Overcoming Key Challenges and Meeting Key Objectives in Establishing a Family Office

Hubbis and our exclusive partner for the event, Eton Solutions, hosted a private, bespoke event attended by decision-makers from the Hong Kong wealth advisory and family office scene on October 17 at the China Club. The theme for the lunchtime gathering was: Establishing a Family Office – Key Challenges and Consequences. The mission was to drill down into why families set up family offices, what a family office should actually look like, what it could or should do, and to analyse some of the key considerations and challenges in establishing one, with a particular focus on the Hong Kong jurisdiction, and on automating as much of the platform as possible. Bryan Henning, Singapore-based Head of International for Eton Solutions, represented the firm at the event. This is a snapshot of some of the key issues debated, a review of comments and replies to questions from Eton Solutions and, at the end, links to other Eton articles Hubbis has curated from recent interviews with key executives and from our 2023 events around Asia and the UAE.

Want a glimpse into the discussion? CLICK HERE to view an On Demand recording of the discussion.

The Discussion At A Glance

The Views from the Attendees

Hong Kong's Appeal

Hong Kong's strategic location, low taxes, and robust financial infrastructure continue to appeal to individuals and businesses, with evolving tax regulations potentially enhancing its attractiveness for family office structures.

Operational Challenges Overshadow Governance Ones

While setting up a family office in Hong Kong poses fewer legal and regulatory hurdles, operational challenges, often due to budget constraints in the case of burgeoning family offices, prevail. This leads to a leaner operation on a manpower front, and a need for effective digital solutions. It's noted that advice from experienced advisers is crucial to navigate through operational complexities and make well-informed decisions on establishing a family office, considering various factors like family members' locations, jurisdictional connectivity, and lifestyle incentives.

The Value of Governance

Clear communication and defined approaches towards information sharing and control are vital for successful family office governance. Formalizing these principles in a family charter or constitution is recommended to ensure longevity across generations.

Vision and Talent Attraction

Family offices with a clear, often philanthropic, vision tend to attract more interest and talent. Establishing offices across multiple jurisdictions can also be a lure for prospective talent.

A New Generation of Codifiers

Next-generation members show a stronger inclination towards governance and formalizing family charters, driven by a desire for transparency and harmony, contrasting with the founding generation's approach.

Human Touch over Technology

Despite technological advancements, the need for personalized advice from trusted advisors remains paramount for family office principals and leaders, especially in areas of wealth preservation, governance, and legacy planning. This human intervention is seen as irreplaceable by digital solutions and AI, underlining the enduring value of human expertise in the family office sector.

A Summary of Insights from Eton Solutions’ Bryan Henning

Singapore vs Hong Kong: A Growing Rivalry?

Singapore has edged over Hong Kong in attracting new family offices due to its government incentives and transparent immigration policies. Meanwhile, Hong Kong's established family offices are enhancing their offerings, showing a budding competition between the two regions in appealing to a broad client base.

There’s no one-size-fits-all solution

Family offices are tailored based on the wealth and objectives of the founder-principals, arising from liquidity events or the need to manage diverse family wealth. Multi-family offices (MFOs) cater to families with substantial wealth, offering a range of advisory and management services.

Enhanced Cost-Efficiency through Advanced Digital and Management Solutions

Eton Solutions observes a trend among US family offices upgrading technology for better cost-efficiency and professional capabilities. In Asia, while there's a tendency to seek expertise for operational models, investing in operational efficiencies is often overlooked. Adopting technology is essential for competitive markets like Singapore and Hong Kong to ensure business continuity, especially when hiring and securing staff becomes more challenging.

Evolving to Excel

Modernising operations can significantly benefit family offices, particularly new ones in Asia hindered by outdated data management practices. Unlike older family offices sticking to traditional management; embracing technological upgrades, streamlined operations, and improved data management is vital for better wealth insight and decision-making. The distinct needs and assets of each office underscore the importance of a customised modernisation approach.

Helping Family Offices to Avoid Common Mistakes

Eton Solutions aids global family offices in enhancing operational efficiencies, identifying frequent setup and ongoing management errors. Commonly, families are overly focused on cost, overlooking the long-term gains of modernising operations such as digital platform adoption. The firm highlights the value of cloud storage, privacy, and easy document access through smart solutions. Implementation missteps, often from incorrect step sequencing or delays, point to a need for better modernisation education and process guidance.

Tailored Solutions at Competitive Prices

Eton Solutions provides customized packages for family offices, catering to diverse needs at competitive prices. They use a secure cloud-based Microsoft Azure platform for accounting, investment reporting and preparing tax working papers used to cost effectively support tax preparation. Eton Solutions is exploring partnerships for payroll and corporate secretarial services. The company is also adopting AI technology to improve language processing, document summarization, and other functions, which assists in managing tasks like private equity investments and capital calls. Their goal is to enhance operational efficiency via automation, employing AI in Multi-Family Office settings to review client portfolios and ensure they align with specific viewpoints or investment philosophies.

Evolving the Proposition in the Digital Age

Bryan notes that Eton Solutions is beginning to incorporate practical, beneficial AI into their platform, designed for adaptability across various legal and tax frameworks—ideal for family offices in multiple regions. The platform features customised access control, addressing family leaders' cautiousness in sharing sensitive information within large or multi-generational families. This fosters streamlined communication and coordination across locations, ensuring only authorized individuals access specific information. Eton Solutions, with these features, effectively supports a wide range of family office sizes, including those spanning five or six generations.

Cementing Eton Solutions Global Presence

Eton Solutions has broadened its global reach by opening a new international headquarters in Singapore in February 2023 and a Dubai rep office in September 2023, with Bryan at the helm to drive growth outside of North America. Bryan acknowledged Singapore's competitive advantage over Hong Kong during the pandemic, while recognizing Hong Kong's efforts to enhance its appeal through new governmental and fiscal incentives. He also pointed out Dubai's strategic location near Europe as attractive to Asian principals, alongside its evolving financial ecosystem, appealing family office incentives in Dubai and Abu Dhabi, and the zero income tax benefit. Although a 15% corporate tax is on the horizon, it won't affect formal family office structures in free zones. Bryan finished with a comment the region's progress towards global standards, facilitated by new family office entities promoting the region.

A Deeper Dive into the Conversation - Views from the Assembled Guests

Hong Kong’s appeals are far greater than some in the media make out and those who know the jurisdiction, the character and the many advantages reasonably well can easily see that Hong Kong can hold its own with the best

Hong Kong has many appeals. To name but a few, there is the geographical location within Greater China, the low tax, excellent infrastructure and outstanding facilities of all types, the deep global financial services, investment banking and capital markets ecosystem, as well as the acknowledged quality and depth of its legal, accounting and fiduciary expertise.

“And without downplaying the issues we have seen in recent years, the world’s media is much more negative about Hong Kong than anyone who really knows it well and lives and works here,” a lawyer reported. “A lot of people who have considered other bases outside Hong Kong might actually think twice and go off thinking the grass is not always greener and there are there remain good reasons to be in Hong Kong or to come back to Hong Kong. And that is exactly what we're finding.”

The tax and other incentives on offer are also helping to advance Hong Kong’s appeals. Although those with family offices already pay no tax, the arrival of new rules and levies on foreign-sourced income will make it less straightforward to pay zero Hong Kong tax, especially on passive income and so forth, this expert added, noting that the family office structure then becomes more appealing relative to corporate and other structur

These issues are not yet clear, but the government will soon offer that clarity,” he commented. But in theory, he indicated one could combine the family office exemption with the new tax regime and come to a good outcome based on having ‘substance’ in Hong Kong. Indeed, substance is an ever more vital element all over the globe, and in this case, would combine with other factors to result in tax exemption for formal family office structures.

The legal, structural and regulatory sides of establishing and running a family office are often considerably easier to manage than the operations side

An experienced lawyer now in a relatively new family office in Hong Kong commented that what he might have imagined would be the major challenges around structuring, the selection of the right entities, and so forth have all proved relatively easy compared with the operational side.

He explained that in the law firm, everything was on tap with automation, with teams of IT experts, HR specialists, legal secretaries, and outstanding junior lawyers. But at the family office, the budget simply is not there for that level of coverage, meaning that they hugely value the concept of technology, systems and process expertise. Nevertheless, even that is difficult to assess. “This is a very opportune gathering for me,” he stated.

A senior banker with a global institution agreed, noting that there is a certain naivete often amongst the principals when they are thinking about heading to a certain jurisdiction, often thinking far more about the tax incentives, the PR/immigration appeals for their families, and far less about the nitty-gritty of operating such a platform at a granular level.

He said they endeavour to bring their long experience of many such situations to the advice we provide these very wealthy and international families, helping them see the whole thing in a far more complete and multi-faceted picture. He explained that while each family has different situation, objectives and priorities, there are commonalities that can be paid out for them to help them see the key issues and needs from a variety of angles.

“Part of our role is to really share our experience, having looked after many different types of family offices over many decades,” he commented, adding that a family office is a cost centre, not a profit centre, so the family need to extract value from their family office. That could be in the investment management of the family wealth, and/or in the philanthropic endeavours a family might want to express, and/or in the centralisation and coordination of the extended family and multiple generations, even a family concierge hub, and of course, with regard to ‘legacy management’.

He said that to generalise, a family office usually opens where most of the family businesses and members are, but that is not always the case. Decisions are also predicated on residence and migration issues and the diversity of locations of key family members.

If looking beyond the obvious ‘home’ jurisdictions, then there need to be the right incentives and also the appropriate talent available to man those forts. Infrastructure, education, healthcare, security and quality of life play vital parts as well.

Within Asia, he said there is a lot of collaboration and connectivity between Singapore and Hong Kong, with families often establishing bases in both locations.

Governance is a vital element of any successful family office

An expert highlighted the ‘softer’ side of running a successful family office, remarking that communication within the families is vital, clarity of thinking about information inclusion (or exclusion) for different family members, and also clarity around the approach to the control of family businesses and some transparency about issues of legacy.

She said this might all start with, or evolve into a family charter or constitution, and other documents that can be drafted are available to help guide the families toward future cohesion and longevity as an extended family unit and across the generations.

Expertise often follows a vision, especially when the family office is driven entirely by philanthropic missions

A guest who had moved to become the CEO of a new family office – now only a few months old - agreed with these comments, explaining that his own switch from a very successful role at a major firm was driven by the allure of a new challenge, and also because he had established a deep affinity for the family involved.

He explained that the entire mission of this family office is philanthropic. “It is a family office with a difference, as there are no younger generations,” he explained. “Everything is going to charity and good causes. This is a rather unique situation.”

He added that talent is relatively easy to find for them, partly because of the philanthropic missions, making it different in style and considerably easier to attract younger generations aligned to those objectives. He also explained that the family established the family office in Singapore, but with a Hong Kong entity as well. Their new CIO is actually located in Singapore, while as CEO he is based in the Hong Kong office.

He said the structure with a dual location was really predicated on people and committed talent, more than on technicalities around the choice of jurisdiction.

The next and younger generations are actually more attuned to the concepts of governance and formalising family charters than the founder matriarchs and patriarchs of Asia

Another wealth solutions expert observed that the drive for family charters is in his experience more prevalent in the second, third and fourth generations than amongst the founder principals. “In Hong Kong, a good number of the major family offices we work with have established themselves for generations, possibly centuries, and they are running dynasties,” he explained.

He said it is interesting to find that it is the next and younger generations that drive these advances around constitutions, and often driven by having seen conflict within the families and also wanting to ensure more transparency and harmony. “It is really fundamental to understand the clients and how we can assist them; of course, much centres on investments, but we need to understand the bigger picture of the family and their hopes and missions too. For some, it might be driven entirely by investments, for others it is all endurance and legacy.”

The final word from the assembled guest – there is a clear consensus that family office principals and leaders need and expect nuanced, personalised, individualised advice and expertise from trusted advisors, aligned with personal relationships, and that will very probably be the case long into the future

A senior banker added that the delivery of nuanced advice on these and other key matters for such families comes today as it has done for centuries from trusted advisors. “I do not believe any of these matters will become the purview of automation and AI,” he said, adding that nevertheless those trusted advisors will themselves likely be supported and empowered increasingly by AI.

When it comes to real money that these types of extremely clients have and with regard to their key issues around the preservation of wealth, structures, governance and family legacy, trusted experts and advisors will always be vital elements in their decision-making, he indicated.

Key Insights & Comments from Bryan Henning of Eton Solutions

Hubbis has distilled some of Bryan Henning’s comments and replies to questions from the guests in this short article.

Singapore has stolen a march on Hong Kong in the past several years in terms of its incentives and broader appeals for family offices, but Hong Kong is clearly ratcheting up its efforts to attract local, regional and indeed global clients to its shores

Singapore appears to have attracted more new family offices in recent years, while Hong Kong has more long-established SFOs, with a good number now in their second or third generations. Singapore’s approach has been highly coordinated with government-led fiscal and structural incentives and allied to transparent immigration offerings to open the door to principals and their families, and to key executives.

Hong Kong has to some noticeable extent been gearing up its offering to be more directly competitive. Hong Kong also benefits more directly from family offices moving to set up there, or perhaps establish a secondary offshore hub to the mainland SFO.

There is no single, definitive family office model or template; each reflects the wealth and key objectives of the founder-principals and all of them will focus on different priorities

Family offices come in many shapes and sizes, sometimes spurred by liquidity events such as the sale or listing of family enterprises, and with the principals installing a clear structure, including perhaps CIO, CFO, COO or all the above to manage the funds, if sufficiently sizable. Other family offices in Asia and the Middle East tend to emerge out of the need to coordinate disparate family wealth garnered over the years from multiple sources, including family businesses, investments, real estate and so forth, with many of these elements rather commingled and not formally overseen.

The overall objective for these SFOs is to help the family wealth endure well into many generations ahead, not only to protect that wealth but to introduce structures that will help the family transition assets and/or control of that wealth to those next generations.

Multi-family offices (MFOs) tend to be for families with real wealth but at levels below justification for a dedicated office. The MFO will tend to be run by professionals who assemble a variety of such families, managing their money and helping them with a whole array of advice and services.

Across the US, Eton Solutions’ core market, family offices of all shapes and sizes are improving their technology and management systems to become more cost-effective and efficient and to enhance the capabilities of the key professionals and family members involved

There is a widespread trend that Eton sees in its core US market to professionalise family office operations. In the US, it is often surprising that even for multi-billion level SFOs, they are still being weaned off basic accounting practices and a very manual type of process throughout, which costs them both time and money.

In Asia, the expanding array of family offices need plenty of help in their operating models, and also to coordinate family activities with an ecosystem of legal, accounting, fiduciary and other experts they turn to for advice on immigration, trusts, foundations, partnerships, the maximisation of tax efficiencies and so forth.

Also in Asia, Bryan has seen that principals are often quite comfortable with spending money on all that type of advice and support – especially lawyers – but less eager or willing to spend on elevating their family office operations. In other words, what they very much need they are not so receptive to paying for, but the downside is operational inefficiency and an inability to properly translate the expensive advice from legal and other experts to valuable structures and more 360-degree approaches.

Having better data, better data assembly and a more holistic vision of all the family businesses, investments and overall wealth also then manage all that wealth more effectively. But to do so requires a much more formalised approach to the family office structure, mission, staffing and activity

This means the families need to operationalize a proper family office platform, and that requires technology, especially in markets such as Singapore and Hong Kong, where it is tough to hire, let alone retain really good talent. And this means technology and protocols for automating, digitalising, and more broadly boosting the efficiency and efficacy of these operations.

In very broad terms, these family offices can achieve considerably more for their founders and families, but a much more robust and fit-for-purpose approach needs to be taken to modernise the operations and strategies

Oftentimes, SFOs in Asia that are only a few years old do not seem to realise the full potential of these entities and are also vulnerable to outdated approaches to data gathering and reporting, making it difficult to transition the SFO to a modern, fit-for-purpose vehicle to serve the bigger needs of the entire family, which could span many different branches, generations and jurisdictions. And some of the older SFOs are stuck in their old typically Asian ways of managing – people-heavy with little decision-making delegated down the line, and with little modernisation of technologies and processes.

Accordingly, there is a drive, or at least a very clear need, to upgrade technologies, streamline operations, to digitise, centralise, refine and reconcile data coming in from different sources. In this way, the leaders and family members have a much better perspective on their wealth and its allocation. They can also upgrade quarterly or annual updates to monthly reporting, in order to help decision-making and improve outcomes.

And each family office will have different assets, a different mix, various levels of complexity and different objectives. They will have different approaches to informing family members and key stakeholders.

Eton Solutions works with over 650 families across the globe from USD50 Million in assets to multi-billion-dollar SFOs and a common theme is that most of them can be improved significantly in terms of operating efficiencies and also there are common mistakes the founders and management make before and after setting them up

There are many typical mistakes that families make along the way. They become over-focused on cost, rather than the longer-term benefits, for example of introducing a digital operational platform. This means they need more education on the advantages and the disadvantages of not modernising their operations. Knowing the price of everything without knowing the value is a typical mistake in this regard.

Cloud-based storage, privacy and selective encryption of key documents, as well as ease of access – including for external experts such as lawyers - are also central to the proposition of smart operating solutions, and that is the case for Eton’s own solutions.

Every important document can be scanned, archived and stored, potentially next to a transaction, next to a legal entity, or a physical asset, Bryan explained, adding that they have a significant team in India that does exactly that, and tailored to the client needs. He said the archiving of relevant assets and documentation can cover anything from financial investments to art collections to fine wine, and so forth.

Implementation is the next area where people make errors, either because of taking the wrong steps in the wrong order, or if it all takes far too much time.

The Eton Solutions proposition comes in a variety of packages tailored to the biggest and also the smallest levels of family office, and each of the packages is priced competitively

Bryan then ran guests through some of the basics of their different levels of offering and how they price. He explained that family offices of any size have different needs and expectations, and also that their offering levels are targeted at different size operations, down to smaller SFOs with just USD50 million of AUM. He said their software can even be adapted for individuals who have significant wealth but who do not ant to even establish a family office.

Eton delivers a Microsoft Azure platform, with most of the Microsoft apps sitting inside it, and as he had said, it is cloud-hosted, and very secure. Eton covers all the accounting side, but does not touch on payroll and corporate secretarial services, although they are in discussions to partner with some of those providers to offer a one-stop proposition.

He reported that Eton is working on incorporating relevant AI technology into the platform for example enhancing language capabilities, and document summaries and comparisons, for example for a new HR programme. But he also said they are careful about privacy, ensuring that they stay closed from scrutiny and cyber-crime within the cloud. AI and machine learning can be used, for example, to help manage private equity investments, handle capital calls, update mark-to-market data and so forth.

He said their mission is to create more efficient operations, so any improvements that through automation can reduce the burden on the operations team, however small or large that might be, are worthwhile advances.

He added that AI is in evolutionary phases but clearly, it can be applied in an MFO setting, for example self-training to review multiple client portfolios and assess the construction and whether those portfolios are expressing a certain viewpoint or philosophy.

The mission for Eton Solutions is to future-proof the family office platform in as comprehensive a way as possible, at manageable prices, and each solution on offer is tailored to the specific needs and preferences of each family

“We are future-proofing the platform in these ways, embedding AI into the platform, but it is not there yet, it is a work in progress,” he said. “We need to use AI, but use it in a clever, tangible way, not just as a cool addition.”

Bryan also noted that the platform is very agile and configurable to different regulatory and tax jurisdictions, for example in Australia where Eton has been rolling out its proposition this year. “A dream hypothetical client might be based in Singapore, have a Hong Kong base, a Dubai satellite, something in Switzerland, maybe the US, and Australia and every entity can sit on the same platform seamlessly.”

Bryan also explained that their platform is configurable to allow the principals to decide who in the family or the operations of the family office can see what.

“We are very aware that matriarchs and patriarchs are very cautious in what they might want the family to see, or not, so we have configured apps and access generally to segregate and filter information only to those with permissions,” he said. “We have one family in New Zealand that has five or six generations, there are numerous families within the family and more than 250 individuals, so there is a natural caution about how far and wide certain information is spread.”

He added that in this huge family, communication and coordination are absolutely critical, but those concerns are mirrored also in far smaller families and family office operations.

Eton Solutions works globally, and the new international office that opened in Singapore in February 2023, and a Dubai rep office in September 2023, and that Bryan heads up, is to spearhead the expansion internationally with specific focus in APAC and UAE.

Bryan closed his comments by noting that the new international office in Singapore that opened in February this year is to spearhead the expansion of their relationships and coverage across APAC and also the middle east, where they have been opening a new office also in Dubai in September.

He commented briefly on the relative importance of Singapore, Hong Kong, and Dubai. He reiterated that Singapore had stolen a march on Hong Kong during the pandemic, but that Invest Hong Kong is now coordinating much more soundly with new government and fiscal incentives and new asset management vehicles to boost its competitiveness.

Bryan offered some commentary on various relevant family office jurisdictions, noting that Dubai has the advantage of proximity to Europe, hence principals from Asia are sometimes bypassing both Asian offshore centres and heading straight to the UAE. Their broader financial and services ecosystem is maturing and expanding there, and new and appealing family office and asset management incentives are on offer in several of the jurisdictions, including Dubai and Abu Dhabi, along with other aligned attractions such as Golden Visas and of course, zero income tax.

The arrival of a new 15% corporate tax should be considered, but this will not be waged on formal family office structures, including of course, in free zones. A major negative is still being classed in the FATCA grey zone and the EU blacklist, and there is an acknowledgement that standards are still on the rise rather than right up to global peers, but things are improving. Moreover, there are new family office bodies helping to promote the region and encourage necessary developments that will oil the wheels of diversity in this segment.

And a Short Note on Bryan Henning

Bryan Henning is SVP and Head of International for Eton Solutions’ new international HQ in Singapore, that opened on February 9.

Bryan is a wealth management specialist with over 30 years of experience. He represents Eton Solutions as Senior Vice President, Head of International. Bryan is based in Singapore, where he is responsible for all aspects of their international business.

As Senior VP of International Sales, he leads client interactions, sales, implementation, and services throughout the Asia Pacific region and supports all company operations in Singapore.

Throughout his multi-decade career, Bryan has worked in banking and wealth management, leading divisions for Standard Chartered Bank, Barclays Wealth, and HSBC, where he developed and managed all aspects of wealth management offerings to retail, mass affluent, HNW, and UHNW clients.

While Bryan has successfully built and run wealth management and investment product and services businesses in Africa, the Middle East, and Europe, the majority of his experience is based in Asia. He is a Permanent Resident of Singapore, where he currently resides, and he has Canadian and Australian roots.

For further reading on Eton Solutions, its technology platform and its nuanced offerings for family offices of all sizes, as well as on its missions in the APAC region, see these Hubbis articles from 2023:

• Eton Solutions - Transforming a Family Office to Reimagine the Value it Delivers
• Optimising Family Office Formation and Operations from the Rapidly Evolving UAE Wealth Market
• Eton Solutions Launches its ‘Revolutionary’ Administrative Family Office