Director James Howe looks at the notable trends in the private client arena. How will changing client habits create opportunities and challenges in the marketplace?
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 (Common Reporting Standards) from 2017.
More clients want to have access to data via computer portals and there is an expectation that mobile phone and video conference access will become a given, due to the impact of all forms of social media on our lives. 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 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.
The demand for fast and reliable access to data will increase and all businesses need to develop and invest in their data systems to meet their clients’ demand for information. This increased access to data requires robust systems to protect clients and businesses from all forms of cyber crime attack.
Changes to the UK IHT (Inheritance Tax) 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. Advisers are already talking with their clients about their structures and what options are available to manage the proposed changes and to protect their assets. This is also seen as a good opportunity to consider the formation of new trusts for some clients.
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. Families are becoming more international and this means that the family wealth will also tend to be international. The use of a PTC is one way to help sophisticated families protect and manage their wealth in a robust fiduciary structure that will enable successful family succession planning.
Banking institutions who want to offer fiduciary services to their wealthy clients, but who do not have (or do not need to have) their own fiduciary operation in-house, are using MTCs so that their clients can use fiduciary structures which are run and managed by first class institutions.
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. We expect to see an ever-greater emphasis on substance requirements and for service providers to demonstrate robust corporate governance.
Clients and advisers have a good understanding that, for the long term success of their structures, service providers must demonstrate good corporate governance. Board meetings need to be properly held and documented, and proper financial and regulatory controls and procedures must be implemented, to ensure that the entity is operating in a fit and proper manner. Cheap and cheerful or a one size fits all approach does not work, and in the long run will cause problems for the client.
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 or to support a pressing international issue. We are seeing growing evidence that the next generation of UHNWIs, whether they have inherited or self-made their wealth, are expressing a genuine desire to support charitable causes.
We are seeing the creation and maintenance of philanthropic structures as part of a wider process of engaging the next generation in the responsibilities of wealth management. Often they want structures that will endure for the future, which can be done by micro-financing projects to create employment opportunities, through supporting a charity to help relieve disease or by partnering with an art gallery or foundation.
Mechanisms through which funds can be built up for charitable causes require good governance and management with well-organised distribution channels to share the wealth.
2016 is likely to be a year of uncertainty in a wider economic sense. In the private client arena, the changes in technological expectations and client habits will create opportunities for service providers to evolve to meet their demands and harness the challenges in the marketplace.
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