THE EVOLUTION OF WEALTH MANAGEMENT IN INDIA AND THE MIDDLE EAST
Adaptation is just as important, as is the continual process of consistent revision, to ensure that what stood fast and relevant years ago, still holds fast today and shall do so in years to come…
Darwin once said, "It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change". The world as we knew it, has changed! We have not only witnessed the evolution of a new world for the internationally mobile private client, but also the evolution of the wealth management industry in India and the Middle East.
A new world for the internationally mobile private client?
The pandemic has affected the entire industry. Demands placed upon private client specialists have been compounded by clients who no longer remain entrenched in a particular region. Clients have been forced to mobilize, whether in the search for a better quality of life, (driven by access to better healthcare and education), business diversification and unavoidable restructuring, or the re-domiciliation of existing companies.
aConsequently, advisors have had to change the way in which they traditionally advised clients; the ability to advise on cross-border issues when helping multi-generational families establish global structures in conjunction with bespoke codes of governance, is crucial to the success of the continual and sustainable evolution of that family. However dispensed, advise needs to be proactive so as to ensure that assets remain protected and wealth remains accessible, regardless of where a client may be. This is of course easier said, than done!
Mobility triggers a host of issues to consider: from additional taxation, interaction with trustees when seeking to modify existing trust arrangements because of unforeseen situations, and ongoing management and administration of offshore trusts, to benefits of tax treaties, regulatory compliance, application of home laws, economic substance requirements, and overhauling existing structures that are no longer efficient, relevant or even compliant!
Wealth management solutions in the Middle East
and particularly the UAE, (now ranked the 6th IFC) has remained buoyant and open for business, and most importantly has adapted to the needs of the internationally mobile client.
The UAE has encouraged the migration of wealth and family business to the region, as it offers long-term wealth preservation solutions, and unprecedented incentives such as UAE citizenship, golden visas and reduced administrative costs for businesses.
In 2020 we saw a flurry of new legislation introduced, both in a bid to meet international IFC standards and CRS and FATCA regulations, and to help the global businesses and families who entrusted their wealth to the UAE economy.
There has been an obvious shift in priorities within regional families: the preservation and protection of wealth has superseded the actual creation of wealth. Clients are appreciating the importance of ring-fencing ancestral wealth and personal assets from core business assets, and of segregating the ownership and management of assets. Existing structures have been stress-tested to their limits and liquidity still remains crucial.
Family Offices and Foundations in the ADGM and DIFC
Family offices are being established at a record rate. While structures are implemented to ringfence ownership of assets, family offices enable a family to continue to manage the assets. Some prefer to have regulated offices, such as that offered by the DIFC, whereas others prefer the unregulated option offered by the ADGM. Both centers provide cost-effective, common law succession planning options, as well as access to their ecosystem of global investors, funds, FinTech platforms, innovation hubs and excellent infrastructure.
The Foundation structure was first introduced in the UAE in 2018. The figures, despite the pandemic, are remarkable: as at 1 May 2021, there were 270 registered Foundations. The versatility of the foundation structure, coupled with robust firewall provisions, has proven that there are cross-border wealth management solutions available to all clients regardless of their physical location.
The figures indicate a consolidation of wealth, and that formal succession planning, coupled with carefully crafted family governance provisions, is becoming the new norm.
Investment Migration and the Indian Exodus
The plethora of wealth reports and statistics tell us that change is afoot. Clients are relocating to new regions and are considering alternative or additional citizenships in a bid to allow greater global mobility and freedom, investment preferences have changed, and philanthropic and ESG investments are increasingly prevalent.
Investment migration options in Europe and the Caribbean are frequently in the spotlight; a prudent client should always seek independent professional advise and carry out adequate due diligence before signing up, as they would for any investment opportunity, as well as to ensure that they are not exposed to additional taxation.
As on 31 December 2020, 475 notices were issued by the Indian tax authorities under the remit of the Black Money Act, in relation to undisclosed foreign assets and income owned by Indian tax residents. This has caused tremendous disruption in the Indian business community, which has been further compounded by the Indian Finance Bill 2021's clarification of who is "liable to tax," which has possibly been the last straw for many wealthy Indian citizens, forcing them to leave the country, looking elsewhere for alternative citizenship including via investment migration schemes.
Despite being a significant victim of the pandemic, India's economy will bounce back, but like most jurisdictions the question will be how the government funds the associated costs. Wealth tax is frequently offered as a route to raising finances, and the well-advised client is already considering this possibility when planning for the future.
Wills, Succession Planning and Family Governance
As the composition of families and asset portfolios have changed, so too must the tools of succession planning. Traditionally, a will was perhaps a viable succession plan, as it ensured the smooth transfer of ownership, in particular of static assets such as immoveable property.
However, the needs of the modern business family are more complex. Issues such as business continuity and the transfer of ownership of operational assets need to be carefully considered. Probate can be cumbersome and prolonged, as testamentary wishes are open to challenges by family members. This can be disastrous when operational business assets are caught up in a probate dispute, as families deeply embroiled in protracted litigation rarely realize this until it is too late. Matters are further complicated by cross-border conflicts where Wills are executed in one jurisdiction and assets are situated in another.
Historic forced heirship provisions are no longer viable and can be prohibitive for the modern Indian business family. A viable, robust succession plan is the result of months of intense client engagement and probing of sensitive issues and family dynamics, to create a solution which meets the family's requirements.
The definition of what constitutes a "Family" remains fluid and the composition of each family is unique, which in turn requires careful consideration and ongoing interaction between advisors and all family members. This ensures that the final plan is indeed viable, robust, harmonious and sustainable for every member of that family.
Regardless of how codes are contemplated or enshrined, it is the professional advisors who must interpret them to meet the needs of each individual family that they guide and advise. Adaptation is just as important, as is the continual process of consistent revision, to ensure that what stood fast and relevant years ago, still holds fast today and shall do so in years to come. This is the essence of evolution and survival, for both clients and the wealth management industry which advises them.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.