Servicing Family Businesses From Start-Ups To Family Offices
Family businesses are the lifeblood of the UK economy. There are currently more than three million family businesses in Britain, providing over nine million jobs. That's 40% of total private sector jobs, making family firms the single largest source of private employment.
Globally, family businesses are even bigger, accounting for at least 60% of private sector GDP, and employing an even bigger percentage of people. The sector is hugely diverse, there are few areas where family businesses do not exist, and they vary from a single retail outlet to the likes of Walmart and FIAT.
This variety means that good family business advisors need to be able to service the full range of firms from the small and medium sized start up to the larger firms seeking to develop their own family office service.
Fortunately some family businesses issues, such as the principal's plans for retirement and business succession, are common whatever the size of the business. What is different is that smaller companies simply find it more difficult to plan for this.
Indeed while nearly two thirds of British SME business owners aim to pass on their business to their family, only a third achieves this. Many fail because they simply cannot afford to retire, often because they haven't fully planned how to maximise profit from their business to fund their retirement.
Family business advisors can resolve these problems by giving proper financial advice. This way the tax implications of passing businesses to the next generation, whether capital gains tax (CGT), inheritance tax, entrepreneur's relief or CGT hold-over, can be used to their advantage. A Chartered Financial Planner is perfectly placed to ensure that every avenue is explored to minimise tax and maximise opportunities.
One major burden family businesses have been unable to avoid in the past year is compliance with pension auto enrolment legislation. For the majority of UK employers, auto enrolment is still not business as usual and for many, the process is just beginning.
Administration has been the big challenge for employers as has systems compatibility. For most smaller family businesses auto-enrolment has created a lot more work and additional costs. Close Brothers have been on hand to help with this additional complexity, especially where the schemes have different opt-in/opt-out processes.
What about those families whose business success means they now wish to set up a family office? Close Brothers provides invaluable investment and financial planning services for these clients. However, recognising the importance of working with other advisors, Close Brothers works closely with a range of firms such as Bedell Trust in Jersey.
There are an ever increasing number of Family Offices being set up by wealthy families. Ian Slack, a Director of Bedell Trust lists 10 of the main reasons for setting up a Family Office:
1.Confidentiality & discretion
High Net Worth Individuals (HNWIs) are highly sensitive to maintaining confidentiality for a variety of legitimate reasons, and setting up their own Single Family Office (SFO) or hand-picked Multi-Family Office (MFO) gives them the confidence and peace of mind that their information and data is being kept confidential.
2.Trust
Often HNWI's will employ professional advisors who they have worked with for some time and who they have grown to trust with their affairs. By engaging those advisors directly in their own Family Office they can maintain that trusted relationship.
3.Independence
By employing their own staff or engaging with an independently owned MFO, HNWI's can ensure that their Family Office's interests are closely aligned to their own with no conflicts of interest.
4.Time saving
Most wealthy families quickly realise that with great wealth comes the burden of managing that wealth. In this sense, time is truly precious and a Family Office may be used to manage personal homes, luxury assets, and take care of travel arrangements, and deal with sometimes sensitive tasks.
5.Cost saving
Not only can the Family Office therefore provide a more holistic solution, it can also be more cost effective than utilising a range of external advisors.
6.Accountability
HNWIs want the staff reporting to them to be directly accountable for their actions. Consistency of personnel and a "long life" employer-employee relationship means that Family Office staff understand the long term effect of their role and actions.
7.Dedicated staff
Staff in an SFO are entirely dedicated to one client family and therefore can easily prioritise their work loads. Increasingly we are seeing MFO's employing some staff dedicated to a single client.
8.Flexibility
As the staff are reporting directly to the HNWI in an SFO or based on a bespoke service agreement in an MFO, their roles and responsibilities can be as flexible and varied as the HNWI requires.
9.Control
The HNWIs directly instruct staff within the Family Office, and means that the Family Office recruits and mentors staff who are highly skilled and very focused on their client families' needs.
10.Tailored advice based on full and historical knowledge
The staff of the Family Office can know the whole picture – the tax and legal structure, the likes and dislikes of the HNWI and their family, together with a very deep personal historic knowledge of the family's affairs which means that the service offered can be very deep and personalised.
About the authors - William Ladenburg is Private Client Director at Close Brothers Asset Management and Ian Slack is a Director of Bedell Family Office.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
