In line with the many regulatory, tax and general transparency-driven developments globally, there is a growing focus within Asia’s advisory community on how to make the best use of trust structures as part of the various wealth planning options available to high net worth (HNW) clients.
Date: May 17, 2012
Tags: Wealth planning, Trusts, Estate planning, Succession planning, Governance, Regulation, Tax
In line with the many regulatory, tax and general transparency-driven developments globally, there is a growing focus within Asia’s advisory community on how to make the best use of trust structures as part of the various wealth planning options available to high net worth (HNW) clients.
Ranging from the appropriateness of structures, to the governance system around trusts, to the ability of advisers to service clients effectively – private banks and wealth management organisations are grappling with how to address these and other challenges.
These were some of the key outcomes from two thought-leadership discussions last week in Hong Kong and Singapore – hosted by Hubbis in partnership with by Amicorp Group – on the future of wealth planning in Asia. The roundtables involved high-profile wealth planning practitioners and senior management within Asian wealth management and private banking, as well as relevant trust professionals.
Evolving structuring issues
Some of the emerging areas of focus, said practitioners, include long-term dynasty planning, with patriarchs looking at what will happen for their grandchildren and greater-grandchildren.
Such trends, alongside the backdrop of regulations such as FATCA and the movement of the next generation to live in Western countries, are having an impact on the choice of jurisdiction for trusts, based on what the different trust laws provide for clients.
Yet there is not always enough care taken, nor advice given to a client, in relation to which jurisdiction the trust should be located in, to ensure it is the most appropriate solution.
Too often trusts are used as a catch-all to put in the relevant assets a client has, and sold as any other product, said practitioners.
One of the challenges relates to the fact that clients don’t necessarily understand all these issues. However, this is often due to the fact that some advisers selling the trust initially don’t fully understand how the structure works over the longer term.
As a result, said practitioners, advisers should be looking to specialists – either independent trustees or bank-owned trustees – to provide the ongoing service.
Another view was that advisers should only be involved at the outset, and then they should pass responsibility for the ongoing advice.
This relates to the expectation over the need for family office-type offerings to take a more professionally-run approach.
In addition, a key next step with any trust structuring, added practitioners, is building a governance system around the trust – which ensures the right people from the family will be making the decisions. The trust itself, or the trustee, cannot do this alone.
For example, one of the missing links in the set-up and governance process is covering aspects such as how boards are constituted, and how agreements which govern how various parties operate – including the boards, the protective committees and the enforcer committees.
A difficulty is that various parties have different views on what they want out of the trust, and how they think it will work.
As a result, everyone needs to aligned and clear on the objectives and decision-making processes, said practitioners.
Getting the right advice
A pitfall in this whole process, however, comes back to the ability of an adviser to explain the complexity of the structure and keep clients up-to-date over ensuing years with advice and guidance on the best way to manage the assets in the trust.
Some practitioners also pointed to the need for trust administrators to keep up with the complexity of structures and nature of the relationships between a client’s business and needs.
As a result of poor advice, some HNW clients end up with dozens of BVI companies.
The knock-on effect of clients having bad experiences when setting up a trust or other wealth planning structure leads to skepticism.
At the same time, there is too often a reliance on the banker to bring the trustee to regular meetings with the client, which practitioners said creates the potential for problems to arise with any ongoing monitoring and supervision.
The approach, instead, should be to assess and manage risk directly – which in practice means having direct access to clients to ensure they are advised properly on an ongoing basis.
Another approach, said some bank-owned trustees, is to ensure that the trustee puts into the agreement a requirement for an annual meeting to ensure everything is kept up-to-date. Ultimately, this is also beneficial for clients to feel comfortable and more in control.
Other question marks arising
The impact of clients squeezing banks on fees for trust and other wealth planning services is also unrealistic for the sustainability of good advice, added practitioners.
They agreed on the need for the industry to be disciplined and not waver on fees, saying that it isn’t good for anybody if a client gets bad service simply because the provider or adviser isn’t getting paid enough on an ongoing basis to provide what is needed. So getting reasonable fees to guide families through various transitions is critical for the industry to do what it should be doing.
In line with this, the concern raised by some practitioners is that while they position trusts as long-term structures, the industry isn’t geared up to support this.
This is where the litigation and reputational risks then arise, they said.
There is also a question-mark over whether banks are even the right types of organisations to be providing clients with advice about their trusts, given that law firms, for example, potentially provide better continuity in terms of the advice. Clients can then use the banks or independent firms as the platforms to hold their assets.
This all requires education for the client about the professionalism required to find the right wealth planning structures and solutions – rather than them thinking of choosing the right solution as the same type of multi-banking approach they take to their investments.
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The Private Client Services division leads Amicorp’s engagement with key intermediaries, including global private banks, asset managers, family offices, accounting and legal firms, and independent financial advisers. We provide a comprehensive range of entity management products and services for intermediaries and their clients.
Intermediaries choose Amicorp as their preferred services provider because of its specialist knowledge of jurisdictions and products. The company’s aim is to become a strategic partner of choice, in delivering Amicorp’s full suite of services to intermediaries and their clients, by leveraging the expertise and capabilities of its global network. Globalisation of individuals, families and their assets, along with the trend toward greater transparency, has altered the scope, depth and sustainability of offerings required from intermediaries and service providers.
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E P.Golovsky@amicorp.com
