Securing the family fortune
Barbara von Gartzen of Family Estate Services (FES) in Luxembourg says: “Attitudes towards wealth management have changed significantly. Until a few years ago, most high net worth individuals have been looking after their wealth mainly by themselves.”
Nowadays, managing the wealth of a family has become a highly complex and time-consuming endeavour, requiring the co-ordination of many experts and issues. This is even more the case if family members are spread over various geographic locations. Families more than ever need an integrated assistance with planning, organising, operating and controlling these various aspects, enabling them to deal directly with the different services providers.
Also, many families have divided their assets into smaller parts managed by separate professionals, for privacy protection. “This again makes them realise the necessity of having a global overview of all the actions taken in relation to their various assets, as well as some kind of a permanent memory, for the next generations,” she says.
Not every family wants a single-family office, because of the high level of fixed costs and constraints associated with it. For these a multi-family office is a good solution. Economies of scale derive from the supply of this service to more than one family, translated in terms of cost savings, improved pricing with the product providers, efficiencies in technology and enhanced expertise. A dedicated multi-family office also brings a higher degree of confidentiality, because it looks after more than one family and the other professionals are not immediately aware of who is the client.
Choosing the right organisation to do business with can be challenging for the client, as there is not much transparency in this business where confidentiality is essential. A professional family office can help, as it has the necessary experience and tools to make such a selection.
In this sense, FES carries out a deep analysis of the specialists that are on the market as well as their offerings, using a series of measurable and objective criteria. In a second phase, the specific needs of the individual client are analysed, modelled and compared to the best-of-breed findings of the first part of the analysis. Only those professionals that offer the best products and exactly fit the client’s needs pass the test.
According to von Gartzen it is important to have access to experts in all the relevant fields, in order to assist the client in obtaining the full range of interdisciplinary services.
She says: “You have to know the business thoroughly and in addition you also need an excellent level of understanding of the actors in the industry as a whole.”
FES prides itself on its independent status, not belonging to any financial institution or being family-owned. This allows it to be completely neutral in the selection of the best available business experts, acting in the client’s primary interest.
“We are focused on providing our clients with a service. This is where we differentiate ourselves from those professionals who are more product-driven.” Von Gartzen adds: “We don’t take any retrocession from the experts that are appointed – we are paid solely by our clients. This is very important as we have to justify the trust that the client places in us and avoid conflicts of interest.
“Very often what is required by the client may be different from what is profitable for the asset manager. Therefore we have to understand the product and why it is appropriate for the client, focusing on the needs of our client only.”
Apart from the selection process, FES aims to guide the client alongside the entire relationship with the experts, such as asset managers, who are constantly monitored in order to ensure that they are sticking to the instructions agreed with the client.
The origin of the assets generally depends on the family’s traditional resources, or on the professional occupation of the client. After selling their business, the main objective of the client becomes capital preservation, requiring a high degree of diversification of investments across a range of asset classes.
In the past product sophistication did not exist to the same degree as currently, but since the fall of the stock markets and the events of 11 September 2001, clients are looking for high-performing products with as low a degree of risk involved as possible.
In the case of some products however, such as high yield bonds or
certain hedge funds, the excess returns compared to a low-risk or
risk-free investment, are not sufficiently high to justify the additional volatility and operational exposures involved in those investments.
Therefore, new investments have to be found constantly in order to satisfy investor appetite. “Thus the investment environment is becoming more and more complex. And as a consequence, the client needs a professional to guide him through it,” von Gartzen adds.
As is the case with most investors, high net worth families have moved away from traditional benchmarked mandates towards active management. Benchmarks have been a fine principle when the stock markets were rising. In bearish markets however, the asset manager needs to be a bit more inventive.
Von Gartzen says: “From my experience I can only say that, as opposed to institutional investors, private clients have always been interested in absolute returns. A benchmark is a vehicle created to compare performances. Its necessity however is not always understood by private investors. Nothing counts more for them than the performance of their own portfolio.”
Von Gartzen feels that the firm’s location in Luxembourg contributes to its success. She adds: “Luxembourg is an ideal location to be in when you are in this industry. Our geographic location in the heart of Europe is good for interacting with clients who live all over Europe and is important for dealing with our international experts.”
She continues: “Luxembourg is a historic hub of financial services and benefits from political stability and an investor-friendly environment. New instruments are constantly put in place to make the country appealing to the active investor.”
As the grand duchy is a full member of the EU, onshore investments benefit from double taxation treaties.
Multilingualism is another important factor. “In the firm, we speak a total of nine languages. This is invaluable for dealing with clients and allows us to pick the best experts no matter what country they are in.”
The impetus behind the creation of FES has been the awareness of the need to provide family office services through an independent Luxembourg structure. Therefore several highly experienced professionals of the financial, legal and consultancy sectors have associated and founded the public company called FES, which brings together all the necessary competencies for a global service to an international client base.