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

Organisers

Agenda

2

1

Financial Industry in Luxembourg

2

The legal framework as competitive edge

3

Family Offices characteristics and corresponding Needs

4

Wealth Structuring: a key success factor for Family Offices

5

Hot topics in PWM and Wealth Structuring

6

Outlook for Luxembourg

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

Financial Industry in Luxembourg

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

The Fund Industry

Assets under Management
1.200
1.000

189

177 169

162

155 156 156 152

800

Number of banks

149

147 143

Net assets

200

3.000.000

160

2.500.000

120

600

2.000.000
1.500.000

80

400
200

40

000

0

3371 3463
2868
2238
2060
1908 1941 1870 1968

1.000.000
500.000
0

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
Sources: Luxembourg for Finance, CSSF (2012)
4

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

Number of Fund units
3667

3845

4000
3500
3000
2500
2000
1500
1000
500
0

Luxembourg financial industry is increasingly under pressure
Client Demands
• Revenue side: Higher demand for «safe investments»
• Clients with individual investment preferences combined with higher need for
involvement

Product needs

Changing Environment

• Increasing complexity requires
intelligent risk management
systems
• Technological sophistication
leads to more automated
procedures

• Increased regulatory burden
– FATCA, MiFiD II, Basel III
• Increasing pressure on Offshore
financial centers
• Key decisions made at
headquarters

Increased
Competition and
profitability pressure

Competition
• High volatility and low interest rates
• High uncertainty and (lowered) trust in traditional forms of Banking/Wealth
Management
5

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

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

Fund Industry dynamics

Client Demands

Client Demands

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

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

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

6

Innovative
products
needed

Product Offering
• Using structures & expertise to fill the structuring gap in
Banking
• AIF: new service offering/value chain

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

Changing Environment
• Decision center/main shareholders not in Luxemburg
• Extended product offering needed to meet global investor
needs
• Increased Regulatory Burden: AIFMD, MIFID

Competition
• Profitability pressure leads to rationalisation and
centralisation of core business activities

Competition
• Competition among different investment fund locations

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

The legal framework as competitive edge

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

“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)

Competitive
Situation

Family offices are not regulated in traditional
WM centers (Switzerland, London…)
Regulation and transparency is a clear trend in
Europe

Objectives


8

Family Office market lacks a specific and
coordinated legal framework
Offering a legal framework with a businesslike
and flexible approach
Increase transparency

Scope

New
PSF

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

Out
of
Scope

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

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

Family Offices characteristics and
corresponding Needs

Differences between Family Offices & Private Banking
Family Office

Private Banking

Client

Wealthy families across the generations

Individuals (wealthy and retail)

Asset type

Dealing with diverse assets & family needs

Dealing with financial assets

Advisory focus

Total wealth management

In-house portfolio management

Product

Neutral advice on different products and services

Generally oriented to own products

Family Offices’ multidisciplinary approach combines the needs of different generations

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

10

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

Family offices as solutions to serve various client needs
Family Offices
Family Offices Service embedded in extended
business model

Traditional FO solutions

Single Family Office

Serves only one family

Serves more than one
family

Financial players
provide services

Outsourced office

Outsourcing of FO
activities

Product





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.)

Teams



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

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

Independence

11

FO as integrated part of
service offering

Multifamily Office

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

Three major pillars of Family offices business
Wealth Growth

Wealth Protection & Preservation

Identification, set up of appropriate legal
structure
Administration, legal services, fiduciary
services
Tax advice


Identification of investment objectives

Controlling the investment process

Executing investment process in order to

Management monitoring

meet client objectives

Consolidation & reporting

Examples:

Examples:

Examples:

Legal structures

Manager selection

Consolidation of positions in different banks

Strategic asset allocation: equities,

Consolidation of total wealth

bonds, hedge funds, private equity

Tax reporting

Real estate and relocation

Monitoring of external service providers

Performance monitoring and control

Investment vehicles

Tax structuring, art advice,

Advice on philanthropy

Succession planning

Art, philanthropic solutions

Education

All services offered in Luxembourg
12

Wealth Control & Consolidation

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

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

• 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
Standard Service Offering

Financial Services
Vehicles

• Shadow Asset reporting

 (15%)

• Relationship management (networking)

 (10%)

• Personal/family/psychological counseling

 (5%)
 (25%)

Sophisticated
services

• Philanthropic planning, foundation management
• Estate planning, Trust management

Premium
services

Highly
sophisticate
d services

Tax

• Asset allocation & portfolio management

 (90%)

• Concierge/security/life & residence

 (10%)

• Family education

 (75%)

• Manager selection and monitoring
• Inheritance & tax planning wealth structuring

 (10%)
 (75%)
 (70%)
 (55%)

• Compliance & risk management
• Income tax report, compl. & monitoring

 (60%)
 (65%)

• Legal services

 (20%)

Base
services

• Document/office management

13

Non-Financial Services

 (70%)

• Accounting, reporting
• Data management
• Execution banking, financing, insurance

Wide range of Tax and Vehicle
solutions available in Luxembourg

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

 (10%)
 (20%)

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

New opportunities for the financial industry:
Challenges for the Financial Industry:
The Fund Industry

Assets under Management
1200.000

189

177 169

1000.000

162

Number of banks

155 156 156 152

149

147 143

800.000

Net assets
200

3000000.0

160

2500000.0

120

600.000

2000000.0
1500000.0

80

400.000

.000

3371 3463

3845

2868
2238
2060
1908 1941 1870 1968

1000000.0

40

200.000

Number of Fund units
3667

500000.0

0

Family office LAW # 6366

Need for innovation: different solutions for private banking
and fund industry

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

Increased competition: Growing need for new,
innovative solutions

.0

4000
3500
3000
2500
2000
1500
1000
500
0

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

Private Banking dynamics

Fund Industry dynamics

Client Demands

Client Demands

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

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

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

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

Innovative
products
needed

Product Offering
• Using structures & expertise to fill the structuring gap in
Banking
• AIF: new service offering/value chain

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

Changing Environment
• Decision center/main shareholders not in Luxemburg
• Extended product offering needed to meet global investor
needs
• Increased Regulatory Burden: AIFMD, MIFID

Competition
• Profitability pressure leads to rationalisation and
centralisation of core business activities

Competition
• Competition among different investment fund locations

“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)

Competitive
Situation

Family offices are not regulated in traditional
WM centers (Switzerland, London…)
Regulation and transparency is a clear trend in
Europe

Objectives

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

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

Scope

• 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

New
PSF

Family Office market lacks a specific and
coordinated legal framework
Offering a legal framework with a businesslike
and flexible approach
Increase transparency

• Single family offices
Out
of
Scope

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

New opportunities for Luxembourg

Product

Teams

Serves only one
family

FO as integrated part of
service offering

Multifamily Office

Serves more than one
family

Financial players
provide services

Wealth Growth

Wealth Protection & Preservation

Family Offices Service embedded in extended
business model

Traditional FO solutions
Single Family Office

Three major pillars of Family offices business

Identification, set up of appropriate legal

structure

Administration, legal services, fiduciary

Outsourcing of FO
activities

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.)



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

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

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

• 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
Standard Service Offering

Outsourced office





Wealth Control & Consolidation

Identification of investment objectives

Controlling the investment process

Executing investment process in order to

Management monitoring

meet client objectives

Consolidation & reporting

services
Tax advice
Examples:

Examples:

Legal structures

Manager selection

Investment vehicles

Strategic asset allocation: equities,

Real estate and relocation

Tax structuring, art advice,

Advice on philanthropy

bonds, hedge funds, private equity

Succession planning

Art, philanthropic solutions

Education

 (25%)

• Philanthropic planning, foundation management

Tax reporting

• Inheritance & tax planning wealth structuring

Monitoring of external service providers

• Asset allocation & portfolio management

Performance monitoring and control

 (90%)
 (10%)

• Concierge/security/life & residence

 (75%)

• Family education
• Manager selection and monitoring

 (10%)
 (75%)
 (70%)
 (55%)

• Compliance & risk management
• Income tax report, compl. & monitoring
• Legal services

 (60%)
 (65%)
 (20%)



14

All services offered in Luxembourg

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

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

Base
services

• Document / office management

Independence

 (70%)

• Accounting, reporting
• Data management
• Execution banking, financing, insurance

 (15%)
 (5%)

• Personal/family/psychological counseling

Consolidation of positions in different banks
Consolidation of total wealth

Non-Financial Services

 (10%)

• Relationship management (networking)


Vehicles

• Shadow Asset reporting

• Estate planning, Trust management

Examples:

Financial Services
Tax

Highly
sophisticate
d services

Family Offices

Focus on structuring, tax and legal issues

Sophisticated
services

Family offices as solutions to serve various client needs

Luxembourg: Ability to serve all 3 pillars

Premium
services

Need for tailor-made, sophisticated solutions

Wide range of Tax and Vehicle
solutions available in Luxembourg

 (10%)
 (20%)

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

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

4.1. New clients expectations
Targets for Luxembourg
Target
segment

Origin of Wealth

Born rich

Sudden wealth

Wealth
inherited from
former
generations

Event leading
to sudden
increase of
level of wealth

Steady
Accumulation

Steady
accumulation
of wealth due
to professional
career

UltraHNWIs
> $30m
High net worth
individuals (HNWI)
$1m–$30m
Affluent
$100k–$1m

16

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

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

Retail
< $100k

Goal:
• We need to aim
higher client
segment
• Proper monitoring of
the financial
transition period

4.1. New clients’ expectations
What we have to offer

Stable and efficient
Tax environment

Client expectations

Holistic Approach

Innovation

17


Flexible and tax efficient investment vehicles
Deep technical expertise


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



Sophisticated solutions
From Luxembourg-centric to client-centric approach
Awareness of competition & market trends in order to
realign our solutions and better serve clients

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

4.1. New clients expectations: Tax still a strong driver
Main third party provided family office services*
Tax advisory

76%

Real estate advisory

48%

Legal advisory

48%

Art advisory

40%

Manager selection

32%

Yacht advisory

24%

Reporting

24%

Family governance…
Investment Controlling

16%

Horse advisory

8%

Strategy validation

8%

Other

Investment
funds

Personal tax

Succession
Planning

Financing
schemes

Income tax
planning

Asset
structuring

Wealth
Transfer
Planning

Tax
Compliance

Family
members
remuneration

Shareholding
structuring

Structure
Design

M&A

Relocation
package

Intellectual
property
management

Inheritance
and gift

IPO
50%

100%

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

Source: “Mythos Family Office 2010” (survey data)
18

Corporate tax

12%
0%


16%

Strategic Wealth
Planning

*Multiple answers were possible

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

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

4.2. Luxembourg Toolbox: A wide range of vehicles
Safe/Passive

Luxembourg
diversity
advantage

UCITS
UCI

SPF
Type of investor
SIF

SOPARFI
SICAR

Risky/Active

Large

Small
Size of the portfolio
Treaty protection
SOPARFI

Double tax
treaty
benefits

SICAV
FCP

SICAR

SIF

SPF
No treaty protection
20

Subject to tax

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

Exempt from tax

4.2. Luxembourg Toolbox: A wide range of vehicles
Fund Manager
Private
Banking




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


Specifically designed for “private” investors
Passive asset management (accumulation of investment income in a tax
neutral vehicle)



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)



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


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

SOPARFI
(listed)

HNWIs
SPF

SICAR

Toolbox to serve
client needs
SIF

Securitization

Investments

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

Hot topics in PWM and Wealth
Structuring

5. Hot Topics in PWM and Wealth Structuring
Investment &
Risk

1

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

Financial Strategy &
Compliance

Audit

Philanthropy

Tax Structuring

2

Collectible Assets

Financial
Strategy
Personal &
Corporate Tax

Your
Family
Office

• Collectible assets becoming
increasingly important in PWM

Administrative
Support

Set-Up &
legal Support

Succession
planning

3

Strategy &
Operations

HR

Operational toolbox

Relationships

Education

• Strategic asset allocation and its
monitoring are of key importance
23

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

5. Hot Topics: Collectible assets

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

24

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

5. Hot Topics Collectible assets (cont.)
Benefits




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

Investors
Funding

ManCo

Advisory

SIF

Main tax and operational issues

LuxCo
if needed

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

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

25

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

Investment

Collectible

5. Hot Topics in PWM and Wealth Structuring
Investment &
Risk

1

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

Financial Strategy &
Compliance

Audit

Philanthropy

Tax Structuring

2

Collectible Assets

Financial
Strategy
Personal &
Corporate Tax

Your
Family
Office

• Collectible assets becoming
increasingly important in PWM

Administrative
Support

Set-Up &
legal Support

Succession
planning

3

Strategy &
Operations

HR

Operational toolbox

Relationships

Education

• Strategic asset allocation and its
monitoring are of key importance
26

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

5. Hot Topics — Operational Toolbox
Issues
• Several banking providers
• Comprehensive and clear overview on client’s
assets
• Performance analysis and benchmarking




Services to be offered

Asset consolidation solution

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

Tax reporting capabilities

• Tax and regulatory comparison between
investment solutions
• International benchmark
• Identify the different outcomes for the investor

Tax matrix

27

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

Outlook for Luxembourg

6. Outlook for Luxembourg

Demand
• 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 transgenerational
• Increasing demand for complex
and tailor-made solutions

29

Next Steps
New opportunities for
Family Offices

Supply
• Proactive and flexible tax
environment

• Family Office regulation to
be enacted

• Wide range of high quality
service provider located in
Luxemburg

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

• Leverage on existing wealth
structuring solutions

• Client-centric approach to
be enhanced

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

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

• Supportive of government
intiatives

Contacts: Family Office Services
Partner, Strategy Consulting

Partner, BT – Private Wealth Management

Pascal Rapallino

Ruth Bültmann

Tel: + 352 451 452 846
Fax: +352 451 453 505
Email: prapallino@deloitte.lu

Tel: + 352 451 452 115
Fax: +352 451 453 505
Email: rbueltmann@deloitte.lu

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.

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.

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.

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).

30

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

Visit horizonconference.lu to access the
video recording of this presentation
31

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

Organisers