Understanding Family Offices: Ultimate Asset Protection for the Wealthy

For corporate owner-managers and wealthy individuals who have been in business for generations, how to protect the assets they have built up and smoothly pass them on to the next generation is an issue so important that it can be called a management strategy itself. You may have heard the term "family office" in the course of receiving various proposals from financial institutions. However, its reality is still not widely known in Japan, and many may feel that it is shrouded in mystery.

In this article, we will reveal the whole picture of "family offices" from the perspective of experts who have faced the asset challenges of many high-net-worth clients as INA & Associates, Inc. The ultimate mechanism to achieve lasting prosperity for the family, which goes beyond mere asset management, will be explained in a plain and professional manner, with specific functions and advantages of the establishment of a family office. Please read this presentation as a compass for overcoming the 1 billion yen asset barrier and realizing asset preservation and business succession with an eye to the future.

What is a Family Office?

A family office is a private organization established to comprehensively manage and operate the assets of a particular wealthy family and to support the succession of the family from one generation to the next. Its purpose is not merely to increase assets. It is to protect the "intangible assets" such as the family's shared philosophy and values, and to support the family's overall enduring prosperity, including social contribution activities and the education of the next generation.

Generally, the main target is ultra-wealthy individuals with net assets exceeding 10 billion yen, but the essence of this approach is not the size of the assets, but rather the long-term perspective of how to pass on the family's assets and business to the next generation.

Differences from Private Banks and Asset Management Companies

The role of a family office is clearly different from that of a private bank, which is known as a service for high-net-worth individuals, or an asset management company, which is established for tax reduction purposes. Understanding the differences between them is the first step to grasping the essence of a family office.

As described above, while a private bank's main objective is to increase assets through the purchase and sale of financial products, a family office's sole objective is to benefit the family as a client. Also, while an asset management company is a "vessel" that manages individual assets, a family office oversees these assets and serves as a "command post" that designs the future of the entire family.

Why are family offices attracting attention in Japan now?

In Europe and the United States, historically wealthy families such as the Rockefellers and the Carnegies have established family offices and passed on their assets and businesses for generations. On the other hand, family offices have not been widely used in Japan until now.

This is due to the fact that Japanese family businesses have tended to focus on maintaining the status quo rather than expanding the scale of their business, and the national character of the Japanese people has a strong emphasis on savings rather than asset management. In recent years, however, this situation has changed dramatically, and interest in family offices is rapidly growing among wealthy individuals.

Growing Business Succession and Inheritance Issues

The biggest factor is Japan's inheritance tax, which is among the highest in the world. The top tax rate is 55%, and unless adequate measures are taken, important assets such as company stock and real estate may have to be sold in the event of a business succession. This can lead to instability in management authority and the loss of important assets inherited from previous generations.

Another serious problem is disputes among relatives over inheritance, or so-called "succession disputes. Family offices are being called upon as a comprehensive solution to prevent such situations from occurring and to ensure smooth succession of assets.

Expanding Asset Scale of High Net Worth Individuals

According to a survey by Nomura Research Institute, the number of high-net-worth households (with net financial assets of 100 million yen or more) and ultra-high-net-worth households (with net financial assets of 500 million yen or more) in Japan is on the rise, and their total net financial assets are also increasing. As the size of their assets increases, the management and operation of these assets become more complex, and there is a limit to what individuals can do on their own. This increase in asset size is driving demand for a sophisticated management system (family office) by a group of professionals.

Specific Functions of Family Offices

The services offered by family offices are wide-ranging. It is truly a "comprehensive concierge" covering all the assets and activities of a family. The main functions are organized in the table below.

These functions are provided in cooperation with lawyers, accountants, tax accountants, and financial experts to ensure that the family's assets and principles are protected by a solid system.

Conclusion: The Ultimate Asset Protection Strategy to Create the Family's Future

This article has described the "family office," the ultimate asset preservation and succession mechanism for high-net-worth individuals. A family office is not merely an asset management organization, but a "private command post" to pass on all intangible assets, including the family's values and principles, to the next generation for its lasting prosperity.

Differentiated from private banks and asset management companies, such a system, which functions completely for the benefit of the client family, is one of the most effective options to protect valuable assets from the increasingly complex economic environment and severe taxation system. It is a strategy worth considering, especially for owner-managers who are facing the major challenge of business succession.

To protect the business and assets that have been passed down from generation to generation, as well as the pride of the family, for many years to come, why not seriously consider the option of a family office?

Frequently Asked Questions

Q1. If my assets are less than 1 billion yen, can I use the Family Office service?

A1. There is a form of "Multi Family Office (MFO)" in which multiple high net worth individuals share a single family office, and with MFO, it is possible to receive highly specialized services even with relatively low asset size. Please consult with a specialist first.

Q2. Aren't family offices regulated by the FSA?

A2. Although registration as an investment management business is required in some cases, most are not subject to regulation, such as when the purpose is to manage one's own assets. However, it is extremely important to design the organization under appropriate legal checks.

Q3. How much does it cost to establish a company?

A3. Establishing a single family office completely dedicated to one family can cost tens to hundreds of millions of yen per year in personnel and infrastructure costs for professional staff. With a multi-family office, costs can be kept down.

Q4. My asset composition is mainly based on real estate. Can you consult with me?

A4. Of course. A good family office is not only familiar with financial assets but also with real estate, and INA & Associates K.K., as a group of real estate experts, can provide you with the best preservation and succession strategies for your asset structure.