lu horizon2012 familyoffice 25062012

New opportunities for the financial industry Luxembourg as hub for family offices Ruth Bültmann | Partner, Deloitte Luxembourg Pascal Rapallino | Partner, Deloitte Luxembourg 21 June 2012

Organisers Visit horizonconference.lu to access the video recording of this presentation

Horizon Conference | New opportunities for the financial industry – Luxembourg as a hub for Family Offices 2

Agenda

The legal framework as competitive edge 2

Family Offices characteristics and corresponding Needs 3

Wealth Structuring: a key success factor for Family Offices 4

Hot topics in PWM and Wealth Structuring 5

Financial Industry in Luxembourg 1

Outlook for Luxembourg 6

Financial Industry in Luxembourg


While the Luxembourg banking industry has lost ground following the crisis the fund industry has recovered The Banking Sector

189 177 169 162 155 156 156 152 149 147 143

0

40

80

120

160

200

000

200

400

600

800

1.000

1.200

Assets under Management Number of banksThe Fund Industry

Banks • The number of banks has steadily declined in Luxembourg over the past 10 years • Assets under management have been affected due to drawbacks of the financial crisis Funds: • Strong growth in the number of Fund units during the last decade mainly due to SIF • Although fund assets decreased during the financial crisis, assets recovered in 2010

1908 1941 1870 1968 2060 2238

2868

3371 3463 3667 3845

05001000150020002500300035004000

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

Net assets Number of Fund units

Sources: Luxembourg for Finance, CSSF (2012)


Luxembourg financial industry is increasingly under pressure

Increased Competition and

profitability pressure

Product needs

Competition

Changing Environment

Client Demands

• High volatility and low interest rates • High uncertainty and (lowered) trust in traditional forms of Banking/Wealth

Management

• Increased regulatory burden – FATCA, MiFiD II, Basel III

• Increasing pressure on Offshore financial centers

• Key decisions made at headquarters

• Increasing complexity requires intelligent risk management systems

• Technological sophistication leads to more automated procedures

• Revenue side: Higher demand for «safe investments» • Clients with individual investment preferences combined with higher need for

involvement


Need for innovation: different solutions for private banking and fund industry Private Banking dynamics Client Demands

Increased demand for: • Regular reporting (tax reporting) • e-Private Banking • Tax & Wealth Structuring

Product needs & Structuring • Diversification of products • More complex solutions • Tax optimized & tailor made solutions

Changing Environment • Changing business model for changing clients • Proactive private banking approach • Increased Regulatory Burden: FATCA, MiFiD II, Basel III

Competition • Profitability pressure leads to rationalisation and

centralisation of core business activities

Fund Industry dynamics Client Demands

Increased demand for: • Standardization of information • Specific reporting needs • Complex products (alt. assets)

Product Offering • Using structures & expertise to fill the structuring gap in

Banking • AIF: new service offering/value chain

Changing Environment • Decision center/main shareholders not in Luxemburg • Extended product offering needed to meet global investor

needs • Increased Regulatory Burden: AIFMD, MIFID

Competition • Competition among different investment fund locations

Innovative products needed

The legal framework as competitive edge


The legal framework as a competitive edge: Draft Law 6366 (presumably during the course of 2012)

• Family offices are not regulated in traditional

WM centers (Switzerland, London…) • Regulation and transparency is a clear trend in

Europe

• Family Office market lacks a specific and

coordinated legal framework • Offering a legal framework with a businesslike

and flexible approach • Increase transparency

Objectives

Family Office denomination reserved to certain professionals subject to regulation (Credit establishments; Investments advisers; Asset managers; Authorized domiciliation agents; Specialized, lawyers, accountants

• Single family offices

• Board members of commercial companies or foundations, trustees, fiduciaries, or judicially appointed mandates.

• In addition, a new specific “PSF Family Office” will be created

• Two specific conditions: – Applicant shall be a corporate entity – Share capital of at least €50,000

• “Family Office activities consist in providing professional services and advice to natural persons, families or patrimonial entities of those in respect of their wealth.” (Draft law definition)

Definition

Scope

New PSF

Out of

Scope

Competitive Situation

Family Offices characteristics and corresponding Needs


Differences between Family Offices & Private Banking

• International wealth clients’ needs are becoming more complex, placing very strong service demand on financial and non financial services (such as tax optimization, structuration, succession planning, art & philanthropy planning)

• Family Offices offer an attractive multidisciplinary approach to better serve clients’ demand for neutrality, flexibility and exclusivity

Family Office Private Banking

Family Offices’ multidisciplinary approach combines the needs of different generations

• Wealthy families across the generations • Individuals (wealthy and retail) Client

• Dealing with diverse assets & family needs • Dealing with financial assets Asset type

• Total wealth management • In-house portfolio management Advisory focus

• Neutral advice on different products and services • Generally oriented to own products Product


Family offices as solutions to serve various client needs

Single Family Office

• Serves only one family

Multifamily Office

• Serves more than one family

FO as integrated part of service offering

• Financial players provide services

Outsourced office

• Outsourcing of FO activities

Family Offices Service embedded in extended business model Traditional FO solutions

• Multidisciplinary and international teams providing tailor-made services • Coordinating a network of both internal & external service providers • Portfolio management function

Teams

• Independence with regards to manager/product/advice/service providers to ensure confidentiality and transparency Independence

• Preserve & enhance family’s wealth • Provide advice on complex asset solutions • Financial & succession planning • Put different service providers into competition in order to provide best services • Coordination of diverse family interests and needs (school, relocation, etc.)

Product

Family Offices


Three major pillars of Family offices business

Wealth Growth Wealth Protection & Preservation Wealth Control & Consolidation

• Identification, set up of appropriate legal structure

• Administration, legal services, fiduciary services

• Tax advice

Examples:

• Legal structures

• Investment vehicles

• Tax structuring, art advice,

• Advice on philanthropy

• Succession planning

• Education

• Identification of investment objectives

• Executing investment process in order to

meet client objectives

Examples:

• Manager selection

• Strategic asset allocation: equities,

bonds, hedge funds, private equity

• Real estate and relocation

• Art, philanthropic solutions

• …

• Controlling the investment process

• Management monitoring

• Consolidation & reporting

Examples:

• Consolidation of positions in different banks

• Consolidation of total wealth

• Tax reporting

• Monitoring of external service providers

• Performance monitoring and control

All services offered in Luxembourg


Soph

istic

ated

se

rvic

es

Bas

e

serv

ices

Pr

emiu

m

serv

ices

• Shadow Asset reporting

• Data management

• Compliance & risk management

• Estate planning, Trust management

• Accounting, reporting

• Asset allocation & portfolio management

• Philanthropic planning, foundation management

• Family education

• Document/office management • Legal services

• Manager selection and monitoring

• Concierge/security/life & residence

• Execution banking, financing, insurance

• Inheritance & tax planning wealth structuring

• Relationship management (networking) • Personal/family/psychological counseling

• Income tax report, compl. & monitoring

Hig

hly

soph

istic

ate

d se

rvic

es

Tax Vehicles (15%)

(10%) (5%)

(25%)

(90%) (10%) (75%)

(10%) (75%)

(60%)

(70%)

(55%)

(65%) (20%)

(70%)

(20%)

• A series of Family Offices is present in Luxembourg • We analyzed 20 main family office service providers in Luxembourg and mapped these providers with their service offering against standard

services

Support functions services are not location specific and hence no differentiation criteria for FOs

Financial Services Non-Financial Services

(10%)

Standard Service Offering

Wide range of Tax and Vehicle solutions available in Luxembourg

Family Office Services in Luxembourg: Strong focus on Vehicle Structuring and Tax issues

Remarks


New opportunities for the financial industry:

• Growing need for solutions for international wealth positions (financial/non-financial) • Increasing demand on FO Luxembourg: Use of existing framework to provide tailor-made solutions Wealth Structuring as core approach

New opportunities for Luxembourg

Increased competition: Growing need for new, innovative solutions Family office LAW # 6366 Challenges for the Financial Industry:

While the Luxembourg banking industry has lost ground following the crisis the fund industry has recoveredThe Banking Sector

189177 169 162 155 156 156 152 149 147 143

0

40

80

120

160

200

.000

200.000

400.000

600.000

800.000

1000.000

1200.000

Assets under Management Number of banks

The Fund Industry

Banks:• The number of banks has steadily declined in Luxembourg over the past 10 years • Assets under management have been affected due to drawbacks of the financial crisis

Funds:• Strong growth in the number of Fund units during the last decade mainly due to SIF • Although fund assets decreased during the financial crisis, assets recovered in 2010

1908 1941 1870 1968 20602238

2868

3371 34633667 3845

05001000150020002500300035004000

.0

500000.0

1000000.0

1500000.0

2000000.0

2500000.0

3000000.0

Net assets Number of Fund units

Need for innovation: different solutions for private banking and fund industryPrivate Banking dynamicsClient Demands

Increased demand for:• Regular reporting (tax reporting)• e-Private Banking• Tax & Wealth Structuring

Product needs & Structuring• Diversification of products• More complex solutions• Tax optimized & tailor made solutions

Changing Environment• Changing business model for changing clients• Proactive private banking approach• Increased Regulatory Burden: FATCA, MiFiD II, Basel III

Competition • Profitability pressure leads to rationalisation and

centralisation of core business activities

Fund Industry dynamicsClient Demands

Increased demand for:• Standardization of information• Specific reporting needs• Complex products (alt. assets)

Product Offering• Using structures & expertise to fill the structuring gap in

Banking• AIF: new service offering/value chain

Changing Environment• Decision center/main shareholders not in Luxemburg• Extended product offering needed to meet global investor

needs• Increased Regulatory Burden: AIFMD, MIFID

Competition • Competition among different investment fund locations

Innovative products needed

The legal framework as a competitive edge: Draft Law 6366(presumably during the course of 2012)

• Family offices are not regulated in traditional WM centers (Switzerland, London…)

• Regulation and transparency is a clear trend in Europe

• Family Office market lacks a specific and coordinated legal framework

• Offering a legal framework with a businesslikeand flexible approach

• Increase transparency

Objectives

Family Office denomination reserved to certain professionalssubject to regulation (Credit establishments;Investments advisers; Asset managers;Authorized domiciliation agents;Specialized, lawyers, accountants

• Single family offices

• Board members of commercial companies or foundations, trustees, fiduciaries, or judicially appointed mandates.

• In addition, a new specific “PSF Family Office” will be created

• Two specific conditions:– Applicant shall be a corporate entity– Share capital of at least €50,000

• “Family Office activities consist in providing professional services and advice to natural persons, families or patrimonial entities of those in respect of their wealth.” (Draft law definition)

Definition

Scope

New PSF

Outof

Scope

Competitive Situation

Luxembourg: Ability to serve all 3 pillars Focus on structuring, tax and legal issues Need for tailor-made, sophisticated solutions

Family offices as solutions to serve various client needs

Single Family Office

• Serves only one family

Multifamily Office

• Serves more than one family

FO as integrated part of service offering

• Financial players provide services

Outsourced office

• Outsourcing of FO activities

Family Offices Service embedded in extended business model Traditional FO solutions

Family Offices

• Multidisciplinary and international teams providing tailor-made services• Coordinating a network of both internal & external service providers• Portfolio management function

Teams

• Independence with regards to manager/product/advice/service providers to ensure confidentiality and transparencyIndependence

• Preserve & enhance family’s wealth • Provide advice on complex asset solutions • Financial & succession planning • Put different service providers into competition in order to provide best services• Coordination of diverse family interests and needs (school, relocation, etc.)

Product

Soph

istic

ated

se

rvic

esB

ase

serv

ices

Prem

ium

se

rvic

es

• Shadow Asset reporting

• Data management

• Compliance & risk management

• Estate planning, Trust management

• Accounting, reporting

• Asset allocation & portfolio management

• Philanthropic planning, foundation management

• Family education

• Document / office management • Legal services

• Manager selection and monitoring

• Concierge/security/life & residence

• Execution banking, financing, insurance

• Inheritance & tax planning wealth structuring

• Relationship management (networking)• Personal/family/psychological counseling

• Income tax report, compl. & monitoring

Hig

hly

soph

istic

ate

d se

rvic

es

Tax Vehicles (15%)

(10%) (5%)

(25%)

(90%) (10%) (75%)

(10%) (75%)

(60%)

(70%)

(55%)

(65%) (20%)

(70%)

(20%)

• A series of Family Offices is present in Luxembourg• We analyzed 20 main family office service providers in Luxembourg and mapped these providers with their service offering against standard

services

Support functions services are not location specific and hence no differentiation criteria for FOs

Financial Services Non-Financial Services

(10%)

Standard Service Offering

Wide range of Tax and Vehicle solutions available in Luxembourg

Family Office Services in Luxembourg: Strong focus on Vehicle Structuring and Tax issues

Remarks

Three major pillars of Family offices business

Wealth GrowthWealth Protection & Preservation Wealth Control & Consolidation

• Identification, set up of appropriate legal

structure

• Administration, legal services, fiduciary

services

• Tax advice

Examples:

• Legal structures

• Investment vehicles

• Tax structuring, art advice,

• Advice on philanthropy

• Succession planning

• Education

• Identification of investment objectives

• Executing investment process in order to

meet client objectives

Examples:

• Manager selection

• Strategic asset allocation: equities,

bonds, hedge funds, private equity

• Real estate and relocation

• Art, philanthropic solutions

• …

• Controlling the investment process

• Management monitoring

• Consolidation & reporting

Examples:

• Consolidation of positions in different banks

• Consolidation of total wealth

• Tax reporting

• Monitoring of external service providers

• Performance monitoring and control

All services offered in Luxembourg

Wealth Structuring: a key success factor for Family Offices — New clients’ expectations


Targets for Luxembourg

Origin of Wealth

Born rich Sudden wealth Steady Accumulation

Clients with different origins of wealth face various tax and structuring issues with different objectives/implications for family and corporate wealth

• Wealth inherited from former generations

• Event leading to sudden increase of level of wealth

• Steady accumulation of wealth due to professional career

Target segment

4.1. New clients expectations

Retail < $100k

Ultra- HNWIs > $30m

High net worth individuals (HNWI)

$1m–$30m

Affluent $100k–$1m

Goal: • We need to aim

higher client segment

• Proper monitoring of the financial transition period


• Ability to deal with cross-border issues • Full range of tax services (from corporate tax to

inheritance planning Holistic Approach

What we have to offer

4.1. New clients’ expectations

• Sophisticated solutions • From Luxembourg-centric to client-centric approach • Awareness of competition & market trends in order to

realign our solutions and better serve clients

Innovation

• Flexible and tax efficient investment vehicles • Deep technical expertise

Stable and efficient Tax environment

Client expectations


4.1. New clients expectations: Tax still a strong driver

Main third party provided family office services*

12%

8%

8%

16%

16%

24%

24%

32%

40%

48%

48%

76%

0% 50% 100%

Other

Strategy validation

Horse advisory

Investment Controlling

Family governance…

Reporting

Yacht advisory

Manager selection

Art advisory

Legal advisory

Real estate advisory

Tax advisory

Succession Planning

Wealth Transfer Planning

Structure Design

Financing schemes

Tax Compliance

M&A

Intellectual property

management

IPO

Income tax planning

Family members

remuneration

Relocation package

Inheritance and gift

Asset structuring

Shareholding structuring

Strategic Wealth Planning Corporate tax Personal tax Investment

funds

• Tax services are the most common family office services offered by third parties • Tax-related services are provided out of the boxes (service offerings) Strategic Wealth Planning, Corporate Tax, Investment funds and Personal tax

*Multiple answers were possible Source: “Mythos Family Office 2010” (survey data)

Wealth Structuring: a key success factor for Family Offices — Luxembourg Toolbox


SOPARFI Treaty protection

SICAV FCP

Exempt from tax Subject to tax No treaty protection

SICAR

SPF

SIF

Type of investor

Risky/Active

Safe/Passive

SICAR

UCITS UCI

Large Small

SPF

SOPARFI SIF

Double tax treaty benefits

Luxembourg diversity advantage

4.2. Luxembourg Toolbox: A wide range of vehicles

Size of the portfolio


SOPARFI (listed)

• Assets eligible to participation exemption regime • Carried interest • Real estate (indirectly) • IP Assets

SPF • Specifically designed for “private” investors • Passive asset management (accumulation of investment income in a tax

neutral vehicle)

SICAR

• Specifically designed for private equity investments • Need for a tax efficient and lightly regulated vehicle • May have access to EU directives and double tax treaties (case-by-case

analysis)

SIF • Active investment management • Suitable for all kind of (global custody tool) • May have access to DTT (case-by-case basis)

Securitization • Securitization of all kind of assets or risks linked to any of these assets. • May have access to EU directives and double tax treaties (case-by-case

analysis)

LIFE-INSURANCE • Estate planning tool • Tax efficiency

FIDUCIARY AGREEMENT

• Alternative to offshore trust • Generational transfer planning

Toolbox to serve client needs

Investments

Private Banking

Fund Manager

HNWIs

4.2. Luxembourg Toolbox: A wide range of vehicles

Hot topics in PWM and Wealth Structuring


Tax Structuring

• Family Offices demand a broad range of wealth structuring tax services.

1

• Collectible assets becoming increasingly important in PWM

Collectible Assets 2

Operational toolbox

• Strategic asset allocation and its monitoring are of key importance

3

Education

Financial Strategy

Education

Relation-ships

HR

Set-Up & legal Support

Strategy & Operations

Your Family Office

Administrative Support

Audit Philanthropy

Succession planning

Personal & Corporate Tax

Financial Strategy & Compliance

Art & Finance

Investment & Risk

5. Hot Topics in PWM and Wealth Structuring


“What do you have in investment-grade reds?”

5. Hot Topics: Collectible assets


• Direct and indirect taxes ‒ Corporate income tax ‒ VAT ‒ Managers’ benefits

• Assets custody and delivery • Goods trading process • Substance needed

Main tax and operational issues

SIF

Investors

ManCo

LuxCo if needed

Collectible

Funding

Investment

Advisory

• Tax efficient • Wealth transition planning • Reporting capabilities • Investors protection (regulated vehicle) • Flexibility for cross-border issues

Benefits

5. Hot Topics Collectible assets (cont.)


Tax Structuring

• Family Offices demand a broad range of wealth structuring tax services.

1

• Collectible assets becoming increasingly important in PWM

Collectible Assets 2

Operational toolbox

• Strategic asset allocation and its monitoring are of key importance

3

Education

Financial Strategy

Education

Relation-ships

HR

Set-Up & legal Support

Strategy & Operations

Your Family Office

Administrative Support

Audit Philanthropy

Succession planning

Personal & Corporate Tax

Financial Strategy & Compliance

Art & Finance

Investment & Risk

5. Hot Topics in PWM and Wealth Structuring


Issues

• Several banking providers • Comprehensive and clear overview on client’s

assets • Performance analysis and benchmarking

• Onshore assets • Complex products (tax treatment) • Cross-border aspects • Competition from domestic financial players

• Tax and regulatory comparison between investment solutions

• International benchmark • Identify the different outcomes for the investor

5. Hot Topics — Operational Toolbox

Services to be offered

Asset consolidation solution

Tax reporting capabilities

Tax matrix

Outlook for Luxembourg


6. Outlook for Luxembourg

• Proactive and flexible tax environment

• Wide range of high quality service provider located in Luxemburg

• Leverage on existing wealth structuring solutions

• Supportive of government intiatives

• Ability to provide full range of services: advisory, set-up and follow-up, etc…

• Growing number of HNWIs in Europe with international business interests

• Financial institutions are looking for alternative revenue sources

• Family Office clients request a multidisciplinary service offering

• Financial and non-financial solution must be trans-generational

• Increasing demand for complex and tailor-made solutions

Demand Supply Next Steps

New opportunities for Family Offices

• Family Office regulation to

be enacted

• Develop common mission statement to cater to HNWI needs & to foster HNWI industry growth

• Client-centric approach to be enhanced


Partner, BT – Private Wealth Management Partner, Strategy Consulting

Pascal Rapallino Tel: + 352 451 452 846 Fax: +352 451 453 505 Email: [email protected]

Ruth Bültmann Tel: + 352 451 452 115 Fax: +352 451 453 505 Email: [email protected]

Pascal is a tax partner and leads the Private Wealth Management activities within Deloitte Luxembourg’s Tax practice. Pascal has an extensive experience of wealth management industry and investment funds for private investors. He is also advising clients on cross border transactions. Former practicing lawyer in Paris, Pascal was previously a member of the executive committee of a French bank in Luxembourg, where he headed the Wealth Management department. He also has significant international experience in the mergers and acquisitions services, acquired in Freshfields, Bruckhaus, Deringer and Allen&Overy. Pascal is further a lecturer at various French universities, specialized in international tax.

Contacts: Family Office Services

Ruth has gained significant experience over more than 10 years as director and managing director in the Luxembourg Banking and Fund Management industry. She started her career with one of the BIG 4 in the audit department. Between 2006 and 2011 she has been responsible for the set up, daily management and business development of 2 Management Companies in Luxemburg. Her business experience covers areas such as project management in the Banking and Fund Industry, product development, structuring of investment funds, legal & compliance, domiciliation of companies, fund administration, custody services, and outsourcing relations. She is active member in different professional organisations. Ruth speaks fluent German, English and French. Ruth holds an MBA in Finance (University of Hagen/University of Wales), a Master degree in Business (double diploma) from the University of applied sciences, Aachen (Germany) and the Ecole Supérieure de Commerce de Compiègne (France).

mailto:[email protected]






Organisers Visit horizonconference.lu to access the video recording of this presentation

lu horizon2012 familyoffice 25062012

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