The Preservation Game: Lombard Odier builds its family services practice in Asia

As head of family services for Asia at Swiss private bank Lombard Odier, Lee Wong draws deeply on her personal and professional experience of living and working in the region. She knows that the deep ocean of private family wealth in Asia centres intensively around the family and the businesses, making it a fascinating challenge to provide effective advice that sits well with the several generations of family members that are often involved.

Lee Wong, Head of Family Services, Asia at Lombard Odier recently met with Hubbis to reveal her views on wealth planning, family governance and philanthropy for the region’s high-net-worth (HNWI) and ultra-high net-worth individuals (UHNWI) clientele. She believes communication is the fundamental key to effective family wealth transitioning, and that the family and their advisers need to view and manage the family wealth holistically, with a wide-angle vision and a long-term outlook.

From her Singapore base as head of Lombard Odier’s family services practice, Lee oversees three key areas of the Swiss private bank’s business in Asia.

The first key area is wealth planning, which involves succession planning, mobility planning, asset protection, structuring family business ownership succession, tax optimisation, devising and structuring vehicles to hold assets, and facilitating regulatory compliance.

The second core area is family governance, whereby Lee and colleagues help families facilitate family discussion forums, build the family governance framework, and provide guidance in the creation and crafting of family charters.

Thirdly, Lee’s practice area at Lombard Odier helps families focus on philanthropy. “This,” says Lee, “is of rising importance for HNW and ultra-HNW families as they seek to spread their legacy more broadly beyond the family ties and into the world around them. We help families formulate their parameters of philanthropic objectives, craft their individual philanthropic roadmap, and build a philanthropic governance framework for impact assessment.”

Understanding clients = enduring relationships

Private wealth management is a relationship-driven business - the deeper the relationship with a client, the longer the partnership lasts. Lombard Odier takes pride in its long heritage in the wealth management business, having served its private banking clients for more than two centuries.

This longevity drives the bank’s philosophy of taking a long-term view when helping clients. “It is not only about making money in this generation, it is also about anchoring relationships that are going to be here to work together with us for generation after generation,” says Wong.

Transition planning for ultra-wealthy Asian families and their family businesses is an area fraught with misunderstanding. To have an experienced private banker help in what is a complex and sensitive process is often a vital step in achieving the best decisions, structures and outcomes.

Pure advisory

A distinctive characteristic of Lombard Odier’s relationship managers (RMs) is the need to view a client’s needs holistically in what they call a ‘pure advisory approach’. A client may be interested in diverse areas such as investment planning, wealth transfer or philanthropy and the RM should be prepared to be able to advise the client on a wide variety of their wealth needs.

Commenting on how the industry and client needs have changed in the past two decades, Wong remarks that the current client needs are more complex and different when compared with the needs of clients some years ago. For example, the next generation may not want to simply operate the family business the way previous generations have but might prefer to select outside professionals to take more responsibility for this while they create new business opportunities.

Whatever the investment – whether financial, collectable or property assets are involved – the transition of such assets from the founder to the second generation and beyond, or from spouse to spouse, or to other family members, is an area that is often fraught with difficulty.

Transparency ever more essential

Lee first addressed the importance of transparency in her work with clients. “We need to focus on the jurisdictions the clients operate in and also where they hold their assets and then ensure compliance with each of those,” she explains. “These days it is very much about respecting the rules of engagement and for the private banks it gives us a technical ‘in’ and responsibility and to some extent, it facilitates an amenable clientele who understand the absolute need for compliance and transparent structuring. That was not the case some years back. As regulations change constantly, this also gives us a strong rationale for continuity of involvement.”

Aside from advising on and creating new structures to help families hold or transition wealth, Lee also highlights the importance of reviewing existing structures a family might have in place for their relevance and efficacy in light of the new world of regulatory proliferation and compliance today.

“Simplification of structures where complexity is unnecessary or perhaps deliberately obscure is a key initiative throughout this industry,” she says. “Transparency is here to stay. Having multiple structures to create walls of confusion is not a sensible or viable option today. There is no point in those excessively opaque structures, as they simply make people look suspicious. The focus today must be on substance, transparency and compliance.”

Advice: be bold but know your boundaries

Advice, Lee observes, should be confident and specific but confined to what the private banker is legally permitted to advise on, therefore steering clear of matters such as detailed tax and legal advice. “We aggregate in wealth planning,” she explains. “We should have a good understanding of the tax or legal issues that might arise, so we create a roadmap of pragmatic realism and efficiency for the guidance of the client in terms of structuring, but it is the client that must then work out the fine details and efficacy of the structures we might propose with their own dedicated legal and tax advisers.”

She, therefore, believes an effective private banker should not overstep regulatory or other boundaries and should leverage the different skills and personalities from other advisory firms in order to achieve the best outcomes for clients. “There is no point in trying to be everything to everyone, we must leverage the different facets of expertise required to optimise solutions for our clients.”

Confidence in targeted guidance

Lee also notes that the guidance an RM gives should be assembled in such a manner that the banker has full confidence in it. “I like to believe we have confidence in our advice,” she says, “which is where our commitment and experience come in. In today’s world, many bankers fear to give any advice, but that is partly because of a lack of commitment and insufficient experience and knowledge.”

Lee explains that building a long-term relationship with a client stops somewhat short of a fiduciary commitment. “The concept of fiduciary has legal connotations, so our relationship only extends to that if there is such a contractual commitment on both sides. However, we do see ourselves as able to, possibly obliged to, help the client redirect their structures or their investments or other features if we believe they are inappropriate or ill-advised.”

Be prepared to challenge the status quo

She cited the case of her work with a family assembling a family office structure. The family had received external advice from another party that they should legally wrap up one cornerstone business in a ‘no-sell’ and ‘no-pledge’ arrangement.

“However,” Lee noted, “I advised that the family should see a bigger picture, that they should look several generations ahead. I proposed that to lock the family down to not being able to extract any value through a sale or leverage was not advisable in the overall context of their family wealth and a longer perspective. Sometimes a family finds it difficult to look beyond their more immediate concerns and that is where we can add value, by bringing a broader perspective, even if sometimes that means contradicting another adviser where we believe we are right to do so for the benefit of the client.”

Lee then focused her comments on income and inheritance tax planning and optimisation. “This is no longer a world in which clandestine activity can be acceptable,” she observes, “so this discipline is about appropriate and transparent planning,” she says.

Lee says inheritance tax is the simpler issue to mitigate as there are jurisdictions where death taxes are not levied. However, income tax is a far more complex matter and for clients in Asia will increasingly be driven by the CRS, especially as so many clients out in Asia have worldwide tax exposure in many different locations, as well as onshore.

“This,” Lee notes, “means a lot of structuring might be required to optimise these exposures, perhaps with fund structures, or insurance-related structures or perhaps converting income to capital gains to be extracted at a later stage. There are many approaches that are compliant and transparent, and the adviser needs to be able to work these concepts through with their client to find optimal solutions.”

Transparent and compliant protection of assets from the reach of certain jurisdictions and possibly from other family members is another core area of Lee’s practice at Lombard Odier. “A question here is always how ready the client is to put an asset into an entity or a structure that they do not or cannot control any more, directly or indirectly,” Lee explains. “A lot of clients struggle with this concept as the integrity of the chosen structure must be respected throughout its lifetime.”

Addressing the question of how patriarchs or matriarchs should handle wealth succession appropriately with their children, Lee advises the client to first assess their own value system and then consider what is fair and appropriate.

“Ensuring a fair and transparent distribution among family members as well as ensuring continuity of the business is not easy,” she said, “and to achieve this takes a lot of thorough planning, careful execution and considerable sensitivity to the needs and hopes of family members.”

She explains that the allocation of assets is relatively simple, but what is more complex is the future management of the family businesses, assessment of the different abilities of family members, family and individual governance and so forth.

Splitting the financial benefit from management and control can be key. “Family governance facilitates open communication and transparent decision making and thereby enables the family to build trust,” she explains. “It helps to avoid individuals’ personalities from getting in the way and it clarifies the relationships between family members and the business.”

Families often, for example, need to address the issue of whether the next generation, the heirs, even want to inherit the family businesses as they are structured today. In the face of reluctant heirs,” Lee observes, “families might consider re-inventing their family businesses or re-defining assets that they share as a family.”

In the end, it is about assessing and aligning values and capabilities. “Additionally,” Lee notes, “training and guidance are vital to the ability of these principles to cascade down through future generations.”

Lee re-emphasises her view of the vital importance of effective communication in addressing the many challenges that families and businesses face in handling the issues of succession, enduring corporate and family values, management succession and ownership transition.

Governance a priority for families and their businesses

“It is enormously important for the family to construct an open and safe forum for communication,” she explains. “It is essential to have a governance framework for making decisions and resolving disputes regarding transitions. It is essential to communicate to avoid conflicts or to resolve conflicts that arise. We need to encourage the unspoken to become spoken in order to bring different perspectives into the open and to resolve these in a calm, sensible and coherent manner.”

Lee notes that recognising that differences in opinions are healthy, and it is then necessary to find a common ground for discussions. “Before you can start building a true family governance framework, you need to have people engaged with the concept of having open and honest discussions.”

Embracing the differences

She also observes that communication styles are different. “If you look from an Asian perspective, we generally use a submissive style, perhaps passive-aggressive or even manipulative style, which are all not very productive ways of communicating,” she says. “We need to encourage a more transparent level of communication and respect each family member’s different views and different means of communication. Being able to help a family to communicate effectively amongst themselves helps avoid, or resolve, a lot of the issues that will almost inevitably occur among family members.”

Lee cited the example of a typical extrovert and a typical introvert, with the former dominating a family discussion and the introvert then only speaking up later. “These types of issues are very often overlooked in relations, so effective communication can help ease tension in a family trying to run a business together, to make decisions together, and share assets together. Moreover, this should include appropriate documentation of decisions and discussions to ensure there are the correct records available.”

Lee concluded the discussion by touching on the different demands for business and investment amongst the various generations. “The younger generation like new ideas,” she comments, “they like to see their connection with the world at large, they like to see that they are making money but also creating an impact. As a trusted private banking adviser we need to understand the requirements and sensitivities of the founder and the newer generations, to be able to help align their needs and to stay relevant.”