New regulated solutions in Switzerland – embedding the family office within a dedicated or private trust company

 Jessica Schaedler, The International Family Offices Journal (Vol 8  Iss1)

Introduction
Private trust companies (PTCs) have gained significant popularity as wealth management tools among high-net-worth families worldwide. PTCs are particularly appealing to families with intricate assets as they offer enhanced control, flexibility and protection compared to conventional trust structures. Switzerland, renowned for its favourable regulatory and tax environment and its long-standing expertise in family wealth custody and management, stands as a prominent jurisdiction for PTCs. Furthermore, in light of the new licensing requirements for Swiss professional trustees, the Swiss legislator has introduced a specialised variant of the private trustee called the dedicated trust company (DTC). DTCs deliver similar – and arguably additional – advantages to PTCs by being owned by, and operating under, the regulatory umbrella and professional infrastructure of professional, licensed Swiss trustees.
In this article we argue that embedding traditional family office services into a PTC, and especially into a Swiss DTC, may not only raise efficiency in the administration of family wealth but also bring sustainability to the family wealth stewardship.
The family office
A family office is a professional institution that provides a comprehensive range of services tailored to the unique needs of a family. While each family office possesses its own distinct characteristics, there are several key priorities and service offerings commonly found within a family office:
• Long-term wealth management: This involves
strategic planning and the establishment of
formal governance structures to support the
family’s long-term wealth objectives;
• Promotion of family values and purpose: Ensuring
that all decisions and actions align with the
family’s agreed-upon mission statements and
constitution;
• Investment planning: Ensuring that asset
allocation and portfolios align with investment
policy statements and impact objectives while
adhering to due diligence processes;
• Privacy and confidentiality: Safeguarding personal
information, family activities, and financial matters to maintain a high level of security;
• Tax and financial planning: Managing cash flow,
providing individual budgeting guidance, and
offering expertise in personal and business tax
returns;
• Compliance and regulatory support: Ensuring strict
adherence to regulations governing
investments, assets, and business operations; and
• Succession planning and trust management:
Overseeing trusts and estates, and facilitating
smooth transitions of wealth and leadership.
Considerations before setting up a family office
Family offices should be regarded as distinct entities operating as legitimate businesses. A proactive approach should be taken during the planning phase, prior to commencing operations. Engaging local experts in wealth planning, legal matters, taxation and regulatory affairs right from the project’s inception will help to set the right basis and framework for sustainable family office operations.
To start with, a clearly defined purpose is indispensable for a family office. Establishing a welldefined vision and long-term strategy ensures the structure’s longevity and facilitates coherent decisionmaking in alignment with the predetermined strategy. Critical domains such as choice of location, ownership structure, services to be provided in-house and services to be outsourced, staffing, governance, technology integration and operational procedures can all be orchestrated to support and advance the family’s overarching vision and objectives.
A family office represents a genuine business entity that necessitates operationalisation, strict adherence to policies and procedures, the establishment of performance metrics and that requires appropriately trained, specialised and experienced staff. It is imperative to select the appropriate legal framework and seek localised counsel to guide the formal setup process, while also considering the tax implications involved.
Instituting robust governance rules is paramount for an effective family office. Thoroughly delineating roles, responsibilities, authority levels, decisionmaking processes, and strategic planning procedures is38 September 2023 • www.globelawandbusiness.com
The International Family Offices Journal
essential to pre-empt inefficiencies and suboptimal decision-making outcomes.
Adequate management of risks and data security constitutes a fundamental requirement for a family office. Implementing comprehensive policies and systems is imperative to mitigate the potential hazards associated with data breaches.
Finally, the intricacy and associated costs of establishing a family office should not be underestimated. Thus, it is prudent to seek professional guidance from experts, particularly during the initial stages and framework development. This entails:
• conducting a comprehensive review of the
family structure, succession plans and wealth
outlook;
• selecting the appropriate corporate vehicle for
the family office;
• formulating a sound funding strategy;
• ensuring compliance with regulatory
prerequisites, such as anti-money laundering
obligations and licensing requirements;
• making informed decisions regarding IT
infrastructure;
• appointing executive and management
personnel; and
• deliberating the scope of in-house operations
versus outsourced services.
Private and dedicated trust companies in Switzerland
Under Swiss regulations, Swiss trustees providing services on a commercial basis are subject to authorisation by the Financial Market Supervisory Authority (FINMA). There are two exemptions from this requirement: the PTC and the DTC.
The Swiss PTC is a type of trust company that assumes the role of trustee for one or several trusts established by the same settlor, exclusively for the benefit of the same family. A PTC is usually directly or indirectly family owned.
The Swiss DTC is neither owned nor significantly controlled by the family for whom the trusts are established. Instead, the DTC is owned and must be substantially controlled by an authorised trustee. This distinctive characteristic renders DTCs particularly appealing for families residing in jurisdictions that impose limitations on family control within trust
structures but who still want to benefit from tailored trustee services for their family trusts. Additionally, unlike for PTCs, there is no specific requirement for a familial relationship for the DTC between the settlor and the beneficiaries. Instead, the trusts must either benefit the same family or be established by the same settlor. Consequently, this exemption encompasses relationships beyond those solely tied by family connections (as opposed to what is the case for the PTC).
It is important to note that both the PTC and the DTC authorisation exemptions are not automatically applicable. Both may be exempt by FINMA from the requirement to obtain a licence upon request only. Accordingly, an application for relief from the licensing requirement must be submitted for each PTC and DTC on a case-by-case basis. The same applies to the general structuring of a PTC or a DTC and its activities (eg, composition of the board, employment of officers, co-ownership, activities performed next to acting as trustee), which is always subject to approval by FINMA.
Purpose and use of a PTC or DTC
Effective succession planning is essential for ensuring the long-term success of a PTC or DTC. Succession planning involves identifying and preparing the next generation of family members to take on leadership roles within the private trustee. It also involves developing a plan for the orderly transfer of ownership and control to the next generation.
Further benefits of both the PTC and the DTC are:
• PTCs allow families greater control over the
management of their assets than traditional
trust structures with a professional trustee.
Families can appoint their own directors and
officers to manage the PTC, which allows them
to tailor the governance structure to their
specific needs and goals.
• DTCs allow families to take advantage of a
professional, licensed trustee’s operational and
regulatory environment, thus making the DTC a
semi-institutional player with enhanced
standing towards certain counterparties such as,
for example, banks or co-investors. At the same
time, the family may retain a role in the DTC by
acting as members of DTC or trust advisory
committees.
Implementing comprehensive policies and systems is imperative to mitigate the potential hazards associated with data breaches.

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