The growing number of multi-family offices in Asia are offering wealthy individuals a bespoke alternative to their ever-evolving needs, at a time when the traditional private bank model has come under criticism for being too product driven and impersonal.
Multi-family offices, or MFOs, are independent organisations that help multiple families manage their entire wealth.
Though there are no official figures on the number of multi-family offices in Asia, Sebastian Dovey, managing partner at Scorpio Partnership puts the number of established MFOs at between 25 and 40 each in Hong Kong and Singapore.
"Clients are attracted to the MFO business model because of their typically private ownership model. They also like the fact that they can delegate some of the management responsibilities to a focused group of market professionals working for a limited number of clients, as opposed to being one of many thousands of clients in a bigger firm, and they like the idea of employing a gatekeeper that can provide an interface between them and the complexities of the financial markets," said Dovey.
Where MFOs are really expected to compete is in their role as quasi-watchdog and aggregator of the entire portfolio. "This adds real value and is clearly distinctive from what a private bank employee can often struggle to do in terms of considering the entire wealth of the client across multiple banks," Dovey added.
"Asian families have rarely consolidated their assets across different banks in the past. It is important for them to look at the whole picture," said Urs Brutsch, managing partner at HP Wealth Management, a MFO in Singapore.
Indeed, many of these outfits are being set up by ex-private bankers under pressure to generate income for the bank, with the additional time spent on compliance issues making it increasingly difficult to focus on the core of what private banking is about: building client relationships on trust, service and added value.
"As a boutique firm with a limited group of clients, we are able to take the time to understand the needs of each client and build a long-term, sustainable relationship with them. It's almost like returning to the service type of private banking we saw 15 years ago but with the added benefit of a more regulated investment advisory cycle to cater for the clients' best investment interest," said Philippe Legrand, who, after three decades of working for European private banks left to start up London and Capital Asia, a multi-family office, two years ago.
It is this type of customised service that first drew Marshall Byres, Ernst & Young's former tax services chairman, to the MFO model. "There are many people in my bracket who aren't extremely wealthy but have more than US$1 million in wealth that are looking for this type of bespoke service," he said.
Byres now has accounts with three different private banks, but deals with them only through London and Capital Asia. "This is as close to a one-stop shop as you are going to get," he added.
Charles Luchangco, a former private banker with stints at JP Morgan Private Bank and RBS Coutts Bank, also left the banking sector to set up a multi-family office at investment firm Caidao Capital last year.
"The move grew out of my desire to do more for my clients. Whereas now we can work with up to 10 families per partner, in the private bank, it was not uncommon to have between 50 and 100 relationships," he said.
"This approach allows you to take on a much longer term view, and not need to be focused on monetising the relationship with the client all the time," he added.
Roberto Ascoli, a regional director for a FTSE 100 company, who moved to Hong Kong earlier this year, agrees. He found his experiences with private banks disappointing.
"In the first meeting, they spent half an hour telling me what they couldn't do, which I thought was simply catastrophic for building trust and relationship. In the second meeting, they led me through a questionnaire to identify my appetite for risk, but that was before we even began discussing what type of service I was looking for," he said.
In the end, he opted for the multi-family office, which, rather than taking the conventional route of placing his assets in a trust, a common tool for wealth transfer planning, helped to place his wealth in a corporate structure, making him and his wife principals and his three children directors.
"If I were to be run down by a car tomorrow, all my wealth would be immediately transferred to the kids and they would be taken care of. Forming a company like this allows for easier succession planning. This was something I had not thought of doing before," Ascoli said.
Noting the needs of the market, large private banks are, in ever-growing numbers, reorganising their structures and revamping wealth divisions to meet the needs of their clients.
In 2001, UBS set up the Global Family Office Group, a joint venture between its investment bank and wealth division aimed at delivering an integrated banking approach to wealthy families.
"UBS covers trading needs by enabling clients to access its investment bank trading platform and traders on a global level around the clock," said Amy Lo, head of UBS' ultra-high-net-worth business in Asia-Pacific.
This means the bank's wealthy clients have access to its deal flow, which could include pre-IPO and special distress situations.
"The Global Family Office is the area of the bank that fosters and drives the co-operation between wealth management and investment bank beyond the divisional interests. Our internal revenue sharing agreement reflects this approach and we therefore align our interests with those of our clients," Lo added.
Despite the many advantages of the MFO, Lo points out these institutions do not have the geographical coverage of large private banks.
"Ultra-high-net-worth individuals often have family members all over the world. They are interested not only in what the local market has to offer, but also what we can do for them globally. With teams worldwide, we are able to tap into our resources across the world. For example, we have European family clients working with our Global Family office team in Asia and vice versa," she said.
So important is geographical diversity that HSBC Private Bank provides family wealth capabilities specially designed to serve multi-jurisdictional and multi-generational families with the bank's Private Wealth Solutions business offering a range of services from 18 locations across all major time zones.
The bank operates on an inclusive model, says Bernard Rennell, CEO North Asia, Global Private Banking and Global Head at HSBC Private Bank's Private Wealth Solutions. He says it goes beyond open architecture to ensure clients are offered the best solutions.
"The objective is always to enhance, not replace, the arrangements and relationships client families may already have in place with other advisers including other managers and banks as well as their own family offices. Our preferred modus operandi is to work collaboratively with these third parties on a continuing basis for the benefit of the family, not to try and exclude them," Rennell said.
Credit Suisse understands the value of this approach, which is why it has more than 90 billion Swiss francs (HK$749 billion) in assets under management from external asset managers, which includes single family offices and multi-family offices. It has also, where appropriate, extended its investment banking and asset management expertise and solutions to these wealth managers for their end clients.
"Private banks that hold true the principle that clients come first recognise that the relationship between a client and the relationship manager forms the basis of a banking relationship. Whether a client chooses to have a direct relationship with Credit Suisse through a private banker or deal with the bank via an external asset manager, Credit Suisse's strategic partnership with external asset managers allows the client to benefit from safe custody in Credit Suisse as well as access to a robust product range and services," said Chuck Ng, head of external asset managers, Asia-Pacific, at the firm's Private Banking Division.
"We are only scratching the surface now. We will see further growth of the multi-family office in Asia over the next few years," said Brutsch, noting that only about 1 to 2 per cent of assets in Singapore are booked by external asset managers, in stark contrast to Switzerland where independent wealth managers account for up to 25 per cent of assets booked.
Though the multi-family office holds distinct appeal to many, Dovey believes their growing presence in Asia will remain small for the time being as private banks offer a broader range of services and expertise.
"In the greater scheme of things, the family office sector is a large Post-it note of the bigger industry. MFOs are part of the ecosystem. Clients still need to use the services of the banks for a lot of their financial requirements. Fundamentally, the MFO is a gateway to the financial market rather than an end destination," Dovey said.