Over half of wealthy families have started to consider ‘regularising’ their tax affairs after being spooked by increased government scrutiny, according to a new survey. The survey found that 53.4 per cent had done so, but that half of these were worried by the possibility of unlimited historic reassessments, 39 per cent by penalties and 32 per cent by criminal sanctions.
Over half of wealthy families have started to consider ‘regularising’ their tax affairs after being spooked by increased government scrutiny, according to a new survey. The survey found that 53.4 per cent had done so, but that half of these were worried by the possibility of unlimited historic reassessments, 39 per cent by penalties and 32 per cent by criminal sanctions.
The survey, carried out by the Family Office Channel, a forum where wealthy families and family office advisors can interact, also found that almost all surveyed had lost trust in institutions and advisers (92 per cent) after the banking crisis and the Madoff and Stanford frauds in particular. Half of the families supported, as a consequence of the crisis, bankers becoming ‘trusted independent advisors’, but 30 per cent did not, showing a gap which will be hard for bankers to make up.
Several prominent heads of single- and multi-family offices were at law firm Withers last night for a round table, headed by John Riches of Withers and Stephen Fern of the FOC, to launch the report. One said that families were being panicked into regularisation: ‘Government enquiries are taking the form of fishing expeditions – letters are being sent to people who are fully compliant. It’s equivalent to the TV licensing approach.’ Another said that there was a ‘timebomb’ being created by families who wait for an investigation before the regularise.
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A senior accountant present illustrated the survey’s conclusion that there had been a flight to cash (80 per cent having changed their attitude towards holding it) and gold (58 per cent): ‘I was in the reception of a bank in Switzerland and £250 million of cash and £50 million of gold bars were wheeled through the foyer.’
The issue of fraud and lack of trust was being felt keenly by banks, the participants said, but that this was leading to greater active interest from previously apathetic families. One MFO head was worried that even significant families did not ‘understand custody [of assets] or know what it was’.
It was also clear that family offices suffer a trust problem. One respondent said family offices ‘lacked high calibre staff’ and a private bank said ‘there are no good ones’. An MFO head agreed with a question that small wealth management firms were using the label ‘family office’ as a ‘chic term’ to seem more impressive but in fact had no conception of issues like family governance, but he said they were often quickly found out. The head of an SFO said that under-resourcing could affect smaller managers like his.
Philanthropy was an area which had suffered, although there were countervailing trends. The head of a philanthropic organisation said he had identified three key trends: the first was that casual givers were pulling back, the second that families committed to a cause were too involved to want to pull out, the third that committed families were giving more to make up for the downturn.
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This individual also noted that there had been a definite trend over the past decade for wealthy individuals to give not just money but also their time, but he said this had not noticeably been increasing since the recession. In this context, he mentioned that the maxim that ‘old money divests its wealth to charities, new money invests in charity’ was holding up.
An MFO head said that on the day the non-dom charge was imposed, a client who was on the board of a cultural institution resigned because he would no longer be able to bring in donations from non-doms.
The survey talked to over 100 family offices, private banks and wealth managers in October 2009 from across the globe.
