Unravelling the Global Single Family Offices Tapestry
The world of Single Family Offices (SFOs) – organisations managing the wealth and serving the needs of a single high-net-worth family – is changing. As their principals relocate around the globe in light of political changes, conflicts and legal developments, SFOs must adapt and consider relocating too.
According to the 2024 UBS Billionaire Ambitions Report, billionaires are more mobile than ever before; are having more children (adding to the complexity of managing their affairs); tending towards active rather than passive investments; and becoming more geographically diverse. For example, the number of Indian billionaires has doubled in the last decade and their wealth has tripled. This movement is mirrored in the world of SFOs, with new wealth centres competing against established jurisdictions that have long dominated the sector.
Family offices have traditionally provided financial services to their principal(s), but increasingly feature a more holistic offering, such as financial education, concierge, transport and protection services. SFOs operate for one ultra-high net worth (UHNW) family only, while Multi-Family Offices (MFOs) service a range of clients. A report by DBS Private Bank and the Economist estimated that there are some 10,000 SFOs and 5,000 MFOs globally.
In this article we briefly take stock of the global landscape for SFOs, the key differences in approach across regulatory regimes, and some recent innovations from jurisdictions keen to attract these organisations.
The Regulation of SFOs
With regards to regulating SFOs, approaches taken globally fall into three distinct categories.
Category 1 is the predominant global model, seen in jurisdictions such as the UK, Jersey, Luxembourg and Switzerland. In Category 1 jurisdictions there are no special rules for SFOs, which otherwise remain subject to local regulation in the same way as other investment management businesses. However, there are exemptions (based on general principles, not explicitly targeting family offices) allowing them to operate with a much lower regulatory burden than investment management businesses serving the public.
Category 2 is a derivation of Category 1, having a much more carefully defined scope for exemptions and more prescriptive requirements. While these jurisdictions still exempt SFOs from the usual regulatory regime, they do so in a way which effectively prescribes the form and function of the SFO. This is the approach taken by Singapore and the Abu Dhabi Global Market (ADGM).
Category 3 jurisdictions have a specifically tailored regulatory regime applicable to SFOs. This is the approach taken by the Qatar Financial Centre (QFC) and the Dubai International Financial Centre (DIFC).
Category 1 Jurisdictions (UK, Jersey, Luxembourg and Switzerland)
Category 1 jurisdictions adopt the same broad model: SFOs can in practice be taken outside most regulation provided they comply with an applicable exemption. They remain subject to the usual anti-money laundering (AML) and data protection regulation, which is largely identical across the UK, Jersey, Luxembourg and Switzerland, implementing the same EU AML directives and the General Data Protection Regulation (GDPR). Switzerland, however, offers the unique opportunity to conduct SFO business outside the scope of AML regulation if structured correctly.
The regulatory status of SFOs in Category 1 jurisdictions depends on the continuing availability and applicability of a relevant exemption. As the scope of the relevant exemption is not always clear, without ongoing advice the position of unregulated SFOs can be uncertain. This can be a significant disincentive for smaller SFOs where the costs of ensuring compliance with the relevant exemption may be seen as disproportionate. For UK-based executives, getting it wrong may mean conducting regulated activities without authorisation, which carries significant consequences. Distinct regulatory regimes may therefore offer greater clarity.
However, a benefit is that Category 1 jurisdictions do not prescribe the legal form the SFO should take. A further significant benefit is that, unlike in some more heavily regulated regimes, SFOs in Category 1 jurisdictions can generally also provide non-financial activities to the family without regulatory ramifications. The potential for full-service support is particularly attractive where dealing with succession planning and related issues, allowing SFOs to work with experienced professional advisers to best support the principals.
Category 2 Jurisdictions (Singapore and the ADGM)
Singapore and the ADGM also exempt SFOs from the usual regulatory regime. However, they have a much more closely-defined exemption, effectively stipulating the structure that an SFO must adopt in order to remain unregulated. Both jurisdictions recently consulted on reforms to their SFO regimes, indicating that they may soon be revised.
Both regimes are more restrictive than the Category 1 jurisdictions. Singapore stipulates that the SFO must have a corporate form (which rules out a trust structure, for example) and that the SFO must be related to the entity holding the family’s assets, either as a subsidiary of the entity or by having the same holding company as the entity. The ADGM requires SFOs to operate as a Restricted Scope Company, which prescribes a corporate form and a relatively narrow range of family members to whom regulated financial services may be provided.
As they do not apply the EU’s AML and data protection obligations, Singapore and the ADGM have different rules to Category 1 in this respect. The ADGM has a robust AML regime. Singapore’s recent consultation reassessed its AML regime and it appears that the intention may be to apply AML regulation “by the back door” through a requirement for SFOs to have a business relationship with a Singapore-licensed entity, which is obliged to perform AML checks.
Singapore offers tax incentives to SFOs, although these come with relatively restrictive requirements such as in relation to where and in what the funds are invested. As with Category 1, SFOs in Category 2 jurisdictions may provide non-regulated services to their clients. An advantage of the Category 2 approach over Category 3 jurisdictions is that initial registration obligations are generally less intrusive and there are fewer ongoing obligations such as annual reports.
Category 3 Jurisdictions (the DIFC and the QFC)
Category 3 jurisdictions have dedicated regulatory regimes catering to SFOs. While offering greater clarity of treatment, the regulations also come with higher ongoing obligations such as annual reports and the requirement to designate a responsible person in the jurisdiction. Both the DIFC and the QFC impose physical presence requirements on their SFOs, unlike in Categories 1 and 2. In light of the increasing mobility of UHNW individuals, this may be more burdensome but could be useful for SFOs operating in multiple jurisdictions, where a physical presence in the DIFC / QFC could assist with reducing tax obligations elsewhere. More broadly, some principals may regard the presence of specific SFO regulatory regimes as a guarantor of reputability and good governance in the entities which they are entrusting with significant proportions of their net worth – this may well outweigh the added cost and time of regulatory compliance.
The QFC has tailored its regulations to ensure SFOs focus on providing financial services to their principals. This approach aligns with the QFC's current strategic objectives and provides a clear framework within which SFOs operate. At the same time, it stands in contrast to evolving regional trends and might change in the future. For instance, the ADGM has engaged in consultations to potentially broaden the scope of services provided by its SFOs to include non-financial services as well.
The QFC regulations are designed to have family offices operate exclusively as SFOs. This model promotes a high level of service personalisation for the principal family and ensures that the services provided are highly specialised and focused. At the same time, this structure does not currently accommodate the operation of Multi-Family Offices (MFOs), thereby limiting the scope of services to non-family members, including, for instance, individuals and families who have a close relationship with the principal family. As the family office landscape progresses, there may be scope for regulatory evolution that could broaden the operational capabilities of these offices, potentially enhancing service offerings and support for a wider network of individuals. Both the QFC and the DIFC mandate the licensing of SFOs, which includes provisions for license revocation as a standard regulatory measure.
Global Trends in SFO Regulation
The regulatory environments summarised above are frequently changing. Multiple countries are consulting on changes to their regimes, often out of a desire to compete as a jurisdiction of choice.
Singapore, for example, recently proposed updating its SFO regulations to permit co-investment by non-family members in the SFO structure. Since SFOs will be seeking to attract talent from the banking, funds or private equity industries, this co-investment structure could function both as a familiar employee incentive and a risk-sharing reassurance to the SFO principal.
As the global pool of UHNW individuals diversifies, regional centres of wealth management are emerging as challengers to more established hubs. A key part of their offering is the provision of a more specialised offering, such as Islamic law-compliant wealth management structures. It will be interesting to follow the evolution of such regimes as these new hubs emerge.
A key global trend for SFOs is the focus on multi-generational planning, as there are now 50% more children of billionaires than ten years ago. This will be a major phenomenon – UBS estimates that the heirs of billionaires from the “baby boomer” generation are set to inherit USD6.3 trillion in the next 15 years. A concern for many family offices will therefore be the facilitation of what is often the first generational transfer. SFOs are therefore branching out their offering to assist, for example, with the education of the next generation, symptomatic of the expanding scope of services offered by these offices.
For jurisdictions seeking to challenge the established wealth management hubs, global change and this impending generational transfer provides an opportunity. On the other hand, a key part of the attractiveness of more established jurisdictions is the deep well of experience in adjacent sectors such as legal, banking and accounting on which family offices can draw. An established regulatory environment and case law showing courts taking a consistent approach also provide reassurance. These will take time to establish in the “challenger” jurisdictions, and it remains to be seen whether their offering will be sufficiently appealing to win over the decision-makers for the world’s wealthiest individuals.
