “There are
now so many more challenges for big, internationally-active
families – in their business, in complexities of portfolios, in the
lack of bank credit facilities, and the like.

“The world has become a much more complicated
place as regards tax and regulations. The average family is present
in more than one jurisdiction and the rules are different in every
jurisdiction and constantly changing.”

The UK is a good example, Rodger says, after
the rules on non-domiciled individuals saw sweeping changes,
including a new annual residency charge of £30,000 ($49,000).

“Historically, to handle the whole range of
affairs of the wealthy family hasn’t been as difficult as it has
now,” he adds. “Ownership and structuring of family wealth, through
trusts was once relatively simple. But no longer.”

Crucially, Rodger says, families are now
dealing with a financial and business environment where many
governments are likely to try to tax these wealthy international
dynasties in order help repay public borrowing and defray the
trillions of dollars spent in banking bailouts.

“So, after being hit by the plunge in markets
on the way down, families see themselves being hit on the way up,”
he declares.

The crisis has also exposed some of the
weaknesses of mainstream private banking, including claims of
frequent product pushing and indifferent investment advice, he
asserts.

“As a result, families are increasingly
looking for advisers which are completely independent and not
motivated by sales of products. These advisers must be
wholly-aligned to their own interests,” Rodger adds.

That includes charges and fees, he says.

“How our family clients pay us for investment
advice is based on an absolutely crystal definition and the overall
service is to maintain as much liquidity, transparency and
simplicity as possible,” Rodger explains.

In fact, channelling retrocession charges to
clients, as Stonehage and some other MFOs do, is reckoned to recoup
between 30 percent and 40 percent of their fee payments.

Rodger confirms it returns all retrocessions
it receives, resulting in a “significant reduction” in fees on
portfolio investment business as a result.

In basic terms, investments form only a part
of a Stonehage service which covers all areas of technical, legal,
financial and strategic advice a wealthy family might require. The
family office advisory work is charged on a time basis or sometimes
a fixed fee is agreed. Stonehage does not charge a percentage of
assets unless its investment team, at Stonehage Investment
Partners, is given a specific portfolio to manage.

Rodger says: “We are pretty sophisticated in
anticipating costs, based on factors like the use of senior
executives and can produce a pretty accurate annual budget for a
family client in advance.”

These executives include the widely-admired
John Rhodes, who joined Stonehage as a consultant after building
his reputation as a senior adviser to the private client department
at law firm Macfarlanes. His particular areas of expertise include
UK inheritance tax and capital gains tax, UK and offshore trusts,
domicile and international trust and estate planning.

Rodger explains: “You need to fulfil your
fiduciary role with a very sophisticated and astute person or
organisation, plus teams of very good people who can advise on
family business issues as well as areas like art and property, in
addition to tax and legal matters.”

What has stood Stonehage in good stead was its
origins, back in the mid-1970s, as a trust company, he
continues.

“Being trustees to wealthy entrepreneurial
families is fundamental to our culture,” Rodger adds.

“The firm realised to be really good trustees,
we should understand tax, law, investment, regulation, and various
jurisdictions. So over time we have built individual platforms of
expertise which clients can choose when doing business with us.
This includes our multi-banking platform, as members of the SWIFT
interbank network.”

Stonehage has also grown internationally, with
a network in several centres. That includes the establishment of an
office in Geneva earlier this year, to add to its Neuchatel and
Zurich branches. It is also present in Jersey, Cape Town,
Johannesburg, Israel Sydney and in the US, with a branch in
Philadelphia.

There are no immediate plans for a direct
presence in Asia, although the company is “always looking to be
where wealthy families are”.

Rodger then returns to his main theme, and
says: “A new breed of expert fiduciary is required by today’s
environment. The day to day management of wealthy families’
affairs, from an operational point of view, is very
challenging.

“It is essential that everything is done very
well, such as the division between income and capital. There’s a
proliferation of operational issues to be examined on a daily
basis, including client reporting while record-keeping to the
highest standards is essential.

Historically, says Rodger, there are not that
many people doing that. Trust companies are usually very good and
can generally carry out such functions but “banks are not
principally motivated by this”.

The Stonehage executive adds: “Private banks
often describe themselves as multi-family offices but are often
mainly concerned with gathering of assets.

“Families are looking for independent
advisers, not firms motivated by sales of products.”

So, with more than 1,000 clients, could
Stonehage now rank as the biggest MFO in the wealth industry?

Lack of a family office “league table” makes
that difficult to judge. Certainly, MFOs like Bessemer Trust and
Rockefeller and Co in the US (in which Société Générale has a
stake) have impressive size.

But these are mainly concerned with their US
onshore clientele and many American MFOs are primarily investment
managers. Additionally, many MFOs in Europe act purely, in Rodger’s
words, as family investment offices, rather than carrying out the
full range of fiduciary, tax and legal functions.

If the definition is a real, fully
international, onshore and offshore MFO, providing a complete range
of functions, then Stonehage hopes that it is “very near the top,
if not the lead”, Rodger asserts.

He concludes: “Our client numbers are growing
steadily and we pretty much feel that, if something awful happen in
the world, you [the clients] want to be with a firm like
Stonehage.”

The UK and Switzerland have, by
coincidence, simultaneously unsettled their wealthy and potentially
mobile patrons. In 2008, the UK introduced a fee for resident
non-domiciled individuals (RNDs) and has recently increased the
higher rate of tax to 50 percent.

In Switzerland, a referendum in Zurich decided
the canton would abolish in early 2010 the forfait system, which
allows foreigners to reside but not work in Switzerland and pay an
individually negotiated fixed annual tax.

The fee paid varies across cantons: in Geneva,
the average is CHF180,000 ($174,000), in Zurich it is CHF150,000
and the average across Switzerland is CHF75,000. Now there is
concern the decision in Zurich could spread to other cantons.

This has happened against a backdrop of the
banking systems in both countries being placed under enormous
strain. This in itself presents additional challenges to wealthy
families as they assess an appropriate banking strategy.

It may well be that any reasonable increase in
tax would be compensated for by a system that exhibits the
following non-monetary characteristics:

• Terms that are fixed for some
years;

• Terms that are easy to comprehend
and implement;

• No requirement to incur large
legal and professional fees; and

• No requirement for provision of
information beyond that required to dispel any reasonable and
specific suspicions about the source of funds.

Source: Stonehage

Andrew Rodger, Stonehage