In the aftermath of the biggest money laundering case in Singapore’s history, the country’s reputation as the leading financial and wealth management center took a beating as wealthy families look to other jurisdictions to set up family offices.
The rising operational costs in Singapore have become a concern for wealthy families considering establishing family offices in the city-state and many are now looking to jurisdictions that offer more attractive propositions.
Most of these costs are related to internal operations, family expenses, professional services, and investment fees, Keoy Soo Earn, Deloitte private leader, Deloitte Southeast Asia told finews.asia.
Hub Under Threats
Singapore’s position as a leading family office hub is increasingly threatened with stiff competition from other financial centers that are actively offering attractive propositions to entice family offices. These include Hong Kong and up-an-coming financial centers such as Dubai and Abu Dhabi.
In Hong Kong, efforts have been made to strengthen the connection between family offices and specialized service providers, according to Keoy. To facilitate this move, the special administrative region has introduced new tax breaks, including exemption from corporate tax on specific investment transactions and expedited residency pathways for investors and their families through the Capital Investment Entrant Scheme (CIES).
The Dubai International Financial Centre (DIFC) has established a dedicated center catering specifically to family businesses and private wealth. Similar efforts are seen in Abu Dhabi where Hub71 launched Tech Barza, a platform facilitating investment by family offices in regional tech startups.
Excellent Track Record
While jurisdictions such as the United Arab Emirates (UAE) may appear attractive from a cost perspective, Singapore’s strong regulatory framework, corporate governance, its excellent track record in many areas, and how the government managed COVID effectively should be important considerations for families looking to set up family offices in Singapore, said Joyce Woo, head of wealth manager at Leo Wealth.
«If you are worth $250 million, will you come to Singapore? The answer is yes even if costs have gone up. I will still park some funds here,» she said.
Singapore Offers Unique Advantages
While Singapore has to take strategic action to maintain its attractiveness in this evolving landscape, its unique advantages, combined with cost management strategies like consolidation and outsourcing, make it a compelling location for family offices notwithstanding rising costs, Keoy said.
«Singapore provides a conducive environment for wealth management and preservation, with an internationally compliant regulatory framework that fosters trust and confidence. It [also] acts as a bridge between East and West, offering proximity to emerging Asian markets and access to diverse investment opportunities,» he added.
Create Economies of Scale
What this means for Singapore is a potential rise in multi-family offices (MFOs) that benefit from economies of scale, where some family offices in the city-state use collaborative strategies to maintain efficiency and effectiveness, Keoy said.
These strategies may include sharing operational resources, such as investment research, legal, and human resources expertise, or potentially merging with other family offices. «Such collaborations can create economies of scale and enhance efficiency in portfolio management activities,» he added.
Alternative Ways To Reduce Cost
Some families, however, choose to create common investment structures for joint ventures which helps to further streamline their investment activities while managing costs.
Outsourcing back-office functions such as bookkeeping and administration alternatives not only reduces costs but could also help family offices gain access to expertise and digital systems at a lower cost, Keoy said.
Singapore Inc Proposition
As one of the key players in Singapore’s wealth management sector, DBS believes the ‹Singapore Inc› proposition – a combination of attributes including strong rule of law as well as political and economic stability, among others – will continue to appeal to ultra-high net worth clients and families worldwide, said Lee Woon Shiu, group head of wealth planning, family office and insurance solutions at DBS Private Bank.
DBS expects to see continued growth in the family office segment this year as the need for succession and legacy planning intensifies.
Inter-Generational Views
«As Asian families gear up to hand over $2.5 trillion in wealth by 2030, wealth managers here must step up to help with wealth and legacy planning solutions that take into consideration inter-generational views on how the money is handled or even invested, and how the business should be run,» Lee said.
«The strength of the digital banking capabilities and associated governance framework offered by leading private banks in Singapore such as DBS, as well as the increasing depth and sophistication of talent in the Singapore family office ecosystem, will continue to draw UHNW families around the world.»
Towards the Establishment
DBS currently banks more than one-third of the 1,100 single-family offices set up in Singapore. The bank continues to see strong interest among ultra-high net worth families while noting an increase in the AUM that the larger family offices are willing to commit towards the establishment of their family offices in Singapore, according to Lee.
He cited the depth of talent, diversity of deal flows and the maturity of the Singapore family office ecosystem as some of the reasons why the larger family offices are considering coming to Singapore.
Beyond Asset Management
Lee suggested that families with a smaller AUM consider joining other families in setting up multi-family offices (MFOs) as an expression of their intent to be represented in Singapore.
DBS’s MFO offerings extend beyond asset management and include succession and family governance planning, philanthropy and the deployment of human and social capital, among others.
Maintaining Competitive Edge
To maintain its competitive edge, Keoy of Deloitte suggested that Singapore consider strategies that demonstrate its commitment to innovation while meeting the changing needs of family offices.
These include regulatory optimization which would streamline compliance processes and reduce administrative burdens for family offices. Enhancing existing tax incentive schemes could also make Singapore a more fiscally attractive location by fostering stability and certainty for the family office industry, which could help to attract new players to Singapore, Keoy said.
The growing interest of affluent families in environmental, social, and governance (ESG) investments is another area that Singapore can leverage by enhancing regulations and incentives specifically for this area, Keoy said.
Tightening Controls?
Against the backdrop of the biggest money laundering case in Singapore’s history that came to the fore in 2023, there was speculation that the Monetary Authority of Singapore (MAS) has tightened controls over family office applications from mainland China.
In response to finews.asia’s inquiries, an MAS spokesperson said all applications for tax incentives from single-family offices are assessed against a set of criteria, which include assets under management, the number of investment professionals hired, and an assessment of money laundering risks.
«The set of criteria applies to all applicants, regardless of nationality. Applicants that had failed to meet MAS’ criteria were rejected. This has always been the case. There have been rejections before the money laundering investigation in August [2023],» the MAS spokesperson said, adding the regulator continues to receive a steady stream of applications for tax incentives from single-family offices.
Dubious Applications
As of December 31, 2023, around 1,400 single-family offices have been awarded tax incentives, according to MAS. Woo of Leo Wealth said it is understandable that MAS will reject family office applications from those that do not meet its requirements.
«It seems to me that people like to bash the Singapore government and the regulator. Surely no one would expect MAS to approve every [family office] application. MAS will turn down dubious applications, of course,» she said.
