Your money, their business

Last Updated: Mon, Dec 10, 2012 03:46 hrs

Would you like to acquire a small stake in a company? Or, do you have a succession plan to ensure your children do not squander your hard-earned wealth? Or, even buy a second-hand helicopter? There are bankers willing to do all this for you. The requirement: $10 million or Rs 50 crore.

According to Credit Suisse's research, India has 158,000 dollar-millionaires and this number is expected to rise 53 per cent by 2017. It is little wonder, then, that most banks have a family office business. Morgan Stanley, RBS, and Barclays have these.

"We manage the wealth of HNIs (high net worth individuals) and families with an investable surplus of at least $10 million," says Satya Bansal, CEO, Barclays Wealth (India).

What are the services these family offices or private investment banks offer to rich families? That depends on your approach. Be clear about the services you are looking for. Just investment options or do you want a bigger package, which could include tax accounting and succession planning?

Amit Khandelwal, head of private wealth management, Credit Suisse (India), says: "Given that wealth is, in many cases, generated out of the success of business ventures, business and personal wealth are often interchangeable at the early stage of wealth generation. There is a need to create formal structures that demarcate business wealth from personal ones."

Credit Suisse is the latest entrant in the family office space.

There are three types of family office models. The first is an independent boutique firm, not associated with any bank.


A) Managing family and professional finances:

  • Financial planning for the family
  • Risk and return management 
  • Family governance 
  • Performance monitoring and analytics 
  • Accounting 
  • Lending and banking-related services 

B) Co-ordinating tax, trust and succession planning:

  • Figuring out tax optimising investments for the family 
  • Estate and succession planning 
  • Assistance in will making 
  • Legal services 
  • Assistance with philanthropy 

C) Miscellaneous services: 

  • Concierge services 
  • Make arrangements for schooling 
  • Travel arrangements 
  • aying bills

The second is the single-family office, providing in-house services to big business houses. Wipro's Chairman, Azim Premji, runs Azim Premji Charitable Foundation and a private investment firm, Azim Premji Investments, through his family office. It invests in listed firms and debt but also sees itself as a venture capital and private equity firm that makes both early-stage and late-stage investments. Mukesh Ambani, too, has his own family office through which he invests in start-ups. Others such as Infosys's Narayana Murthy and the Mittals of Bharti Airtel have their own, through which they pick up minority stake or board positions in companies. These companies are typically start-ups.

The third category comprises institutions that have specialised family offices, such as Kotak, RBS and Barclays.

Most family offices customise services to family needs. "Among our client segments are promoters of small- and mid-size companies who are looking at acquisitions," said Prateek Pant, head of products and services, RBS Private Banking. "We not only help them in identify target companies but also guide them through the banking, regulatory and operational aspects of the transaction."

Members of a family could have varying investment objectives. Wealth managers, through the family office, will help assess investment opportunities across all individual and business entities.

Family offices also act as private investment banks. "As a family office, we help families interested in picking up stakes in other businesses," says Barclays Wealth's Bansal. "We assist the families in identifying such opportunities, be it private equity or cross-border transactions. We also help in managing their investment portfolios. Along with all this, we help with their financing needs. Lending has an important role to play, as it helps families deal with any temporary liquidity requirements and at the same time, invest in lucrative businesses."

It is not uncommon for a super-rich individual to not disclose professional and personal needs to an outsider and, instead, rely on the family lawyer and the family chartered account. Family offices of wealth management firms work around such problems by working with the family lawyers and chartered accountants. As a matter of fact, they complement each other. Recent trends have seen wealth managers gaining a lot more trust and work in partnership with the family lawyer or CA and solutions created by the wealth manager are vetted by the family lawyer or vice versa.

"Our experience is that most families are adopting the family office concept offered by wealth management firms through an investment advisory model," says Sutapa Banerjee, CEO, Private Wealth, Ambit Capital. "For the rest, they tend to pick and choose, depending on the level and complexity of services they require. They may rely on wealth management firms to refer them to lawyers and accountants for succession planning and taxation, as these are specialist services. In many instances, they may already be having long-standing relationships with their own accountants and lawyers."

Succession planning is an important necessity for many business families. The transfer of family businesses from one generation to the next can be a source of family friction. There are plenty of examples of succession leading to a split within the family. The family office attempts to make sure that wealth is passed on from one generation to another smoothly, by working with the family lawyers. Such firms, apart from succession and estate planning, also assist in creating trusts and wills.

Philanthropy is another reason to set up a family office, helping you articulate your philanthropic needs and establish charitable trusts and funds. The firms can even vet the non-government organisations or agencies you have chosen to donate your money to.

In short, the family office will help you manage your investments, buy stakes in companies, plan seamless succession, and sort out your philanthropic needs, among other things.

The costs of such consultants would vary on the services the family uses. The charge, generally, is a percentage of the assets being managed. It can be between 0.5 per cent and 1 per cent, taken annually.

The family office could also charge for additional services such as succession planning and advice on philanthropic activities.

In sum, family office dons several hats, from investment advisor, to travel agent, to broker, to lawyer and chartered account. All for a fee, of course.

More from Sify: