How single family offices can thrive in a changing landscape
Single family offices need to constantly evolve and adapt to global changes to grow and protect the family legacy across generations.
As jurisdictions around the world attempt to address a wide range of societal and geopolitical challenges, changes and disruptions to tax, regulatory and economic policies are accelerating. How can single family offices (SFOs) continue to grow, adapt and protect the family legacy across generations?
We speak to Spencer Hsu, Associate Partner of Private Tax Services, who recently joined EY from the Monetary Authority of Singapore (MAS) to understand the priorities of SFOs in today’s high-pressure and fast-changing environment.
What insights have you gained working with the MAS?
Having spent close to 15 years in the MAS, I was exposed to varied responsibilities including banking supervision, talent development for the financial sector, and eventually the development of the private banking and family office ecosystem in Singapore. I also got to spend two years in China, which provided a really useful in-market perspective of all things Chinese.
In the years spent working with the wealth management industry, I gained pertinent insights to Singapore’s role as an international wealth management hub. It also gave me a “front-row-seat view” of the “SFO boom” that started as early as 2017. I had the privilege of contributing directly toward addressing issues faced by the industry and also help Singapore compete as an international hub for SFOs.
One of the key takeaways from my time in MAS was how important it was for an SFO to appoint a trusted professional advisor in order to ensure its success in establishment. This was especially important to those who were new to Singapore, given that most, if not all, of the SFOs that were established had relied on professional advisors to some extent in helping them with their SFO setup. This included aspects such as their structure design, providing tax advice as well as operational matters like applying for employment passes and opening bank accounts.
A trusted professional advisor would ensure continued support to the SFO beyond the initial setup, which is critical to the growth and protection of the SFO in the long run.
How would the new MAS requirements announced earlier on 18 April 2022 affect SFOs in Singapore and the region?
The changes announced reflect a coming of age for the SFO sector in Singapore, where the MAS charts the direction for the next phase of growth. The new direction places greater emphasis on the quality and professionalism of SFOs that Singapore hopes to attract. This would help bridge the gap between SFOs in the Asia-Pacific region and those in the more advanced markets in Europe and the US. As a result of the latest changes, we will see larger SFOs being set up in Singapore, who would also have a stronger need to recruit professional talent.
Policy adjustment is not the main or only approach that the Singapore government undertakes to raise standards for SFOs in Singapore. The MAS and the Singapore Economic Development Board (EDB) have already provided strong support to SFOs in many areas, such as through providing training and digitalisation subsidies – and it is expected that they will continue to render such support to accelerate the growth of the industry, as long as SFOs demonstrate their commitment towards raising standards as they evolve.
How has the COVID-19 pandemic impacted the SFOs?
Recent global developments have prompted changes within SFOs to adapt to the new realities. For example, the COVID-19 pandemic has changed the way we work overall, with remote working looking more like it is here to stay. SFOs are also more concerned about the associated tax implications arising from new virtual ways of working. This is seen in the latest EY Family Office Study, where 72% of respondents globally cited tax consequences of remote working as a concern.
Remote working has also resulted in ensuring cybersecurity emerging as a key concern in light of greater digitalisation needs by SFOs. 74% of the SFOs surveyed globally indicated that they had experienced some form of cyber security or data breach.
The COVID-19 pandemic has also accelerated digital transformation. This has become an increasingly key priority of SFOs as the technological landscape creates significant challenges and opportunities for them. The study clearly shows that there is an urgency for digital transformation across a broad spectrum, with 81% of respondents globally indicating they have plans to make significant investments in three or more digital technologies and tools in the coming two years.
With more jurisdictions around the world reviewing their tax policies and enforcement, what does this mean for the SFOs?
Over 75% of SFOs in Asia-Pacific covered in the survey are concerned about regulatory demands due to heightened government requirements for global transparency and information exchange, alongside changing mandatory reporting disclosures globally and in Asia-Pacific.
As global tax rules undergo a major overhaul with Base Erosion and Profit Shifting (BEPS) 2.0, SFOs will need to keep abreast of these developments and adapt accordingly, depending on how these changes have an impact on them and their stakeholders. It is important for SFOs to ensure they remain compliant while satisfying the growing expectations of family, business and regulatory stakeholders.
With all these changes happening, how can SFOs offices manage these multifaceted pressures?
To be able to adapt to these changes, SFOs will need to have in place a comprehensive risk management approach that will help them keep tabs of the key risks that could impact the family and its members, as well as the family’s investments. They will also need to have in place, processes and platforms for them to identify any potential risks early on and develop measures to reduce these risks.
While systems and strategies are fundamental to managing risks, having the right people to implement these plans are just as crucial. SFOs thus need to maintain or have access to a team of professionals who are constantly plugged in to relevant issues, and who can dynamically respond to any changes or constantly revisit past assumptions to ensure that they remain valid.
This will include having to develop a process for deciding whether some of these functions are more efficiently performed in-house or by external professionals, who may be better-placed to do the job, be it to provide an expert view or adopt an independent perspective.
And what final advice do you have for SFOs?
The landscape for SFOs going forward is exciting, due to a convergence of favourable factors externally and within Singapore. This presents plentiful opportunities and approaches for families to plan and preserve their wealth for future generations. What is key is to keep up with the changing regulatory and tax landscape and adapt to the everchanging externalities. To do so, SFOs will need to evolve toward more professional management and have in place the right policies, processes, platforms and people. Never has it been more important for SFO leaders to perform a fresh review and incorporate external perspectives into their strategic planning, governance and risk management constructs.
The good news is that they are not alone in this journey, especially with the growing community of SFOs in Singapore and the depth of the professional talent pool that is able to guide them along the way. SFOs will find it beneficial to reach out and connect with one other – an ideal platform to facilitate this is the Global-Asia Family Office Circle (GFO Circle), which seeks to be the leading voice and umbrella association for SFOs in Singapore and Asia, and is supported by the EDB and MAS. I was closely involved in setting up the GFO Circle while in MAS – where EY is also a key contributing partner – and I hope that SFOs will find it to be a truly useful platform to for learning and growing together as they face the challenges that the future presents.
This In conversation with article features Spencer Hsu, Associate Partner, Private Tax Services from EY Corporate Advisors Pte. Ltd.