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EAMs : The Alternative Investment Solution

EAMs : THE ALTERNATIVE INVESTMENT SOLUTION

Before the global financial crisis in 2008, external asset managers (EAMs) were virtually unheard of in Singapore, despite being well established in Europe.

With the growth in wealth in Asia and the decrease in trust from the big banks due to the financial crisis, the ultra-high-net-worth (UHNW) clients realised that they needed someone:-

  1. whom they could trust;
  2. who understood the bank;
  3. who would protect their interests;
  4. who would work with no conflict of interests; and
  5. who is independent and transparent in their dealings.

Given the demand of these UHNW clients who need alternative solutions in managing their monies, EAMs quickly came into the picture and eventually became ubiquitous.

Who are EAMs, and What do They do?

EAMs are usually small and tight-knit organisations staffed by experienced ex-private bankers (with a long tenure and proven track record) who generally moved because they were tired of pushing non-sustainable products to their clients or were looking for a better work-life balance.  EAMs operate differently from private banks; they tend to be leaner and more agile and are more competitive on pricing.

People might be hesitant to entrust their assets to an EAM because they are concerned about safeguarding their assets. They are worried about whether their assets will be safe in an emergency. The most significant advantage of an EAM is that the EAMs do not and cannot hold assets in custody like a bank.  As such, the clients do not have to deal with the hassle of moving their assets from their current bank and are assured that their assets stay safe and all asset management is handled by the EAM exclusively.

EAMs are not employed by banks but employed by their clients. They are independent of the bank and are not pressured to meet product sales targets.  They offer flexibility and personalised client services.  They are not pressured to meet targets for selling “the bank’s products”.  Instead, they can provide products and services from a wide range of service providers and propose a more flexible investment plan that fits their clients’ portfolios.

EAMs provide more than just investment advice; they provide bespoke services based on their client’s profiles and demographics.  UHNW clients are looking for more than investment advice; they want to be treated as individuals with unique needs and demands. Many EAMs also offer tax consultations, legacy planning and real estate planning.

While the EAMs can pivot faster to changing market conditions than the private banks, they are not a substitute for the private banks.  Instead, the EAMs act as a type of intermediary between the wealth holder and investment avenues. Since they rely on the banks’ expertise and resources to act as custodians, the relationship between the EAMs and the private banks is more collaborative than competitive.

The key to Singapore’s placement as one of the leading global financial hubs is the robust regulatory framework for the financial services industry. The regulatory framework in Singapore is designed to protect investors and consumers and consists of three main pillars: (1) a robust legal framework, (2) solid regulatory institutions, and (3) an effective enforcement regime.  As such, while the EAMs do not have to comply with stringent regulations like the banks, they are also subject to similar ever-changing laws.

In 2009, there were around 80 asset managers in Singapore with assets under management of S$864 billion.   

In 2015, the Monetary Authority of Singapore (MAS) reported 625 registered & licensed assets managers in Singapore, collectively managing around S$2.6 trillion.

Despite the COVID-19 pandemic, in 2022, the number of registered & licensed asset managers in Singapore grew to 1,313, and the assets under management (AUM) grew to S$4.7 trillion.

The financial crisis has opened the door to a whole new era of specialists who are knowledgeable and experienced in their field. Now individuals and organisations can fully believe in the flourishing external management sphere. The growth does not end here. We should expect at least another decade of expansion for the external management sphere.

Setting up an EAM can be a daunting task. We offer video consultation via Lawyer Anywhere so that you can get the help you need. We can walk you through the process and answer any questions you may have. Contact us today to get started.

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Family Office in a Nutshell

FAMILY OFFICE IN A NUTSHELL

The family office market is one of the fastest-growing segments in the wealth management services industry. However, despite the growth, the industry is often misunderstood, with many people believing it to be either a small niche business or a differentiating factor for the ultra-high-net-worth.

The idea of a family office is nothing new. Royal families have been establishing them for decades to manage the financial affairs of the royal household and their real estate holdings. Meanwhile, billionaires have also been setting up family offices to handle the operation and management of their financial assets. But more recently, affluent individuals, far from being billionaires, are also establishing them.

1.  What Is A Family Office?

The definition of a family office varies, but Forbes says it’s “a private office that handles the financial and personal affairs of high-net-worth families.” Additionally, the family office tends to be private and insulated from public relations. It’s typically mission-based, highly confidential, and takes on personal tasks that ensure the wealthy family would not be exposed to public scrutiny.

 

2.  What Are The Purposes Of A Family Office?

As the responsibilities of a family office vary from one to another, it’s safe to state that there is no standard set of duties. A family office typically takes care of:

  • Consolidates and integrates financial activities of the family members – Rather than letting each family member manage their wealth, a family office can consolidate all the related activities and businesses. This includes investment management, accounting, tax planning, insurance, and philanthropy. Of course, the family office might still work with external advisers for some related activities, but the family office coordinates all the activities.
  • Ensures tax efficiency of the estate by planning distributions from inherited investment
  • Helps to insulate the family from inappropriate business and personal entanglements – The family office can be involved in all the financial and business transactions of the family. As a result, it can prevent unwanted deals by screening them beforehand.
  • Provides professional management of family commercial and real estate holdings – A family office can oversee the management of dairy farms or vineyards. It can also be involved in the day-to-day operations of a luxury hotel. A family office can also manage non-family-owned companies (e.g. corporate startups) or even charities.
  • Provides a central location for coordinating family information – Family members who delegate their business and personal affairs to a full-time family office will enjoy having a one-stop shop for their many requirements. This can include managing emails and maintaining confidentiality regarding their matters.
  • Provides security and safety for the family – This includes providing safekeeping for valuables and precious documents, as well as monitoring the health of family members.
  • Offers complete infrastructure and basic human needs for family members – This includes providing health insurance, managing travel, arranging educational opportunities for children, and so forth.

 

3.  Why Create a Family Office?

Family offices are excellent for managing wealth and holding it within a family circle. They are not meant to serve the entire spectrum of personal, discretionary, and non-discretionary affairs. Those who need comprehensive estate-planning services should look for a full-fledged office suite consisting of an attorney, accountant, and broker-dealer.

 

4.  Key Roles of a Family Office

  • Trustee  :  Discretionary trusts are those wherein beneficiaries can petition the trust maker for funds—for any purpose. However, non-discretionary trusts are set up so that the beneficiaries are only entitled to receive funds upon the trust maker’s death. This is where a family office comes in handy. Since families tend to be protective of their wealth, they can ensure that subjects don’t have access to the trust funds until they are proven worthy. Family offices act as trustees of discretionary trusts for external stakeholders.
  • Investment Agent  :  Certain families feel brokers and financial advisers are not catering to their needs.  Some want to invest in obscure funds or markets that are off-limits to the general public. Others want to hold onto certain assets. Family offices act as investment agents for the assets in question in these cases.
  • Directional Guidance  :  Even though heirs are legally entitled to receive the trust funds at the time of the trust maker’s death, discretion can be used in guiding them. For example, the contingent-inheritance scheme may dismiss children from previous marriages. Similarly, the family office may approve or reject future spouses (by will). This allows them to approve or reject future beneficiaries quasi-judicially.
  • Business Owner Shielding  :  Some high-net-worth families use family offices to shield their business assets from future entrepreneurs looking to claim them. Children are not savvy enough to run a profitable business, so the family office assists in vetting. This allows families to choose the entrepreneurs who will run the companies in question in the event of the trustee’s death.

Families come in all shapes and sizes, just like family offices.  As such, there can be no template for family office structures since they are tailored to the priorities and facts of each family.

The creation of a family office usually takes place when a considerable amount of wealth has been created.  The nature and function of the family office are generally set out by its founder with a specific purpose in mind.  The services of the family office can change over time, as the family grows in size or as the family’s needs change over generations. 

The key function of the family office never changes – it is there to preserve the family’s wealth. 

The best family office is the one that achieves the family’s objectives and visions. 

When protecting your family, it’s vital to get the right advice. If you’re not sure whether you need to appoint a fund management company or MFO or even to set up your own SFO, speak to us over video consultation via Lawyer Anywhere. We can discuss your needs and recommend the best solution for you.

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Asset Management Not Wealth Management

ASSET MANAGEMENT ≠ WEALTH MANAGEMENT

Asset Management and Wealth Management are often used interchangeably but what is essential to understand is the difference between them. While both services target to impact your financial services positively, the scope of their services varies greatly.

As its name suggests, asset management is the management of your assets. Asset management aims to grow your current pool of assets while mitigating the risks taken.

Wealth management encompasses asset management. The goal of wealth management is to protect you and your family’s wealth, which involves legacy and tax planning.

Key Differences Between Asset Management & Wealth Management

 Asset ManagementWealth Management
MeaningManagement of assets of clientsManagement of all financial aspects of the client
Focus

Narrow Approach

Focused on building your investment portfolio

Wide approach

Focused on protecting your family’s wealth involves tax planning. 

FunctionManagement of investments/assets, risk-return legacy analysis, strategy formulation for asset management, identification of “suitable” assetsManagement of investments/assets & portfolios, tax planning, estate planning, insurance, education planning, retirement planning, charitable contribution
Approach

Offer products “suitable” for the client

Creative approach to offer in-house products through their financial expertise and direct involvement in the market

Required (“fiduciary duty”) to put client’s interest before self

Process-driven approach involving coordination of inputs from financial experts, lawyers, accountants, insurance agents and other specialists required for financial management

Compensation

Usually, a commission is based on product sales. 

May give rise to a conflict of interest

Retainer fee-based along a fee for the asset under management 

Favours impartiality in recommendations

Typical service providersBankers (Privilege & Private); External Asset ManagersExternal Asset Managers; Investment Advisers
Typical AUM From S$1million upwardsFrom S$10million upwards
Which approach is most suited for you?

There isn’t a one-size-fits-all solution.

At different milestones in your life, you will have set out different goals that you set out for yourself. While both approaches are targeted at positively impacting your financial situation, their suitability depends on your personal needs.

A wealth manager will be able to help you boost the efficiency of your monies, gain insights into estate planning and reduce tax on family assets.

On the other hand, if the only thing you require at the moment is expert investment advice, then asset management might be the better solution.

Working with asset/wealth managers can be a great way to improve your financial situation. They can help you grow your investments. Not all asset/wealth managers are the same. Who can you trust?

First, you should check to see if they are regulated, as all individuals providing financial services in Singapore are required to be regulated. Examine their credentials, including their experience and track record. While past performance does not guarantee future results, it is a good indicator of whether they will work for you. Other considerations would be the availability of portfolio valuation reports, transparency, and competitive fees.

The most crucial step is meeting with a few different managers to determine which one is the best fit for you. You should feel comfortable with your manager and confident they have your best interests at heart.

When managing your finances, it’s essential to get the right advice. If you’re unsure whether you need to hire an asset manager or a wealth manager, speak to us via video consultation via Lawyer Anywhere. We can discuss your needs and recommend the best solution for you.

Susan Tan

Senior Legal Executive

Qualifications:

With more than 10 years of experience in the financial industry, Susan Tan, who joined us from one of the leading corporate and investment banks in Singapore, provides invaluable expertise and knowledge in corporate secretarial.

She is conversant and familiar with the local regulations and requirements for business entities in Singapore.

As a member of our team, Susan is responsible for maintaining and updating the Company’s statutory registers and records, filing all necessary documents and forms with the Accounting & Corporate Regulatory Authority (ACRA), Ad-hoc assignments such as allotment and transfer of shares, amendment of Company’s Constitution and submission of Annual Return to ACRA.

Apart from corporate secretarial work, Susan has considerable experience and expertise in compliance advisory matters, making her a valuable member of our firm.