Wealth Management in Asia: The Art of Curating Optimised Client Solutions

Hubbis and co-host Henley & Partners assembled a diverse group of 14 wealth management experts, lawyers and consultants for an off-the-record discussion on the challenges facing advisers as they seek the best solutions for HNW and UHNW portfolios, and as they help devise wealth and estate planning strategies. The key topics discussed included the value of managed estate and succession planning, the role of trusts and structures, the relevance of Singapore and other leading International Financial Centres in wealth structuring, the growing prominence of single and multi-family offices, the need for more holistic governance protocols, the trend toward secondary or alternate residency and citizenship, and the quest to capture younger generation clients.

The Key Takeaways

Singapore’s rising prominence in Asia and globally

Singapore’s government and regulators have for several decades been carefully managing its development as an international financial hub and a globally relevant wealth management centre. As the world of regulation tightens its grip, Singapore is seen as a ‘go-to’ centre of reliability and solidity and for HNWIs and ultra-HNW families, its eminent reputation offers a valuable cachet. Even more so, as Hong Kong is so publicly facing its own political and human rights crises.

Economic Substance requirements add fuel

The Economic Substance regulations that are being driven out of the OECD and the EU and that are putting some of the smaller and more exotic offshore financial centres – often known pejoratively as tax havens – under pressure. This is resulting in benefits to more reputable IFCs such as Singapore, as wealthy clientele seek to realign themselves to jurisdictions that do not raise flags with their home or international tax authorities.

Singapore reacts and adapts

The trends towards reputational association are playing into the hands of Singapore, which is looking at ways to encourage higher quality asset management to its shores. The authorities have welcoming tax, residency and other incentives for family offices moving at least SGD200 million of assets onshore and the Economic Development Board (EDB) and the Monetary Authority of Singapore (MAS) are reportedly planning to boost the family office proposition.

Estate planning

As more single-family offices (SFOs) move to Singapore, as more multi-family offices (MFOs) are offered by the independent asset management community and increasingly the private banks, there is naturally also elevated activity in estate and succession planning and the related trust or other structures entailed.

Tax is no longer a driver

With the intensity of both global and local regulation and the ubiquitous compliance oversight, clients worry less about tax mitigation today than assembling the right structures for family and regulatory transparency.

Investor migration

Similarly, with the rapid-growth of the investment migration industry serving Asia’s many wealthy families who seek alternate residence or citizenship options, tax mitigation is playing second fiddle to the many other advantages on offer such as increased travel mobility, access to global opportunities and as an insurance policy in the event of political or economic uncertainty in one’s home country.

The flight to quality

As these trends play out, there is little doubt that only the highest quality IFCs with the broadest range of services, relationships and the highest reputations will survive in the next decade. There is still an essential role for offshore structuring for estate planning and generally for wealth consolidation and transmission, so those centres that survive are likely to prosper in a newly rationalised world of IFCs.

Structures under the microscope

“Clients are looking to simplify the existing structures they have,” said another expert. “Their objectives might remain the same but in order to offer them the right advice and structures, we need to put in a lot more effort into training and education. Accordingly, in terms of the discussions which clients have with the RMs, wealth planners and other advisers are a lot more informed today.”

Up-skilling

As more and more offshore clients book assets in Singapore, there is a need for higher levels of expertise locally. HNWIs tend to multi-bank their assets, so competition is intense, and those banks and bankers who do not up-skill risk a weakened competitive edge.

Trusting the trustees

The role of trusts and trustees in structures and wealth planning is vitally important, and the growth of this segment of the wealth industry is robust. Clients should carefully select their trustees, and also be aware that the in-house trust services offered by private banks might not be entirely independent of thought and action, while many of the privately owned trustees have been selling out to private equity firms that might have a shorter-term horizon than the truly private, family or management controlled operators.

The Australian example

An expert who had come from Australia highlighted how the result of a Royal Commission on the financial services and wealth advisory sectors had recommended a complete separation of banks from the trustee companies and wealth management arms. He suggested that the next step for Singapore should be to introduce the same sort of guidelines, in other words, to remove the potential for conflicts of interest.

The rise of corporate and family governance

The guests highlighted the great opportunity in boosting the corporate and family governance protocols and structures. A guest noted that this requires a holistic approach, looking at the trust side, legacy planning structures, the single-family office (SFO) structures, more multi-family office (MFO) structures, and so forth.

Singapore will shine

The guests agreed that Singapore’s position in the world of wealth management is both consolidating and set to grow in the years ahead. The coordinated effort of government, regulators and the private sector augur well for Singapore and turbo-charging is coming from the ongoing intense roll-out of new global regulation, as well as fears of instability or compromised reputations amongst some of the natural competitors.

The Discussion

The discussion began with guests focusing on Singapore and its position in the world of offshore wealth management, which has come into sharper focus in light of the political dissent seen in Hong Kong in the weeks before the gathering.

A lawyer began by highlighting the OECD and EU sponsored ‘Economic Substance Regulations’, which he remarked were pushing some clients towards Singapore as a centre of regulatory repute and transparency, factors which also boost Singapore’s proposition for broader international tax planning. “Singapore’s tax positioning is unchanged, and the government extended the family office and trusts tax incentives, so that is good news.”

Another guest explained that the EDB and MAS are planning to work together to form a family office development team.  “This is an excellent development for practitioners in the family office space,” she stated, “making it easier for us to help clients who want to avail themselves of the GIP option C or all the other options, as well as the 13XR, whatever is required. A great example of how Singapore is so proactive.”

Estate planning and tax

The real difference today is everyone has understood that there is nothing they can do nowadays to avoid transparency,” said one guest. “Tax is now simply seen as something clients must integrate within the discussion.”

“There is some confusion concerning the investment migration industry,” noted another attendee. “As the OECD does have concerns that people are using residence- and citizenship-by-investment programs as a way to circumvent the CRS. But we make it very clear to clients and partners that our advice and services are not in any way to mitigate or avoid CRS reporting. The mandatory disclosure rules also ramp up the risk of wrong guidance in this space and further highlight the importance of working with service providers that know what they are talking about.“

He indicated that a good quality investment migration advisory firm does not attempt to give tax advice, or promote any of these residence or citizenship programmes as a CRS circumvention scheme, but instead focuses on the many other excellent advantages they offer.”

Simpler structures and higher quality IFCs

“Clients are looking to simplify the existing structures they have,” said another expert. “Their objectives might remain the same, but in order to offer them the right advice and structures, we need to put in a lot more effort into training and education. Accordingly, in terms of the discussions which clients have with the RMs, wealth planners and other advisers are a lot more informed today.”

“IFCs that might in the past have been considered tax havens are often struggling to survive today,” observed another guest. “Today they are struggling to comply with all regulations, so we think that in 10 years only a few IFCs will survive, and Singapore is definitely one of them, along with other leading jurisdictions.” 

Education and skills vital

“Yes, as an adjunct professor here teaching industry practitioners, I can attest to the growing demand for education in this space, not only in Singapore but also in Malaysia, Hong Kong and other markets. Many people outside Singapore working in the HNWI space, want to know the implications of clients booking assets in Singapore or compared to other jurisdictions. It shows that private bankers and the wealth industry advisers are trying to get up to speed.”

“And as clients tend to multi-bank for their assets and advice, the private bankers have no choice other than to up their game to remain competitive,” opined another expert. “From a private bank’s perspective, one then hopes that the client who creates a structure then uses that bank as custodian. There will be several elements of a solution, and each element must have its compensation, whether it is the trust, or insurance or custodian elements. As long as it is all transparent, that is fine.”

A coordinated effort needed

A guest highlighted how the industry players should work closer together to expedite solutions for clients. “We all work in silos and it is important I feel for financial planners such as myself to work for example with your trust clients, for instance, we can insulate them from problems related to CRS and multi-line reporting from multiple jurisdictions by using something as simple as a PPLI to create a single line of reporting from a single jurisdiction, and no red flags”

“We need to talk to each other and across the various generations,” he implored, “from the patriarch or matriarch to the younger family members, who might not have yet realised the vital importance of forward planning. And we should be working to ensure the clients have the right range of choices from the providers that, for example, the private banks work with. Relating to insurance, do they have, for example, the necessary range of alternatives to Universal Life, such as PPLI, or Variable UL? Often the banks resist broadening their panel of partners and clients do not get offered all the right solutions.”

Who can you trust for trust?

A trust expert observed that there are many private equity investments in trustee firms nowadays, but there are dangers in that approach. “We know clients are aware that trust companies controlled by private equity and venture capital might not be in the same form in a few years, so we always emphasise our alignment of interest as a private global firm with our clients, who are looking at the medium to long term horizon in their trust planning. They do not want to feel they are being monetised and treated like a corporate for shareholder value, there is some potential for conflict of interest there.”

“Yes, we see that when it comes to hiring,” said another trust expert, “as people moving out of those private-equity owned firms often say things are changing too often at those firms, maybe new acquisitions to integrate, new systems, new people, new sales targets, and so forth.”

“We have targets each year,” he continued, “but they are realistic ones, no one from head office says to me push it up 30%, 40% because we do not have the pressure from investors wanting their money repaid because they paid 15 times multiple to buy the business in the first place. This allows me to focus as much time on existing clients as on new clients, in a more balanced approach. It also drives our staff retention and hiring practices to ensure a stable environment.”

Hold on a second…

Another guest who represents a private equity owned trust business had a different viewpoint. “The firm’s strengths are in its personal relationships with the clients, and the financial strength of the firm helps stability and scale. And to be honest, if you’re talking to other private equity owned people you will say those family-owned businesses might not be family-owned businesses in the future, they cannot guarantee that because everyone has their price.  Our ultimate controlling shareholder certainly has not had any negative impact on our business so far.”

A guest highlighted the 100-year law in Singapore that stipulates any trust cannot endure beyond 100 years.

“The difficulty here,” he said, “is that Singapore wants to be a highly competitive financial centre, but if a client wants to transfer a trust into Singapore, they have this issue of potentially needing to reduce the perpetuity period of the trust. So, there seems to me to be some discrepancy between where Singapore wants to position itself, but lacking flexibility in this regard. However, Singapore has always demonstrated that it is very pragmatic, so if we as industry practitioners can express this concern, I am confident that the authorities will listen and consider and adapt the framework.”

Family offices

The discussion turned to the role and advantages of family offices. “They handle their own investments, they might have an in-house counsel, their own family concierge services for a broad range of organisation matters from schools for the children to planning the private jet schedule,” a guest explained.

“The MAS and EDB are right to demand that each SFO has at least SGD200 million in assets to qualify,” they added, “otherwise there would be more such operations on a smaller scale. But the AUM minimum means that only those can qualify for the family office advantages. When you see a big family office, particularly the ones in Europe, and you see how they run their businesses, they run them like small corporations, with their CEO, senior legal counsel, tax counsel, and so forth.”

Another guest remarked that many of the EAMs are effectively MFOs, or multi-family offices, offering asset management for a variety of families with smaller amounts of wealth at their disposal. They then move into insurance and other areas to extend their remit or offer trustee services through partner firms they might work with. And some of them even provide concierge-style services, extending their advisory to education and other matters.”

What comes in, stays in

The discussion zoomed in to focus on the SGD200 million rule for SFOs, and the related rules and incentives, with an expert clarifying that a valid SFO must within six months from incorporation, bring in a minimum of SGD200 million of assets in order to be valid and obtain all the requisite advantages of offer, include work permits and permanent residence permits.

“The Section 13X and the SFO regulations tie in with the PR incentive to encourage the professionals to move to Singapore with PR status as well as the assets,” he commented. “And the assets must stay here, in order to benefit the whole ecosystem of advisers, bankers, custodian banks and so forth. The assets will be monitored by the authorities, it is not just a tick the box and then ship them out again exercise.”

Welcome to the VCC

Another expert mentioned the relevance of the VCC – Variable Capital Company - that is now available in Singapore. Many believe this will further elevate Singapore’s position in becoming a globally competitive fund domicile in the years ahead.

A VCC is a new legal entity that can be used for traditional and alternative fund strategies, both open-ended and close-ended, and it can be set up as an umbrella entity with multiple sub-funds.

The VCC is in fact a corporate entity, but unlike a company which is used to carry on a business, the only purpose for which a VCC can be used is as one or more collective investment schemes (CIS), so each share in a VCC will represent a unit of a CIS. A VCC is not restricted to paying dividends only out of profits as is currently the case with companies, and members may also redeem or sell their shares back to the VCC in relation to the VCC’s NAV, if they want to exit.

Advisers – be bolder

Another guest highlighted the increasingly complex solutions required for clients, the demands of compliance and oversight, and the rapid growth potential in Singapore. She concluded that advisers and service providers should be bold enough to charge more than they do today.

“For example, setting up a trust 20 years ago or even 10 years ago is a different ballgame to the one today, it is more complex, there are more things to consider and the regulators are ever watchful,” she remarked. “The clients can, after all, afford higher fees, but the trust companies I speak to are worried about raising fees because of fierce competition. However, the clients might soon realise they have no choice than to pay more for a more sophisticated offering required today, and for truly professional advice and solutions.”

“Yes,” said another expert, “we often have this problem whereby we have a client coming to us and saying a bank-owned trustee is going to charge half of what we are charging and asking if we can compete. But we have to say no because the responsibility has definitely increased, so has the amount of work and at lower prices, we can no longer compete in this business.

“Clients are actually somewhat wary of bank trustees since the global financial crisis,” said another guest, “and there is a distinct competitive advantage to being a non-bank trustee. But there are dangers, as litigation can take place as Singapore becomes more litigious and the younger generations educated in the West bring this mentality here. Fiduciary responsibility is a concept that needs meticulous consideration and to be followed devoutly.”

But private banks can offer excellence

“Can I just say something in defence of the private banks?” asked a private banker in attendance. “We have a trust company within the group. It works with clients outside the bank and with bank clients, and we are also receptive to working with other trustees. I can say that there is always a discussion about what is right for the client, including custodial arrangements and there are sufficient checks and balances to ensure there is independence of advice and discussion.”

He also noted that clients are more aware today, they will have more questions, it is a much more interactive discussion nowadays. “Ok,” he said, “there are admittedly a lot of private banks whose trust companies charge very low fees and whose trust companies have a lot of restrictions or parameters on what the trust company will hold which benefit the bank, but we for one do not, so there are banks like us that offer this as a client-first service with best-in-class in mind.”

“We often hear that the clients never get to meet the trust team in a bank-owned trustee situation,” he added, “it is always handled through the private banker, or the person behind the scenes cranking the handle, doing the resolutions and documentation. Accordingly, there is often a communication gap and sometimes conflict. But not with us.”

The Australian example

An expert who had come from Australia highlighted how the result of a Royal Commission on the financial services industry and the wealth planning industry had recommended a complete separation of banks from the trustee companies and wealth management arms.

“This is not a binding rule, it is a recommendation,” he noted, “but all the banks are following this to the letter. Personally, I think Singapore should take heed of what Australia is doing in order to really boost their regulation and reputation.”

“I would certainly like to see more consultation here between the MAS and the industry,” agreed another expert, “covering not just the banks, but the trustees, the insurers and everyone involved.”

Governance – a major step

Turning to corporate and family governance, another attendee highlighted the great opportunity for boosting that proposition in Singapore.

“One of the greatest opportunities I see,” said one expert, “is that endless demand for family governance, which will govern both their private assets as well as the family business and family office. I have many clients from all the way to Myanmar, Cambodia, Vietnam to Brunei to of course the usual places such as Singapore, Malaysia, Indonesia and Thailand, all of them wanting family governance advice and structures. There is huge potential there, but it requires a holistic approach, looking at the trust side, legacy planning structures, the family office structures, and so forth.”

Another guest remarked how he expects more MFOs to flourish in the future and with that trend will go hand-in-hand with enhanced family governance, family charters and other developments, especially as families become larger, more geographically and generationally diverse and as greater transparency is required.”

Planning and investment migration

“We talk a lot to our clients about estate planning and succession,” said another attendee, “but we ourselves also need to create and develop talent here in Singapore for future sustainability. A key challenge is moving from over reliance on expat talent to young Singaporeans delivering the service effectively.”

“From a wealth management perspective, we have seen a lot of growth in the last three to five years in residence and citizenship planning, which is very much becoming part of the general wealth management conversation. “It is a core component of the discussions we all have with our clients and their families on estate and future planning.”

The final word went to an expert who expressed his optimism for Singapore’s role in the future world of global wealth management.

“We are immensely stable, we have forward-thinking regulators, the support of the government institutions, and a full ecosystem of services and professionals with sufficient experience,” she observed. “There are the ongoing fears of global regulation and Singapore offers a sound jurisdiction and some considerable advantages. Meanwhile, there are also external factors like what has been happening in Hong Kong that shine a brighter light on Singapore. And there are the offshore jurisdictions that might not survive the global regulatory onslaught. But we have some concerns as well. First, overregulation can cripple businesses and advisers, especially the fund managers and the trustees. And secondly, we need to move very fast to capture as much of the potential that is out there.”

The final word was on pricing. “I reiterate all the positives that have been voiced on Singapore,” a guest remarked, “but on pricing at the end of the day we are competing with each other and we must be realistic to price the services appropriately and to be very transparent, for the benefit of our businesses and of the clients, so we can truly offer them the best advice and services.”