It has been a busy year for creating new structures for wealthy clients across the globe. New and existing clients in the Middle East are interested in the use of trusts to protect their international assets, for succession planning reasons and to consider whether these are sharia compliant or not. Clients with a UK exposure are taking professional advice in relation to UK residential properties and also with UK Budget changes in mind. The Asian market for fiduciary structures has been a strong growth area as clients look to protect their wealth. In 2015 there has been an increased demand for trustworthy independent fiduciary providers with an international platform, in regions such as Asia, Jersey and Cayman, for example.
Varied succession planning options
Clients in the Middle East are accustomed to using SPVs for real estate and asset holding structures, as traditionally they wanted both the UK IHT planning benefits of using an offshore company to hold their UK assets, as well as the confidentiality that using an SPV provides. More than ever clients are interested in succession planning opportunities using trusts and foundations. The reasons are varied, but include concerns around political stability in their home country, and wanting to take some money off the table at home by securing this in a nest-egg offshore. They are doing so in the full knowledge that they will not make as much money as they would if the funds were invested at home, but there will be less risk and these assets will be in a safe harbour. Some clients also want to hold funds offshore to allow for education and international planning opportunities for their children, including their daughters and extended family. Using a carefully planned offshore structure allows for more flexibility during their lifetime than if all the funds were invested domestically.
Alternatives grow in popularity
Clients who traditionally used discretionary investment portfolios are looking at the costs of these accounts and the absolute returns over time. They are now more likely to consider alternative investment strategies such as real estate or alternative assets. Some clients have the perception that discretionary mandates are struggling to make real absolute returns and they are willing to take more risk, have less liquidity and take a more aggressive risk approach for some of their wealth in order to generate real returns. Despite historic low interest rates, clients are less likely to borrow from their banks in order to "leverage" their investment portfolios, but there is an appetite for both traditional bank borrowing and sharia compliant borrowing to fund real estate transactions.
Specialists skills consolidation
Contentious trust work is demanding and the pool of service providers willing to step in to help clients is reducing. This is a demanding role that requires a robust risk appetite and a strong corporate governance framework within which to operate. Fewer service providers have the appetite to offer this stressful and time-intensive work.
Technology is king when it comes to transparency
Clients and their advisers are looking for greater transparency and access to client data. This means a greater use of technology, and we can see this impact especially in areas such as FATCA (Foreign Account Tax Compliance Act) and CRS reporting (Common Reporting Standards) from 2017. More clients want to have access to data via computer portals and there is an expectation that mobile phone access is a given. This means that service providers want computer downloads from their bankers, investment specialists, property managers and brokers so that they in turn can give clients this type of access via technology. The creative tension here is that this is a "retail" model, compared to the more traditional service provided by independent fiduciary and high-end bespoke service providers. The demand from clients and their advisers for automatic access to data needs to be balanced against the rules and disciplines of a fiduciary structure, data protection requirements and our regulatory responsibilities.
Changes to the UK IHT rules from April 2017 mean that clients and their advisers will need to review their existing structures, especially in terms of UK residential property and for those clients who are UK resident, non-domiciled individuals who have been, or will soon have been, resident in the UK for more than 15 years.
There is increased demand from clients for charitable and philanthropic planning opportunities. Many clients who have been successful internationally express a desire to put something back into their domestic economies. This can be done by creating employment opportunities such as a micro-financing project or by simply supporting a charity to relieve disease or to support an art gallery or foundation.
Personal and trusted international relationships
Private client service providers have always needed to have excellent relationships with their clients, and this will continue. There is a greater need to co-ordinate tax and legal advice, especially with administration of the client structure, and this includes the need to take advice from some investment classes such as US real estate. This means that the private client role is more international, with a requirement to be able to deal with clients and their families on an international basis, which includes both offshore and onshore administration and planning.
So after a busy 2015, what can we anticipate in 2016?
The use of Managed Trust Companies (MTCs) will become more popular, as will the use of Private Trust Companies (PTCs) for UHNWI and wealthy families with international/geographical diversification. The consolidation of the fiduciary services industry will continue apace. We have a global industry with a large population of small providers, rather than a few dominant players.
Asia will continue to be a growth area and clients will require a single cross-border provider to help them achieve their ambitions. I expect to see an ever-greater emphasis on substance requirements and for service providers to provide robust corporate governance.