Family offices are continuously challenged to manage international asset purchases and transactions while ensuring they fit seamlessly within the existing business and family arrangements. In addition, all tax and regulatory requirements must be considered not just at purchase but through the life of the asset and the evolution of the family. In this article we look at the top 5 challenges facing family offices when it comes to managing complex assets.

What is a complex asset?

“Complex assets” are defined as assets that present particular challenges in terms of their acquisition and deployment due to:

• a highly regulated operation;
• cross-border use;
• the involvement of multiple national and international authorities;
• mixed and flexible business and private use;
• a high purchase price and high operating costs;
• and relatively infrequent acquisition or replacement.

Assets such as business jets or yachts, but potentially also works of art and antiques, fall into this category.

Family offices that deal with these assets often face particular challenges; they have to perform a balancing act between complying with different rules and regulations to keep the asset out of adversities while at the same time trying to ensure the greatest possible flexibility in the assets’ use for the owners.

The Top 5 Challenges

Here is our choice of catchy tunes representing the top 5 challenges Family Offices are confronted with when handling complex assets:

1. The Gambler:

Due to the comparatively rare event of purchasing or replacing such a complex asset, not seldom including the need to import or export it, the chances of being confronted with inexperienced representatives of local or supra-regional authorities with an unprecedented approach to handling the matter are quite high. This can lead to volatile decision-making with uncertain outcomes making each transaction as well as the subsequent operation of the assets a high-stakes gamble.

2. Welcome To The Jungle:

Many national and international rules and regulations are neither transparent nor harmonised. And what applies or is true in one jurisdiction may not be the case in another, even though they generally based on the same regime such as EU directives. For example, the registration of certain complex assets is often confused with their tax affairs, but they are often not linked. As a result, relying on the reassuring concept of overarching legal and regulatory principles without an in-depth knowledge of the potential regional differences and their specific interpretation can lead to unpleasant surprises.

3. I Want It All:

Owners of complex assets do not buy them to sit idle, but to use them when, where and how they want. They also prefer bespoke solutions rather than one-size-fits-all approaches. They want maximum flexibility in their individual mix of business and personal use of their assets, often overlapping. Combine this with seasonal peaks in the use of certain complex assets, a fluctuating and potentially dwindling availability of competent and authorised personnel, and a looming shortage of spare parts in some areas, and you have the perfect breeding ground for challenging situations and frustration.

4. Sometimes Things Get Complicated:

To acquire and properly manage complex assets, Family Offices typically need to engage experts from a variety of disciplines to ensure that regulatory and legal, contractual, technical, financial, operational, organisational, managerial and other substantive and sometimes very real practical issues are considered and addressed. As a result, the need for multi-sourcing with many parties involved adds another layer of complexity, making it difficult for Family Offices to maintain oversight and control of the process.

5. Too Much To Lose:

A complex asset with a high purchase price usually comes with high risks and obligations. And the path from acquisition to operation to sale is littered with a host of potentially costly liability traps – up to the equivalent of 40% of the asset’s value – triggered by how the asset is owned and operated, where it is based or located, or by the ultimate owner’s physical or tax residence or ownership of property or businesses in a relevant jurisdiction.

The Show Must Go On

Anyone who has been through the process of buying and operating complex assets knows only too well that it can be a bumpy ride down a rocky road. Fortunately there is a bridge over troubled waters, but it’s not so easy to find. Here’s a selection of clues for the search:

• deep industry expertise and a clear understanding of different business models and the potential issues they raise;
• reputable and recognised national and international industry and association certifications and authorisations;
• a comprehensive, long-term track record of handling similar matters on a regular basis;
• sophisticated yet transparent processes and solutions designed to ensure smooth operations and reliable outcomes;
• well-established and trusted relationships and coordinated arrangements with relevant authorities in different jurisdictions;
• an international network of recognised experts in different disciplines that can be called upon as required.

These are just a few indicators of how to find an accessible, traversable and reliable bridge to help Family Offices deal with their top challenges and getting complex assets safely to the other side. Martyn Fiddler Limited has been supporting and advising family offices for nearly 40 years regarding their complex assets and European tax obligations and it highly regarded as providing value when it is needed most.

Please contact Tobias Heining for more information and to arrange an initial consultation at tobias@www.martynfiddler.com