The Future of Wealth Management

16-Apr-2015 #IIJ,#Globalwealth

by Michael Shimmin

There is no doubt that there have been big changes in the Wealth Management industry and that change will continue, indeed the very concept of what we mean by the term needs to be considered. Perception often lags behind reality and for many people the use of terms such as ‘tax dodgers’, ‘tax havens’ and ‘tax evasion’ is still associated with wealth managers. It is true that historically people were often driven by the desire to reduce or avoid tax, and some of them to evade tax, but this is no longer the primary driving factor and I will explain why.

Following the world changing events of ‘9/11’, global governments, quite rightly, decided that secrecy that allowed terrorists to hide their activities was unacceptable and a drive for ‘transparency’ began. Then came the economic crash and Governments had to find ways of reducing their deficits, the difficulty with this is that they either had to explain what taxes they would increase or what services they would cut, and a convenient way to make up any shortfall is to say they will make up the difference by cutting down on tax evasion.

This has caused a two tier system of Low Tax Areas to emerge. There are those that have willingly signed up to FATCA, the IGA’s and CRS, which are various methods of agreeing to report transactions of individuals to their respective tax authorities, and there are those that are doing so with great reluctance and under pressure. The willing territories are those which have successfully transformed themselves into International Finance Centres (IFCs), they have sophisticated support services; banks, law firms, trust companies, fiduciaries and efficient regulators. The others lack these support services and will find it difficult to enforce compliance even if the will to do so is there.

This will lead to the number of IFCs diminishing considerably and those that are in the winning territories will be those that pass the test of international scrutiny, have a robust legal system and are geographically positioned to service the needs of America, Europe and Asia.

These territories will succeed because they will assist the wealthy to preserve and enhance their wealth and allow it to cascade down the generations; tax mitigation will be a welcome bonus but will not be a driving factor. Protection of this wealth in a secure location will be an important consideration in a world that has become increasingly unstable; secure in this instance, consists of a jurisdiction that has all the support services, legal systems and regulators in place. Only a few will survive to tick all those boxes.

Michael ShimminMichael Shimmin is chairman of the Fedelta Group. He was also chairman of the Trust and Corporate Industry representative body in the Isle of Man for a number of years.