Asia-Pacific is one of the key growth drivers, accounting for 74.9% of the increase in global HNWI population or 1.2 million new HNWIs. This doesn’t surprise us, because developing economic jurisdictions, such as China and India, have been leading the GDP growth rate for the past decade.
In recent months, the offshore renminbi has fluctuated against the backdrop of uncertainty on trade negotiations between China and the US. As a result, the stock market and valuation of Chinese listed companies have inevitably been affected, and consequently stronger demand for offshore investment was reportedly seen by industry practitioners. However, this is not the only reason HNWIs should consider an offshore home for their wealth.
A whitepaper commissioned by Jersey Finance and Hubbis, which focusses on Asia’s wealth management market, reveals that succession planning is the key motivator for selection of an international financial centre (IFC) for Asia’s HNWIs and ultra-HNWIs. This is followed by diversification of jurisdiction and asset protection.
Tax Transparency and Compliance Matters
According to the findings in the whitepaper, transparency, simplification, efficiency, reputation, quality and consolidation are the new watchwords for the wealth management community and their HNWI clients.
The new era of global regulatory propagation, combined with an all-encompassing, digitally-enabled global compliance environment means operational rectitude and transparency are of paramount importance. As such, China has also implemented new due diligence and reporting requirements on financial accounts, which came into effect on 1 July 2017, with the issuance of China’s Common Reporting Standard (CRS). This is consistent with the initiatives in automatic exchange of information (AEOI) aimed at enhancing tax transparency and combatting tax evasion.
Notably, 89% of respondents said their clients are fully aware that they need to address issues relating to transparency, tax and existing structures. Against this changing regulatory environment and higher compliance requirements, Asian investors are in search of transparency in tax and other regulatory compliance instead of secrecy when considering IFCs.
Chinese HNWIs are adapting to new global context painfully
As cited in a report by The Boston Consulting Group and Industrial Bank, the investable assets among HNWIs in China are expected to double to RMB 111trillion (US$16trillion) in 2021.
Interestingly, our whitepaper found that the demand for wealth management services among the majority of HNWIs in China is still low, which is further supported by our finding that some 78% of respondents believe Asian clients, in general, need to upscale their knowledge of wealth management concepts, structures and IFCs.
Family consolidation of assets is often a key issue arising in wealth management. More than 80% respondents believe Asian clients are not well prepared for wealth transition from one generation to another. The results clearly show that wealth advisers fear their clients have not installed the appropriate mechanisms and procedures to manage what is required in the event of a key family member’s death.
Despite this, the younger generations, those in their 20s to early 40s, are far more globalised and increasingly appreciate the importance of transparent wealth preservation and planning, although the Chinese HNWI families will adapt “slowly and painfully” according to the whitepaper. This is largely because many are only recently mobilising their wealth and families into a more globalised context.
The landscape is changing
Today, reputation and admiration for the legal infrastructure appear to be the most important criteria for selecting an IFC. This trend has turned upside down, compared to a decade ago, when privacy would have ranked higher. Chinese HNWI and ultra-HNWI clients are starting to look for new wealth management options, especially cross-border solutions, to diversify, protect and grow their wealth in today’s complex world.
Undoubtedly there is an immense opportunity for the wealth management advisory industry to expand their client base. In the face of a more sophisticated Asian market, however, practitioners and forward-thinking IFCs both need to clearly show their quality of service, depth of expertise and consistency of advice to match dynamic client needs.