92 percent of respondents to a survey, launched at Jersey Finance’s new office in the Dubai International Finance Centre (DIFC) this week (12 November), said that high net worth (HNW) clients in the Gulf region are poorly prepared and inadequately structured for the transition of wealth across generations.
Also estimating that only six percent of family businesses will make it to the third generation if current structures are not made more effective and compliant, the study concludes that clients in the Gulf need expert guidance in terms of both structures and products, and that the services of International Finance Centres (IFCs) will become increasingly important.
The report - Wealth Structuring and the International Financial Centres: Perspectives from the GCC - reflects the views of over 70 wealth management industry practitioners working in the GCC market during a thought-leadership roundtable held in September 2018 in Dubai.
With an estimated US$1 trillion of wealth set to transition between families and generations in the Middle East during the next decade, the report highlights the opportunities that await HNW investors and wealth management companies in the region. According to the proprietary research, prepared in conjunction with Hubbis, there is a growing preference from clients to professionalise the way succession planning is managed, despite the lack of preparedness. Against this backdrop, IFCs that can demonstrate their dedication to transparency, ethics, and quality will survive and prosper in this changing environment.
The white paper additionally explores the future role of wealth structuring and IFCs in the GCC region, as the world faces increased global regulation coupled with growing demands for financial and wealth compliance.
Richard Nunn, head of business development at Jersey Finance, commented: “We are seeing a growing momentum amongst the older generation HNWIs who are reviewing their wealth planning strategies while they are still firmly at the helm. As this is predominantly a family and very personal wealth market, wealth transition and succession planning are still two of the most important topics that the wealth management industry is focused on in this part of the world. As legal and financial infrastructures continue to evolve both globally and locally, there is a stronger need for first-class IFCs and financial practitioners to provide a full suite of wealth management services to cater to the needs of GCC wealthy individuals.”
Looking at the sentiment of clients in the region, the report shows that they are gradually refining their views on their structures in place. 75 percent of clients now stress test their existing wealth structures, whilst 42 percent see reputation as a critical factor when selecting an IFC.
The use of offshore jurisdictions is highly driven by the geopolitical climate and fears of instability (25 percent) and succession planning (25 percent) followed by privacy and confidentiality (17percent), asset protection (17 percent), tax efficiency (eight percent), and diversification of jurisdictions and assets (eight percent). This is adding more impetus to clients’ initiatives towards global asset/wealth diversification, wealth structuring and use of IFCs.
The research also indicates that regional markets believe their confidentiality will be best safeguarded in those IFCs which are known to maintain their reputational excellence. According to the findings, HNWI clients in the Middle East understand that the selection of IFC is critical, with reputation being the most important factor. As such, there is a clear trend towards Tier 1 IFCs that are noted for their expertise, regulatory robustness and transparency.
Mr Nunn added: “In this context, our presence in the Dubai International Finance Centre presents a big opportunity as it boasts a dynamic, and integrated business environment. Jersey has a long and solid history in the region and, amidst increasing local and global regulation and compliance requirements, has been successful at promoting its credibility as an IFC of excellence.
"As such, we are very proud to become the only IFC in the DIFC, a testament to our commitment to the region and a strong endorsement to the wealth creation dynamics here. The DIFC is a well-respected environment that enables Jersey firms to have a GCC domestic proposition in addition to the Jersey private wealth management solutions.”
The report also found that:
- The more sophisticated HNWI clients in the GCC are concerned about the cost of having multiple structures in multiple jurisdictions, according to one third of respondents. 75 percent of industry experts agree that clients are looking to increasingly concentrate their assets and structures in one centre.
- Offshore corporate structures and private trust companies appear to be the preferred options for the core of GCC HNWI wealth structuring, while trust structures are considered the next most important, alongside citizenship and residency planning.
- There is a gradual move towards Sharia-compliant structures such as foundations, and tax transparent structures. There is also a shift away from jurisdictions that are coming under scrutiny, such as those in the Caribbean due to privacy concerns and the fear of unwanted disclosure of their assets.
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