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Family Offices In Asia A Strong Revenue-Driver For Baker & McKenzie; Also Smiles On Philippines

Tom Burroughes

25 September 2017

It is a truism that Asia, a region renowned for the dominance of family-run firms, has fertile soil in which family offices can flourish. It is certainly seen as a strong growth area for single and multi-family offices in future. 

The growth of the region’s family office sector was one of the issues highlighted in a recent interview by WealthBriefingAsia with lawyers at Baker McKenzie's member firms in Singapore and the Philippines. 

“We are seeing a lot of external asset managers calling themselves family offices….some to a degree are involved in various aspects of what a family office does. There is a lot of potential,” Dawn Quek, a principal at Baker McKenzie Wong & Leow, member firm of Baker McKenzie in Singapore, told this publication. “Some 80 per cent of revenue in my practice comes from advising family offices,” she continued.

It is not always the case that a wealthy person/family needs to create a family office, given the costs involved in such operations – sometimes a private trust company or similar structure makes more sense, she said. “Also, family offices mean different things to different people,” she said. 

With large wealth transfers due in coming years, family offices may also be robust structures for this task. According to the UBS Billionaires Report 2016, around 85 per cent of Asia’s billionaires are first-generation. Throughout the world, a relatively tiny group of people – fewer than 500 - are expected to hand over more than $2.1 trillion to their heirs. That is the equivalent of India’s GDP in 2015 (source: UBS).

“More and more Asian families are setting up in Singapore and most of them will have an investment focus; many of them have significant assets, not just to hold financial assets but also holdings in family businesses. Singapore is a favoured jurisdiction for Asian families,” Quek continued. 

Growth of advice around family offices in Asia is certainly a valuable source of revenue in wealth hubs such as Singapore, at a time when that city-state is licking some wounds stemming from the Indonesian tax amnesty that concluded at the end of March this year. The amnesty uncovered more than $360 billion. Indonesia’s government claims another 185 trillion rupiah (about $139 billion) in tax revenue could be unlocked. Clearly, therefore, the threat to offshore centres such as Singapore isn’t over. 

Switching northwards from Singapore, there is a push by clients to review their existing holding structures, a process likely accelerated under the Common Reporting Standard regime agreed to by many countries, Quek said. Authorities, for example, will be suspicious of structures where there are a lot of nominees and layers. In fact, such arrangements are likely to be under pressure across all of Asia, she said.

Even against that background, there are plenty of reasons for clients to book business via Singapore and other capitals, she said, citing factors such as respect for confidentiality, robust legal system, available expertise and convenience. 

“People are also realising they are going to have to be more transparent, though – and that applies to onshore as well as offshore assets,” she added.

Turning to another part of the Pacific Rim, Quek’s colleague, Dennis Dimagiba, head of tax practice at Quisumbing Torres, a member firm of Baker  McKenzie in the Philippines, spoke about the growth in the country’s wealth management market and its upside potential. And while some of the big international banks pulled out of the country in the 1990s, preferring to serve the nation via the likes of Singapore,  account officers continued to serve customers in the Philippines.

A number of the major banks have representative offices in the country, such as Singapore-headquartered DBS; Bank of Singapore and United Overseas Bank. HSBC Private Banking has an office in the country; Standard Chartered’s private bank also is present in the country - in fact StanChart claims to be the oldest international bank in the jurisdiction, with a history there dating back to 1872.

There have been a number of news stories about the potential of the country in wealth management terms. Momentum seems to be building in the Philippines wealth and investment market. In late June, for example, Manulife, the financial services group, said its one of its business arms has got the green light to provide trust and fiduciary services business in the Philippines. 

Earlier this year, the World Bank predicted that the Philippines economy will grow by more than 6 per cent for the years until 2019, the fastest pace in the country’s history. The economy expanded by 6.8 per cent in 2016, outpacing China.

Tax measures have been brought out to make life easier for affluent individuals, he said. For example, in February this year the lower house of Congress approved the first of several packages comprising the government sponsored comprehensive tax reform, including reforms in individual income taxation, estate tax and donors' tax.  Among its objectives, the tax reform seeks to simplify the estate tax and the donor's tax, by providing for a single uniform rate of 6 per cent. One of the benefits of this change is that asset transfers become cheaper, Dimagiba said. “This gives more room for estate planning,” he said.