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Sat 15 Dec 2018 01:06 AM

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Opinion: Managing the great wealth transfer

Why wealth managers in the GCC are readying themselves for a more professional future

Opinion: Managing the great wealth transfer
Opportunity: International financial centres with proven track records will thrive in this new environment

Immense opportunities await wealth structurers as older patriarchs and matriarchs across the countries of the GCC prepare to pass on an estimated $1tr or more in private wealth in the next decade. New research commissioned by Jersey Finance, in conjunction with Hubbis, confirms that succession planning remains the key challenge for high net worth individuals (HNWIs) in the GCC. An astonishing 92 percent of HNWIs admit they are poorly prepared for the transition of wealth across generations.

If done successfully, the inter-generational wealth transfer will ensure a strong position for the GCC economy. It also presents considerable opportunities for wealth management professionals and financial planners seeking to support families in the region by providing a full suite of cross-border, corporate, funds and wealth management services for HNWIs.

International financial centres (IFCs) with proven track records of reputational excellence will thrive in this environment. But it is important to understand the families’ psychology, if the wealth management community is to address this opportunity and leverage the region’s growth prospects.

There is still a widespread feeling of immunity for clients in the region while the reality is that they are already in the global regulatory net

Global planning

Today we are seeing a shift from using structured offshore solutions as part of the overall wealth management practices, to a more sophisticated approach driven by key factors including concerns over regional stability, the expansion of global regulation, the gradual evolution of local jurisdictions towards the developing global financial and regulatory standards, and the pressure of planning for wealth succession and transition. In addition, and according to the research findings, the younger generation increasingly appreciates the importance of transparent wealth preservation and planning.

Looking at clients’ sentiments, the use of jurisdictions such as Jersey is substantially driven by the geopolitical climate and fears of instability (25 percent) and succession planning (25 percent), followed by privacy and confidentiality (17 percent), asset protection (17 percent), tax efficiency (eight percent), and diversification of jurisdictions and assets (eight percent). These factors are driving clients towards global asset and wealth diversification, wealth structuring and an increasing use of premium offshore jurisdictions.

Privacy concerns

By being present in a family wealth market, we can see that the GCC favours structures based in reputable IFCs. However, industry experts say that Middle Eastern clients continue to be very discreet about their wealth and operations: clients like their personal and financial privacy and have no plans to change this behaviour in the foreseeable future.

Nevertheless, an important shift is taking shape with a heightened sense of awareness regarding tax compliance. Unlike the past 20 years where tax avoidance structures may have motivated clients, we are seeing a shift away from jurisdictions that are coming under scrutiny, such as many of those in the Caribbean, due to privacy concerns, as well as the fear of unwanted disclosure of their assets. According to our research, 75 percent of clients know today whether they might have issues relating to transparency, tax and existing structures.

However, there is still a question mark regarding whether some clients have fully accepted that the benefits offered by offshore structures, in reputable IFCS, can no longer be driven by secrecy and/or tax avoidance. There is still a widespread feeling of immunity for clients in the region while the reality for them is that they are already in the global regulatory net. Governments have been gradually moving towards embracing global standards of regulation, compliance and transparency with positive progress made to the underlying regulatory and legal infrastructure. Against this backdrop, wealth managers have a lot of work ahead.

Clients need to react to local and global regulations and preserve their wealth generations

Professionalising wealth protection

Given the ever-evolving changes and global regulatory roll-out, clients in the region are becoming increasingly sophisticated as solutions on offer and structures being taken up continue to increase in number and sophistication. For wealth managers, reputational excellence must not only be clearly articulated, but also demonstrated time and again through operational rectitude and transparency.

According to our research findings, HNWI clients in the Middle East understand that the selection of an IFC is critical, with reputation being the most important factor. As such, there is a clear trend towards Tier 1 IFCs that are noted for their expertise, regulatory robustness and transparency.

Given the unprecedented global regulatory changes, wealthy people are increasingly preferring to plan for succession to the next generation and professionalise the way family wealth is managed. Clients need to understand how to react to local and global regulations and preserve their wealth for future generations. In this context, wealth planning is becoming increasingly professionalised, transparent and robust. As such, IFCs must work closely with the wealth management industry to encourage HNWI clients in the GCC to review and modernise their existing structures, as well as create new structures.

Wealth management in the GCC continues to gain traction. IFCs remain both viable and of considerable value to the region, the wealth management community and their clients. Leading IFCs that boast unmatched reputational excellence, dedication to transparency and ethics are best positioned to steer HNW investors through succession planning and wealth transition – all while leveraging the wealth creation dynamics that create immense opportunities for everyone in this region.

Richard Nunn is Head of Business Development at Jersey Finance, which recently became the only IFC to set up an office in DIFC.

Richard Nunn, head of business development, Jersey Finance

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