Keith Johnston discusses a new initiative by the Family Office Council to engage family offices and advisors in a dialogue with the UK government.
The Family Office Council has established an initiative to begin discussions in the sector about opening a dialogue with government. The ultimate purpose of this dialogue is to educate the public, regulators and government about the sector.
We wish to open lines of communication with government so that should they wish to engage the family office sector they know where to get expertise and insight into the impact of any proposals they may have.
In the 1970s former US Secretary State Henry Kissinger is reputed to have said, somewhat despairingly, “Who do I call if I want to call Europe?” We hope to answer the question, if asked by the government, “Who do I call if I want to call the family office sector?”. To do this means creating a collective voice.
Our initiative is also proactive. We are working on an agenda to understand what would be the most competitive environment for family offices and this includes a tax, regulatory, immigration and investment framework which is attractive to family offices and benefits the UK more broadly.
It is also proactive in the sense that we will need to be alert to initiatives which are not targeted at the family office sector but nevertheless impact upon it. Many public policy initiatives impact sectors which they were not targeted at originally. This is so common that some public policy advocates define their profession as being almost entirely devoted to combating this “law of unintended consequences”.
Such work is by no means novel. In the US when the first details of the Dodd-Frank Act were revealed many family offices realised it impacted upon them in ways which were not intended. Rather the new regulations were designed to impose stricter guidelines on the banking sector and to force hedge funds and private equity firms to release more information.
But the new regulations threatened to apply to all “private wealth managers”, a definition that many were concerned would accidentally also drag in family offices. Two groups in particular went to Capitol Hill to talk to educate and persuade legislators to retain the exemption for family offices.
The effort was a success and these lobbying efforts achieved a far better definition of family office than that originally proposed by the US Securities and Exchange Commission.
We have taken this as a positive sign that family offices elsewhere can form an initiative to engage in public policy work, and ensure that legislation and rules and regulations recognises their needs.
Such work must be done very carefully. Before any attempts are made to approach legislators we must get the buy-in from the wider family office community, and identify those who are not only supportive but wish to actively engage.
Then we must identify the issues and set out the arguments which will persuade government of our case. Our approach is that the only arguments which will be successful are those which set out the public benefits of family offices to the UK economy. For UK legislators to act they need to understand why it will benefit their constituents, even if this is in the broadest sense.
At present these benefits fall into three broad categories, all of which rely on the UK creating or maintaining a benign tax and regulatory regime for family offices.
Firstly and most significantly is the global opportunity for inward investment. Private global capital is mobile and seeks certainty in terms of its tax and regulatory treatment. Given the right environment the UK can attract significant investments of private capital through family offices. By carefully designing the rules the UK can encourage investment in areas such as social housing, where there is a pressing need and a clear public benefit.
Secondly is the fact that family offices contribute because, by being based in the UK rather than elsewhere they will tend to review UK investment opportunities and therefore will tend to invest in the UK itself. This argument needs further work to quantify, but is strongly felt. A sub-set of this argument is that family offices also manage significant philanthropy, and the same opportunities to ‘invest’ in philanthropy benefits a host country.
Finally family offices employ a significant number of high- value employees, who in turn pay significant tax. family offices employ CEOs and CIOs directly, and use a huge range of specialist advisers. These include investment managers, lawyers, bankers, accountants, trustees and other financial specialists. What’s more when you add private household staff and employees of luxury goods the impact is significant if as yet unquantified.
We are currently going through a process of identifying those issues where families are seeking change, and where there is a realistic chance of achieving change by a sustained campaign. For example, Families report that the current rules on Business Investment Relief (BIR) are in need of review. They may be too tightly drawn, causing unnecessary uncertainty and discouraging inward investment.
Similarly the regulations on the FCA’s Investment Manager Exemption (IME) may need reviewing. Families report that they cannot be completely certain whether or not they are carrying out an investment business, even if they are not offering services to the public. These are just two examples of the types of issues where clarity would help family offices carry out their businesses and invest in the UK and there are many more.
To sustain these arguments and effect real change we will need to work with families to provide legislators with some idea of the scale of the benefit that would ensue should changes be made. That will mean research into the economic benefits of family offices, and it will mean using powerful examples where opportunities have been missed due to complex or uncertain rules.
We are cognisant that this initiative needs to proceed with care. After all, it must be recognised that family offices wish to remain discreet, not least because great wealth attracts unwelcome attention. Moreover popular myths about wealth creation and the realities of inequality can mean that legislators are put off acting, even when they can see that objectively action is in the best interests of the public. Simply creating a lobby group for the rich, acting on motives of narrow self-interest, would be a damaging precedent we are determined to avoid.
The Family Office Council is co-ordinating this initiative and we are fortunate that Ashley King-Christopher of Speechly Bircham is helping us lead our efforts alongside our Single Family Offices. Creating a platform that purports to speak for the sector, or event part of it, must involve an inclusive approach and we welcome further input from family offices. In order to take part contact the Family Office Council by emailing: email@example.com