Tighter regulations are resulting in a bifurcation of the high net worth trusts market, wherein wealthier clients have a growing need for trust structures while less affluent clients are being priced out of this market due to higher structuring costs, according to Woon Shiu Lee, MD and head of wealth planning at Bank of Singapore.
“It’s becoming more difficult for clients with less assets to implement trusts meaningfully because of the costs involved – including the legal advice needed to structure it correctly – which may not make it worthwhile for someone with assets south of US$5 million,” Lee tells Asian Private Banker.
“On the other hand, trusts are definitely becoming more useful for clients with substantive assets in the ultra high net worth space,” Lee says, explaining that trusts are becoming “more sophisticated, compliant and comprehensive” in order to deal with stringent regulations and changing family dynamics.
Families are becoming increasingly globalised, with family members and trust beneficiaries often living in multiple jurisdictions.
“So to structure a trust properly, ensuring it’s tax efficient and also something that will be useful for all family members, you need to consider the tax and legal ramifications of all these domiciliaries, residencies and nationalities of the different family members or beneficiaries, as well as the location of the assets.”
As an example, Lee says that for a trust which holds a UK property but has one or more US-domiciled beneficiaries, it is essential for the family to consider tax advice from both jurisdictions in order to ensure that the trust is structured optimally.
“The macro environment from a tax point of view is changing, the regulatory environment from a reporting point of view is also changing, and this calls for a more in-depth look at the way trusts are being structured. So the level of knowledge, and the depth and breadth of that knowledge required to implement a correct trust structure is definitely much higher than before.”
Lee notes that there are “very challenging obstacles to overcome” when structuring trusts for clients who are domiciled in the US, France and Japan, since these countries have onerous offshore trust and tax rules.
Bulking up teams
Meanwhile, he says the more difficult planning environment “is to the advantage of well-staffed wealth planning teams such as Bank of Singapore, which has an experienced team comprising primarily of trained lawyers and tax advisors”.
Lee adds that beyond the bank’s Singaporean headquarters, the wealth planning team intends to “step up hiring progressively” in Hong Kong and Dubai.
The private banking arm of OCBC opened its Dubai office in February. The branch is led by market head for the Middle East, sub-continent and Africa, Kirit Chauhan, who oversees more than 75 employees.
“Apart from Singapore, our headquarters, we will intensify and deepen the footprints of our wealth planning teams in Hong Kong as well as Dubai,” Lee says.
More focus on succession planning, governance and philanthropy
Bank of Singapore has noticed that clients tend to be paying more attention to the issues of family business succession, family governance and philanthropy, according to Lee, who says this is due to a greater “openness in client engagement and depth of discussions on previously highly sensitive issues”.
“We see clients also increasingly opening up to us to share what they want to achieve in terms of family governance and what they want to do in terms of philanthropy. The opening up of the dialogue we have with clients is on a deeper and wider level and that’s beneficial to us too.”
These topics are increasingly in the spotlight amongst Asia’s HNWIs, who are preparing for the first major transfer of wealth in the region.
For instance, a recent report by UBS Wealth Management and Harvard University’s John F Kennedy School of Government shows that donations from the top 100 philanthropists in Mainland China rose from US$1.3 billion in 2010 to US$4.6 billion last year.
Meanwhile, experts told Asian Private Banker recently that the family succession conversation needs to move beyond the transfer of wealth to focus on ‘intangible’ assets, such as family values and culture.
“Many of our clients today seek advice on how best to pass on family and corporate culture to the next generation,” said Jameson Leung, CEO of Grandtag Financial Group, a financial advisory firm that provides cultural succession planning services to HNW families in Asia.
“Over the past two years, only one out 20 families that I have dealt with have shown themselves to be sufficiently aware of what succession planning entails.”