Singapore private wealth: too fast too soon?

Wealth planning in Singapore has blossomed since 2002. Helped by the growing high net worth class in Asia, many predict it will be in the top three jurisdictions within five years.

Private banking has benefited from this trend, Singapore's sound legal and regulatory framework coupled with a pro-business and tax-friendly environment for high net worth individuals (HNWIs) being a catalyst.

The wealth structuring industry, led by international trust companies, lawyers and wealth planners, offering services around products such as trusts, offshore holding companies, have also benefited with a consequent steady rise in applications for trust licences issued by the Monetary Authority of Singapore and licences granted for foreign law firms by the Attorney General's office. The influx of international providers has undoubtedly progressed market sophistication.

However, my view is that market demand for sophisticated wealth planning services has yet to catch up with the sophistication of the service providers. You would therefore expect market consolidation in the coming years.

The gatekeepers of Asian business tend to be private bankers who do not readily introduce their clients to complex wealth structures, predominantly because of the lack of financial incentives to do so, and that the banker puts their client relationship at risk, particularly if the process of setting up a structure is time-consuming, expensive or frustrating.

The banks are generally more concerned with assets under management than trustee fees, so the banks tend to heavily subsidise the costs of a structure and use their in-house trustee. But in doing so, they reduce the value of that structure to their client, and the value of the industry in the process.

The industry itself is also its own enemy by developing simple structures that reduce the involvement of service providers. Such structures typically generate lower fees.

Further headwinds are that, contrary to Europe, tax planning is not a driver for advancing private wealth and therefore succession is heavily relied on as a rationale for creating structures. However, as those in the insurance business well know, planning for death is a hard and slow sell - rarely is there a perceived urgency to the same extent that a looming tax bill generates.

OECD victory

You can justifiably say that the Organisation for Economic Co-operation and Development has won this debate: widespread automatic exchange of information between states means that setting up a structure will inevitably mean that a client is ceding control of their personal data to an institution who will, in time, be compelled to disclose that information to the client's country of origin or residence, with or without their knowledge.

With anti-money laundering laws, including tax evasion, it is becoming harder for institutions to accept the funds of some HNWIs, particularly if these come from an emerging, yet still endemically corrupt jurisdiction.

In truth, there are few triggers in the marketplace presently to change the status quo. The main impetus for change is the growing group of professionals whose businesses rely on HNWI choosing to have more sophisticated structures.

Perhaps the emergence of estate or matrimonial litigation may give fair warnings to the HNWIs that they need to organise their affairs. Certainly using a simple British Virgin Islands company, such was the planning that catapulted the success of the jurisdiction from the 1990s, may be waning in favour of more layered solutions, but an overall shift to the structures sought by the current international wealth structuring group remains elusive.

Marcus Hinkley is a group partner and head of the Singapore office for Collas Crill

He writes a regular blog about Asia for Private Client Adviser