The family office sector in Latin America has seemingly been flourishing for some years now, but demand is intensifying, according to executives at WE Family Offices.

Latin America accounts for 31 per cent of all ultra high net worth wealth globally, according to the 2015 World Wealth Report by Capgemini and RBC Wealth Management. Slow growth in Brazil and LatAm overall, however, caused global UHNWIs to achieve a more modest increase in investable assets of 7.4 per cent in 2014, the report said, reflecting some of the problems present in the region. Weak commodity prices and depressed equity markets, as well as the faltering Brazilian economy, are expected to contribute to the malaise in Latin America, it added.

Against this backdrop, a number of trends are fueling demand for family office services in the region, according to the managing partners at WE Family Offices, which has offices in New York and Miami, FL, and a significant client base of LatAm families.

Impacting the supply side is the move by some banks to pull out or scale back their operations in LatAm – RBC in Uruguay and HSBC in Brazil, for example – while intensifying global tax rules are driving up the need for advice, and economic factors are creating investment opportunities and challenges.

“The macro headline is that demand for family offices in the region is growing,” said Michael Zeuner. “This is because family offices are sitting at the table with the family, helping them navigate this complex world of providers and changing tax structures.” (Zeuner noted that many of the same themes are also playing out in the US.)

Culturally, LatAm clients are very family-orientated, said Mel Lagomasino. “Typically, we're not just talking to the patriarch or matriarch, we're involved with many family members.” Because of higher market volatility and political instability in the region, LatAm families tend to be more aware or concerned about the financial safety of the next generation than their US counterparts, Lagomasino added.

“We're very often dealing with two generations at the same time, where the next generation is keen to get involved with not just the family operating business but with the whole wealth management process,” she said. And WE is “pushing for that,” to help these families manage their wealth beyond just financial assets, Santiago Ulloa added. Indeed, like in the US, family governance and education are key elements of the family office offering in the region, Ulloa said.

Across most sectors, LatAm clients are one of the most loyal client bases, with families in the region tending to have long-standing wealth management relationships with major financial institutions, the executives at WE said. However, as mentioned above, many organizations are exiting, or have exited, certain markets to focus on other regions they view as perhaps more profitable, or where they can achieve greater critical mass (that is not to say, of course, that certain players haven't actually ramped up their coverage in LatAm).

“Families that have had relationships with companies for what could be up to 40 years are receiving letters saying they need to find another trustee – and these people are often in their 70s,” Lagomasino said. As a result, many are thinking about creating a single family office or joining a multi-family office to ensure their complex wealth management needs will continue being addressed for generations.

“It's not so easy to find a new bank,” Zeuner said. “The problem isn't just about establishing the relationship, there is also limited transparency in terms of industry fees and expenses.” But a critical role of the family office is to help families understand what is the right set of products they need from the right set of providers, for the right fees – and they are increasingly recognizing this. “Some families used to view a family office as an additional cost layer, but I think more and more are understanding that we are reducing their costs significantly while also improving the quality of service,” Lagomasino said.

The other big trend affecting wealthy LatAm families relates to tax harmonization and OECD protocols, Lagomasino continued. Many families have diversified their wealth across continents, typically with their operating business, the wealth engine, at home in the region. “But now, with new rules at home and overseas, they're having to review their legal structures and tax planning strategies,” she said. “Most major families in LatAm have either just reviewed, are in the process of reviewing, or will be reviewing, the fiscal structures and implications of their investments.” Ulloa also highlighted that, in many cases, family members live in different countries – primarily the US or Europe – which adds another layer of complexity when it comes to wealth transfer planning.

Meanwhile, macro changes in the global economic environment (developing market devaluations driven by China’s slowing demand for commodities, for example) are creating opportunities as well as challenges. On the positive side, many families are buying local currency-based assets at a significantly reduced price, particularly if they are able to liquidate dollar-based assets into their local currencies, while on the other hand many are suffering as their businesses are hit by poor market conditions and consequently losing value. Ulloa also spoke about a white paper he wrote a year or so ago on opportunities in the private market for families that are willing to trade some liquidity for returns. “We have the option to go direct to most of these private investments, which could be in real estate, energy, wind, solar, biotech etc and private equity. In the end, people have to trade off between time and returns versus liquidity.”

The LatAm family office landscape can be summarized by comments in a 2012 report by Heidrick & Struggles, which said - among other observations - that patterns of business ownership in LatAm are favorable to the family office model as wealth in the region continues to have a unique long-term time horizon. “The recognition of the family office segment of wealth management is increasing rapidly on a global basis, especially in Latin America,” the report, entitled Latin America: Wealth Management Trends, said. “Even the moniker ‘family office’ tends to not be translated into the local language, but rather used in its English form.” Also worth nothing is that the discretion and confidentiality of family offices in the region is heightened to a level rarely seen elsewhere, it added. “The game in Latin America is not to be visible, as much for privacy as it is for security considerations.”