Reshaping fiduciary services in global wealth management

Speaking at the Hubbis Asian Family Wealth Forum 2016 in Singapore in November - Peter Golovsky of Amicorp Group explained some of the driving forces behind a new look-and-feel for fiduciary services offerings and solutions in the coming years.

According to the 2016 World Wealth Report by Capgemini, Asia Pacific surpassed North America for the first time, to become the region with the largest amount of HNWI wealth. 

Asia Pacific HNWI wealth grew 9.9% in 2015, to USD17.4 trillion, growing 5.8 times the 1.7% Rest of World (RoW) growth rate, and ahead of North America at USD16.6 trillion. The HNWI population in Asia Pacific grew by 9.4% to pass 5 million, growing 3.5-times the RoW growth rate of 2.7%. Japan and China proved to be the engines of Asia Pacific global growth, together driving about 60% of global HNWI population growth in 2015.

If growth rates of the last decade are sustained, Asia Pacific HNWI wealth could surpass USD42 trillion by 2025, led by the emerging markets across this region.

A bright future for trusts

According to a 2016 white-paper by Amicorp and Scorpio Partnership – including the first global independent study on the future of the trust industry – there are approximately 475,000 trust structures worldwide.

But only 5% of the global HNWI population have a fiduciary structure, suggesting significant upside, especially within the region, explains Peter Golovsky, managing director, global head of institutional sales, Amicorp Group.

“This presents interesting opportunities for those practitioners in this segment, with business volumes in the trust sector to grow at 10% p.a. with Asia Pacific leading the way,” he adds.

Yet regardless of these growth rates, private banks and wealth management firms around the world face a barrage of challenges.

With mounting uncertainty over the strategic positioning of their fiduciary services businesses within their broader wealth management offering, Golovsky says it ultimately comes down to what’s core versus what isn’t.

This is against a backdrop of regulatory complexity, global tax transparency, cost pressures, scalability and a shortage of talent, he explains.

“As a result, many banks around the world are at tipping point in their decision-making around whether to remain in the business of wealth structuring,” he adds.

These were some of the insights from a series of roundtables led by Amicorp throughout 2015 and 2016, involving over 90 banking and industry leaders in Hong Kong, Singapore, Miami, New York, Mumbai, Zurich, London, Sao Paulo, and Dubai.

The aim of each discussion was to examine the key strategic and critical issues facing industry leaders and the important options and choices around how best to deliver fiduciary services.

Clear direction of travel

In all cases, practitioners stressed the urgency of finding a solution for clients.

In addition to FATCA, the Common Reporting Standard (CRS) is potentially a “game changer”, says Golovsky, driven by the OECD and approving a new standard for the Automatic Exchange of Information (AEOI) in tax matters.

Other significant developments around the world which have added to the far-reaching changes, and in turn created implications for wealth managers, include data leaks such as the Panama Papers, and the ultimate beneficial owners (UBO) register and list on black-listed jurisdictions.

“CRS is not only requiring the financial institutions to perform due diligence and reporting of its financial account holders, but it also creates more tax transparency,” adds Golovsky.

Combined with FATF with Singapore recently taking more aggressive action against complex cross-border money laundering, it increases compliance costs and requires the institutions to ensure that account holders are compliant to local tax rules, report suspicious transactions, and or terminate relationships with potential tax evaders.

“Ultimately, the optimal outcome for each institution will come down to how it addresses the three-pronged challenge of managing costs, controlling risks and increasing revenue,” says Golovsky. “There is no right or wrong approach.”

Getting ready

There are several ways that banks and other wealth managers can anticipate global tax transparency and manage the implications for them and their clients.

Essentially, says Golovsky, they need to ensure beneficial compliant structures that provide asset protection, tax deferral and estate planning.

These need to meet some key goals, he explains. First, entities in the structure need to fully comply with the (tax) legislation and regulations in the country where it is established or used; secondly, each entity must also comply with FATCA and, increasingly, GATCA as embedded by IGAs in local law; and thirdly, the UBO must fully comply with (tax) legislation, like CFC regimes, its tax reporting requirements and other regulations in the country(ies) where the UBO is tax resident.

Click on the ‘PDF’ link above to view the presentation slides.