At a macro level, political and economic rumblings have now boiled over into open conflict, which are most evident in growing global trade disputes. With relations between major nations strained, it is only fair to assume this will have a knock-on effect on individual and corporate ambitions. That assumption may be misguided. Findings from our Africa Wealth Report 2020 – a review of a segment of the wealth market with which we are well–acquainted – easily dispels the notion that wealthy individuals and enterprising business owners will be discarding their global ambitions.
Global diversification remains key
We were little surprised, therefore, that our latest Africa Wealth Report showed that clients prioritise diversification of income streams and investment risk. The report polled 265 respondents in Ghana, Kenya, Mauritius, Nigeria and South Africa. The individuals surveyed, were active in industries spanning real estate, manufacturing, construction, financial services, technology, oil and gas, education, entertainment, retail and trade. Nearly two-thirds of those surveyed have an estimated net worth of between $1 million and $5 million, some 16% had an estimated net worth of $5 million to $20 million and a small percentage topped out at more than $100 million in net worth.
Although there are distinct regional differences in attitudes and approaches across the continent, diversification features highly in their list of priorities. This is evident in the strong preference among successful African entrepreneurs to participate in multiple industry sectors. The survey shows that, once established, many are open to exploring new opportunities regardless of whether they have direct experience in that sector. This attitude could be ascribed to the greater range of opportunities available because many economies are growing at such a rapid pace.
There are far more opportunities, therefore, to develop new products, services and solutions to meet demand. It is not surprising then many of Africa’s wealthiest apply a similar hedging strategy to growing and preserving their wealth. The study shows a strong appreciation for diversification across Africa and beyond as being critical to long term wealth preservation. These insights may be limited to only one slice of the global wealth market but there is little reason to believe that Africans are the only ones that will continue to have a global rather than local viewpoint.
Acceleration of recent trends
So, if the wealth management industry is unlikely to suffer with clients retreating, what does the immediate future hold? The expectation is that trends which have been emerging will now be adopted more broadly. Some of the impetus will have been provided by the pandemic and the accelerated adoption of digital solutions, while the remainder is due to maturation. Take, for instance, the growing interest in responsible investing and sustainability. This has emerged over the past decade from a fringe interest to a mainstream investment philosophy that is now well established and regarded. The younger generations seem to have a much bigger interest in sustainable investments and obviously as they embark on their own investment journey they have increased demand for digital solutions.
Trust and transparency
At the very heart of the wealth management industry remains its single-most valuable asset, trust. It is in this respect that Jersey Finance plays a pivotal role in allowing the industry to present clients with an unequivocal guarantee of transparency and governance. International finance is a complex environment at the best of times that operates best when clients can transact and trade with confidence, without reservation. Therefore, it is very encouraging that global efforts are being stepped up to block the flow of illicit money. Central to these efforts are commitments by all stakeholders in the Jersey financial services industry who are ensuring the highest levels of compliance and standards, giving clients the confidence that their investments and funds are being maintained in a very reputable jurisdiction.
How Africa’s wealthy manage their wealth
The Africa Wealth Report 2020 sheds light on the priorities of key individuals regarding wealth creation and preservation. Often operating in politically and economically volatile jurisdictions, the regional preferences often mirror their immediate challenges and opportunities. Understandably, the political environment is considered a significant risk to wealth preservation. This was most marked in South Africa where 82% of respondents see this as a concern, followed by Ghanaians (67%), Nigerians (64%) and Kenyans (55%).
Quite understandably, real estate emerges as the primary repository of wealth, particularly in markets that lack sophisticated stock exchanges and other investment product markets. For many African respondents, property carries a powerful psychological importance that is far more than simply an investment vehicle. In many cases. it is considered a source of long-term family financial security. Once again, wealth preservation preferences differ quite starkly across the region. In South Africa, for instance, equities (51%) are the most popular asset class, with property comparatively less important at 18%. By contrast, tangible assets are the preferred asset class for wealth preservation in Kenya (38%), Mauritius (29%), Ghana (26%) and Nigeria (23%).
Solid regulatory framework
Jersey’s position as a preferred destination for international finance was established when it was recognised as an International Finance Centre (IFC) of excellence almost 60 years ago. Central to this is its strong regulatory framework built around governance, tax transparency and compliance.
Today, Jersey is a modern business environment home to more than 13,000 professionals able to serve clients’ global needs thanks to a politically stable, legally sound and supportive government. It is no surprise then that it has become the preferred destination for firms facilitating transactions, including many in Africa.
Operating within a solid regulatory environment, Jersey Finance has established close ties with partners such as the Government of Jersey and the industry regulator, the Jersey Financial Services Commission (JFSC). A recent example of how these partnerships foster trust and transparency was the adoption of the API / Digital Registry Platform (Portal) & Financial Services Disclosure & Provision of Information (Jersey) 202 Law (the “New Registry Law”) with the final approval slated for 1st December 2020. The registry law aims to further enhance transparency, combating tax evasion, money laundering and terrorist financing.
Credibility breeds confidence
This level of transparency is crucial to maintaining Jersey’s reputation as an IFC of excellence. It also goes a long way to allaying fears of clients looking to use Jersey as the launching pad for their international ventures or adventures, with the jurisdiction well placed for serving the needs of African private, high net worth individuals (HNWIs) and corporate clients. While credit ratings, liquidity and capital adequacy levels are important, having a physical presence in major African markets, is often a deciding factor in winning client confidence. The implications for the future of the wealth management industry based on this experience is that the personal touch remains a critical component in client management. Investments in technology to improve access to services and communication are undoubtedly needed but service providers unwilling to invest in personal relationships are likely to be excluded when clients are considering new providers.
Also, with a premium being placed on transparency, the role of Jersey Finance, the Government of Jersey and the JFSC, will increasingly be pivotal to assuring clients that their best interests are being protected.