Panama’s reputation as a paragon of financial stability has prompted renowned family offices to relocate to the country and has also led legal and corporate law firms to offer family office type services. Family offices are on the rise around the globe as they can offer high-net-worth clients a more convenient way of protecting and growing their fortunes. As the financial crisis has brought down the level of trust and confidence in large banks, a gap in the market has appeared which Panama’s financial services sector intends to take full advantage of. Offering the entire spectrum of services, the country’s firms have built up a reputation of personalized assistance and tailored solutions over the years that now allows them to cater for every aspect of a client’s wealth management needs.
Years of Practice
Panama’s growth as an International Financial Center (IFC) has also made it a strong contender in the market for high-end financial services. The country is increasingly being seen as an alternative to the traditional family office locations of the Singapore, Luxembourg, Hong Kong and Switzerland. Although, the Panamanian family office sector is still very much in its infancy, the composite services have been on offer in the country for much longer. In fact, Panama was an early mover in this segment with many lawyers and accountants acting as trustees or advisers on a wide range of issues and providing services to single and multi-family offices worldwide. As more and more clients are now beginning to appreciate the country’s relationship-driven business culture and service-oriented workforce, Panama’s family office sector is maturing rapidly. Wealth management firms seek to serve their clients more holistically by moving up the value chain and are launching complete family office services. At the same time, increased demand for Panama’s financial products required better coordination and the amalgamation of services, attracting money-managers from the world’s banking centers to establish fully-fledged offices on the country.
Wealth creators and their families, heirs who benefit from old fortunes, as well as newly rich tech and life sciences billionaires and professional athletes, are today looking at Panama as a location to manage their assets. They will find service providers who manage everything for them: tax structuring, investment management, estate planning as well as inheritance and wealth transfer services. In addition, efficient law and accounting firms are providing an array of family o office services. One of the key attractions for family office providers is the country’s regulatory framework that surrounds the wealth management industry and the smooth licensing process for trustees, foundation administrators and investment advisors. In addition, setting up a family office is expensive; it often costs more than US$1 million a year to run a single family office due to the lack of economies of scale. By locating both the administration and asset management functions in Panama, multi family offices can share in those services and costs between different families and their advisors can benefit from the country’s low administrative costs.
Globally, the combined wealth of ultra-high-net-worth individuals stands at US$14.7 trillion, with North America having the largest percentage, followed by Asia and Europe. Thus far, most family offices in Panama originate from LatAm and continental Europe, however, several companies are looking to reach new and profitable markets such as the US, Middle East and Asia. In seeking to attract affluent families and their ‘chief financial officers’ to Panama, they highlight the availability of a full suite of investment vehicles and corporate structures. The country has world-class regulatory frameworks for holding companies, investment funds and fund platforms, as well as trusts and foundations, and is constantly developing new solutions that can be used in a family office setting. For a family foundation, a company can be set up which exclusively acts as foundation manager to this particular family foundation, thereby allowing for greater control and confidentiality. These family foundations are also exempt from government authorization since they are structured as foundations, not trusts.
Unfazed by Legislation
Although, the financial sector is today more complex than ever, family offices based in Panama say they can successfully navigate the new regulatory landscape. New and foreign companies are able to benefit from streamlined licensing procedures, lower regulatory fees and reduced bureaucracy when compared to other International Finance Centers. Political and financial stability is also critical in attracting business to the country and Panama’s strengths have been proven in recent years, particularly in how well the country weathered the global recession. Staff recruitment, however, has become a key challenge for firms as the competition for talent in Panama’s rapidly expanding financial services industry has intensified. More and more companies are now sourcing foreign employees with the required level of expertise in order to deal with the demand. Though the sector is restricted by these problems, the intention of most companies is to remain boutique. By doing so, they can continue to provide their clients with the kind of intimate service for which they were chosen while, year-on year, ensuring that the human resources are available to sustain the growth.
It is estimated that there are around 6,000 family offices worldwide and the number of high-net-worth individuals is set to grow in the coming years. However, in order to remain cost-efficient, a family office also needs to control the cost of its operations, which includes not only staffing costs but also overhead administrative costs and the costs of running an IT system. Many family offices are currently analyzing their cost structure to restructure their operations, and Panama, with its cheaper fee and salary structure, expects to welcome more family offices in the near future.
The country’s role as a reliable outsourcing partner will also remain important as a strong support infrastructure is establishing itself, with account managers to carry out everyday transactions for clients and portfolio managers to make investment decisions. The country’s law firms are on hand to provide legal advice, and senior client relationship managers generally deal with the backbone of the family office itself. Most multi-family offices are open to clients with at least US$10 million, and a few hundred million is usually considered as the minimum needed to operate a reasonably sophisticated single family office. However, Panama is also attractive to clients who are not considered part of the super rich: sharing high-end wealth management services from a multi-family office, or sourcing a few services from Panama’s experienced service providers, is also a reasonable proposition for the average wealthy family.
Location, Legislation & Longevity
As the global financial crisis caused wealthy clients to seek new, more secure alternatives to traditional investment banking, Panama’s strategic position in the world, sound legal framework and appealing tax benefits have led several providers to relocate to the country. With ultra-high-net-worth individuals increasing on an annual basis, coupled with an improving global financial outlook, family office type services are expected to expand in Panama. Setting up a family office on the country can create direct access to different types of investments, while the costs of running it can be controlled. Despite challenges and competition from some of the more established locations, the country is gaining prominence as a professional and attentive wealth management center with sustainable growth well within its means.
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