What Lies Ahead for Private Wealth?
Derek Baudains, CEO of Louvre Group, offers his predictions for the private wealth industry in 2017.
Last year’s Brexit vote and the outcome of the American election result will arguably herald huge changes for 2017, impacting the financial landscape and creating a level of uncertainty that will knock investor confidence. However, it is possible to predict how prime markets will respond to these changes. With wealth generation slowing, we can identify how factors such as succession planning, property investment and philanthropy will affect UHNWIs in the coming year - all of which can bring positive changes for the Channel Islands’ financial services industry.
Focus on prime markets
With the fastest growing wealth, South and East Asia and Africa will remain prime markets for 2017. Despite an economic slowdown in China, predicted growth still stands at 6%. We believe that, thanks to the weakening yuan and a need to diversify, there will be an increase in demand for overseas investment.
Interest in buying residential property in the UK is still of great interest, most notably to the Chinese and the residents in SE Asia. London, in particular, will benefit as a prime investment target. Although the advantages of using offshore structures to own investment property have waned, the Channel Islands banks could see renewed interest in mortgage lending.
With the threat of Trump pulling America out of the Trans-Pacific Partnership, Europe and the UK will increasingly be viewed as appealing nations - with a positive knock-on effect for European finance jurisdictions including Guernsey.
The role of private trust companies
2017 will see an increase in the establishment of private trust companies and foundations. These will be particularly appealing to high net worth clients and family offices look to protect their family assets in safe structures where they can easily influence investment opportunities. We will also see this trend emerging in the UAE, with the expansion of family offices and a demand for more sophisticated wealth structures.
Asian clients have long favoured the reserved power trust. With both Channel Islands offering subtle variants on this structure, the Chinese love of property means that the private trust company will have significant appeal.
Philanthropy under the spotlight
Interest in effective philanthropic activities shows no sign of declining. Subsequently, over the next year, we predict that the use of foundations and charitable trusts by family offices will increase. Guernsey has a great deal to offer clients interested in impact investing, potentially through private funds, however finding the right approach to charitable giving requires specialist knowledge of the third sector.
Capitalising on market advantage post-Brexit
Following Brexit, trade with the UK from non-EEC companies will be actively encouraged. This will provide opportunities for the implementation of offshore structures in the Channel Islands for tax planning and potentially trade finance. Although viewed as a dying breed, merchant banks remain experts in this type of business so there could be a resurgence in the need for their services.
The new regulated world
Focusing on the impending regulatory changes of the Common Reporting Standard (CRS), March 2017 will see the first reporting by financial institutions by early adopters. Both Channel Islands will be ahead of the curve, with the exchange of information commencing in 2017.
The impact of the CRS rules on transparency will provide a wealth of opportunity for all international financial centres. Prime jurisdictions such as Geneva and Guernsey have already planned for the impact, unlike other less well-known jurisdictions. We need to capitalise on this market advantage and differentiate our offering by developing and promoting our more intangible assets, such as the Channel Islands’ reputation and perceived expertise.
Innovation and expertise in demand
With clients increasingly demanding more personalised and real-time services, in addition to greater variety of the products and structures available, 2017 will see the need for further innovation. This could prove to be both a challenge and an opportunity. Historically, Guernsey has shown themselves to be agile and responsive to changing needs, but only time will tell how the islands can meet the increasing demands of UHNWIs over the coming year.