Private Wealth and Family Offices – Navigating Complexity in a Changing Landscape – Wealth & Asset Management

Family wealth management is becoming increasingly complex. The options available to families continue to increase, as do the number of personal factors to consider. We examine how the trends highlighted by this year’s Global Business Complexity Index are affecting those who manage family wealth and connected offices.

As we emerge from a global pandemic, it is clear that the drive for simplicity continues, while the demand for environmental, social and governance (ESG) best practices and adoption increases.

Private clients and family offices are concerned about reputation, compliance, governance, legal and political stability, access to specialists and most importantly, how to manage the complexities of the global markets in which they operate and invest. While taxes continue to play a role, they are no longer the overriding factor that they once were.

The changing priorities of private wealth clients

TMF Group’s Global Business Complexity Index 2022 (GBCI) report provides an authoritative overview of the complexities of starting and operating businesses around the world. Based on 292 different indicators related to business complexity, the GBCI 2022 results in an in-depth analysis of the global and local challenges affecting the ease of doing business around the world.

We are seeing an increasing global trend towards transparency that is impacting the perceived complexity of some locations. While the GBCI has seen changes at the corporate governance level, we have seen similar trends at the individual level among our private wealth and family office clients.

Three quarters of popular private wealth and family office jurisdictions require individuals holding private wealth there to disclose their identity to the appropriate authorities. Transparency for investors is a global trend, but for some, maintaining a level of privacy is just as important.

Deciding where to locate a family office and establish an effective wealth management structure can simply boil down to something more practical, like time zone, language skills, and access to specialist advice and talent. However, political, social and economic stability remains at the forefront of decision-making for our customers. Geopolitical tensions between China and the US and the Russian invasion of Ukraine have added to the climate of insecurity. This has led more and more local experts to predict instability over the next five years.

Jurisdictions where laws and regulations are clear and uninterpretable tend to be easier, often because the government is actively trying to help companies and investors comply with the regulations they put in place. Singapore is an example where the government has gone to great lengths to establish itself as a leading asset management hub with sound regulation and a strong rule of law.

Striving for responsible wealth management

The next generation of private wealth clients are increasingly looking to manage their wealth more responsibly. This may include socially responsible investing, paying a tax rate deemed fair, ensuring good corporate governance or increased philanthropy. It is also true that more companies, regardless of size, are now expected to have sustainability on their agenda.

This rising trend has clearly prompted some clients to consider the broader implications of how and where they manage their wealth. Research from GBCI 2022 shows private wealth and family office clients have increased investment in greener practices in 70% of jurisdictions over the past year.

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However, we have found that when comparing jurisdictions, clients recognize the complexity involved and that the ‘gap’ between transparency and good governance that is offered in offshore and onshore jurisdictions is largely a perception rather than a reality.

As the trend towards ESG increases, it is likely to trigger a culture shift on a global scale and increase complexity in jurisdictions that currently have fewer requirements. Conversely, if these practices are aligned at a global level, as has happened in EU jurisdictions, ESG reporting could be a one-size-fits-all move with minimal impact on complexity as a result.

A key driver of ESG practices and sensitivities is demand from companies, consumers and individual investors looking for ethical and sustainable ways of doing business, rather than an enforced regulatory push from governments. This is not a new trend in the private wealth and family office arena as many at the forefront have set the agenda and continue to do so.

Changed investment landscapes

In addition to the changing priorities of private customers, we are observing an alignment of the competitive conditions in some jurisdictions. The measures taken by some governments to encourage wealthy families to resettle or return to their country of origin also contribute to this effect. Portugal, Italy and Israel are examples of countries where changes have been made in this regard.

On the other hand, while some less developed countries offer an extremely attractive investment opportunity, clients have historically been discouraged from investing due to the complexities of complying with local rules and regulations.

The effects of Covid-19

The Covid-19 pandemic has accelerated many of the trends that were already dominant and encouraged clients to take a look at their investment strategy. For some, this has led to a drive for more philanthropic investment. Other customers faced liquidity problems, which led to the consolidation of their structures and businesses.

In the post-pandemic era, higher inflation rates and social and political stability are more taken into account than before in some countries. Where governments made decisions to provide additional support to businesses and individuals during the pandemic, we are now observing that the effect of injecting cash into the economy has in turn fueled inflation.

Covid-19 has highlighted the need to manage costs more effectively and simplify wealth management, and this has necessitated the introduction of efficiencies or cost savings for many clients. For some, this means outsourcing services like payroll, accounting, and administration is a more cost-effective option. TMF Group can assist clients with their outsourcing needs. We help you reduce administration costs and provide a single point of contact to keep the process simple.

An increasingly technological and digitized world

Private wealth and family office companies increasingly rely on technology platforms. This is both a consequence of the Covid-19 pandemic – which limited the ability to interact in person – and a change that was already in the background and unlikely to be reversed. As the business world moves towards greater work flexibility, technology continues to be the enabler of this change. But this change does not come without challenges.

New digital reporting requirements can pose challenges for organizations as they work to update existing processes or adopt new ones. Globally, the mandatory uploading of tax invoices electronically through the agency’s system or portal is increasing. In 2020 this was mandatory for all companies in only 24% of jurisdictions, this figure has now risen to 35% in 2022.

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Family businesses follow this trend and increasingly rely on technology. This may include using digital platforms to assess asset performance or increasing reporting efficiencies. Although technology reduces delivery costs, Private Wealth and Family Office clients always require a personal connection to ensure their specific goals are met. While technology allows for greater flexibility and efficiency, it must be implemented effectively to ensure maximum productivity.

The future of the offshore world

While offshore centers receive negative comments in some circles, in others they are seen as playing an important role in creating and protecting wealth by ensuring the efficient use of capital in global markets.

Offshore jurisdictions are inherently less complex and offer higher levels of privacy and tax neutrality than their onshore equivalents. This year, these jurisdictions account for 50% of the ten least complex jurisdictions to do business. In fact, these five — Jersey, BVI, Hong Kong, Curacao, and the Cayman Islands — rank in the top six out of a total of 77 jurisdictions.

The quest for transparency has meant that some of the perceived benefits of holding assets in traditional offshore locations may no longer exist. However, we expect the offshore world to remain robust and attractive to private wealth and family office clients. As the world becomes more transparent, these jurisdictions will continue to provide specialized services and compliant environments for our clients to manage their wealth.

An example of this is an increased need for digitization. In some of the jurisdictions that we have observed as the simplest, we cannot ignore that they have also long been committed to digitization. These include Denmark, Curacao and the BVI. However, Covid-19 has allowed more complex jurisdictions like Jersey to catch up on their digitization journey, reducing the need for face-to-face interaction between businesses and government agencies, making doing business much easier.

Decision criteria for private wealth clients are changing, and clients’ circumstances may dictate a preference for a particular location – which may or may not be traditionally simple.

Book a health check today

Many clients today have enlisted the expertise of TMF Group specialists to help them navigate the many complexities highlighted in the GBCI. With our support, private wealth clients and family offices can overcome such hurdles and benefit from the advantages of these jurisdictions.

Every customer is different. The experts at the TMF Group will discuss your individual situation and personal goals with you. Working closely with you, we will explore a range of suitable jurisdictions for structuring your investments.

Our store offers you a platform that gives you access to the expertise of local experts in 85 jurisdictions around the world. Together we can make an informed decision on which locations are best suited to help you achieve your goals and guide you through the complexities that may exist.

The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.

About Rachael Garcia

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