Family offices: Setting up for success
Family-owned businesses power the world’s largest economies through their commercial activity and the lifestyle spending of their owners. This demographic’s sizeable influence requires their advisors to take a prudent approach when establishing custody arrangements.
This article was contributed by Shadi Alnasr, Director, Client Strategist, Global Family Office - BNY Wealth.
Shadi Alnasr
Published: 03/02/2025
5 min read
Family-owned businesses play a vital role in the global economy, contributing to 70 per cent of global GDP and roughly 60 per cent of employment worldwide1. As these families become wealthier, either through improved business activity or eventually selling their businesses, the suitability of their banking arrangements should be re-evaluated.
In fact, this is the case in the United Arab Emirates (UAE), where it is estimated that the top 10 wealthiest families employ over 600,000 people within the country, and family-owned businesses contribute more than 60 per cent of the region’s GDP. With 65 per cent of family offices in the Middle East expecting a notable increase in total wealth2, the structure of their custody arrangements has never been more important.
To support the growing number of family businesses in the region, the Dubai International Financial Centre (DIFC) launched the DIFC Family Wealth Centre, the first of its kind in the UAE. The Centre unites global family-owned businesses, ultra-high-net-worth individuals (UHNWIs) and private wealth to facilitate a conducive environment for the growing number of family offices in the region as well as the necessary tools to support high-level legacy and succession planning.
As more international businesses establish their presence in the country and the region continues to evolve its financial infrastructure and regulation, family offices must ensure they are appropriately structured for their clients to benefit accordingly. This means working with a custodian that can service greater levels of wealth.
UAE family offices will need more assistance with consolidating reporting data from multiple sources, providing access to global investment opportunities and safekeeping assets without comprising access. The right custody partnership will enable them to focus on areas where they truly add value, such as financial planning and ensuring smooth generational wealth transfers.
1McKinsey & Company: All in the Family Business. January 9, 2024.
2Deloitte: A Middle East Point of View. Summer 2024.
Choosing the right type of custodian
Without a designated custodian, family offices working with different investment managers receive varying inputs required to generate periodic reports. Imagine trying to reconcile performance data, tax information and due diligence reports from different sources that lack a unified approach to documentation. As a result, family offices can find themselves using complicated and costly wealth aggregation systems to create consolidated reports. Not only is this administratively burdensome, but it creates the potential for error, which can become costly when dealing with substantial wealth.
Working with more than one custodian also equates to a greater number of cash transactions to move money between banks, thereby increasing the potential for cyber theft. However, a master global custodian with a track record of asset safety can offer more control and security. In this case, a promising candidate would have superior credit ratings and a strong balance sheet.
Because of the sophistication of their client base, family offices require a custodian that can service a global portfolio comprised of multiple managers and asset classes across geographic regions, in addition to the personalisation of a boutique firm.
Advantages of a master global custodian
While working with a single global custodian has many advantages, the benefits can be thought of in four main buckets: 1) enhanced security and transparency; 2) economies of scale; 3) increased efficiency; and 4) streamlined administration.
The first (enhanced security and transparency) is achieved through custody services that refrain from commingling the assets of the client and the firm, allowing for safe and easy access to funds. The second (economies of scale) is based on consistent performance analysis across all investment managers, as well as leveraging assets to gain lower lending rates. The third (increased efficiency) can be quite broad, but typically pertains to the systematic processing of manager trades and collecting all income and dividend payments. And the fourth (streamlined administration) is what you would expect, being that it eliminates the need to reconcile with individual managers and produces consolidated reports and year-end tax information.
Master custodians allow family offices to maintain relationships with investment managers, as the custodian provides the underlying structure for interactions between parties. Within this structure, the family office sets up accounts with the custodian and each manager handles specific accounts directly. This allows the family office to add or replace managers without disrupting the overall system and reports.
The custodian also ensures trades are completed and keeps assets safe while providing clear, consistent reports for the entire portfolio as well as each manager. With these reports, the family office can track performance, monitor investments and manage risks across different regions and industries. This helps safeguard the family’s wealth because records are generated with greater accuracy through the use of consistent valuation methods.
At the centre of everything
A master global custodian should function like an extension of the family office, working closely with the latter to improve its operations.
As previously mentioned, with the custodian safekeeping assets, settling trades across investment accounts and providing a consistent set of reports, the family office has the ability to analyse manager performance as well as geographic concentrations and sector exposures across the portfolio. They also receive more time to focus on financial planning and facilitating smooth generational wealth transfers.
By partnering with the right type of custodian, family offices are better able to service clients with evolving wealth.
BNY Wealth is part of BNY, which is one of the largest global custodians in the world. With a proven track record of serving clients for 240 years, in addition to family offices for over half a century, BNY understands the unique needs of those with substantial wealth, providing the necessary resources and solutions to help them achieve their goals.