Onshore wealth management will become more significant, and the number of offshore IFCs will consolidate as large countries sustain pressure against them, a Breakfast Briefing heard recently.

The world of onshore wealth management is likely to become
even more important as large countries flex their muscles against offshore
jurisdictions, producing consolidation among some IFCs in the battle for market
share, a Breakfast Briefing meeting in London
heard recently.

While the debate about what “offshore” or “onshore” mean is
not settled, panellists at the event, organised by ClearView Financial Media,
publisher of this website, agreed that old-style offshore centres acting as
secretive locations for illicit funds were doomed. (The event at the Carlton
Club in London’s
St James’s district was held in association with Asiaciti Trust, the family-owned, independent fiduciary services group.)

The speakers at the event were Sean Coughlan, managing director
of the Asiaciti Trust Singapore office; Seb Dovey, co-founder and managing
partner of Scorpio Partnership; Andrew Goodman, partner, private client team,
Taylor Wessing; Matthias Memminger, partner, PricewaterhouseCoopers, and Rupert
Ticehurst, partner, private client department, Berwin Leighton Paisner.

Coughlan set out what he sees as one of the primary, and
enduring, advantages of offshore financial hubs – the availability of products,
pointing to the sheer range of options that people have in financial services
and wealth structuring in offshore centres today.

However, a worry revolves around confidentiality of client
data as governments push for more exchanges, he said. There are concerns about
whether in some cases the data is exchanged to regimes that are corrupt or fail
to provide suitable protections for confidential data.

Given the pressure currently being exerted by the larger
western economies it is inevitable that some of the smaller players in the
offshore list of jurisdictions will fall out of favour, he said. Another issue
is simply of how larger, powerful jurisdictions can engage in “bullying” of
smaller ones, Coughlan added.

One of the benefits in having a fund domiciled in a low- or
no-tax jurisdiction is that this can to some extent mitigate periods of poor
performance of funds, he noted.

Seb Dovey pointed out that the offshore sector, as a whole,
continued to labour under the “bitter after-taste of the past”.

“The proposition of the offshore world was, in its time, as
a practical approach to asset protection. But times have changed and the sector
has lost its way a little bit,” he told delegates.

Dovey spoke of how the offshore/onshore debate must pay heed
to two broad groups of client segments - high net worth/UHNW individuals in a
fixed domicile who are already being courted by banks and other organisations,
and the large group of global highly skilled and higher earning professionals
travelling and working around the world. “These [the professionals] are clients
that we [the industry] perhaps overlook in favour of the big obvious families,”
he said.

“The future is not about being a safety deposit location. It
is about being an active management location for wealth,” he continued.

“Some [offshore centres] will adapt; some were expensive,
badly administered and not doing a very good job for clients. Both clients and
advisors are acutely aware now that they must work with jurisdictions that are
of a blue-chip status to ensure their clients’ structures are fit for the
future,” Dovey said.

Dovey said that Switzerland has demonstrated a
ruthless streak in a willingness to change in the past and would continue to do
so. “The suggestion that Switzerland
is doomed is myopic. The reality is that Switzerland is going through a
transformation. It is possibly facing up to issues earlier than many other financial
centres and it is doing something it is not accustomed to – which is having its
decision-making viewed under a global spotlight,” he said. “That can be
uncomfortable. However, the contribution of financial services remains a
critical part of the overall economic strength of Switzerland.”

Dovey expects the likes of Switzerland, Singapore, the US,
UK and Hong Kong to be the main wealth management hubs or “intershore
powerhouses”, while there will be a second tier of financial centres formerly known
as offshore centres. The latter group will find their business increasingly
hard to sustain as the talent and offerings are largely handled by the large
centres. Second-tier financial jurisdictions will have to focus on niche areas,
he added.

Goodman, meanwhile, echoed the views of some other speakers
in pointing out that smaller IFCs, regardless of precise definitions around
offshore or onshore, are “easier to bully”.

He talked about the benefits to London/UK of the remittance
basis treatment of non-doms. “London
can be, for some very wealthy people, effectively a tax-free environment,” he
said.

Although change is inevitable, it is hard to know what will
be the shape of the IFC market in, say, 30 years’ time, he said.

Goodman was asked about the notion, that was put forward at
recent policymaker gatherings such as the G20 meeting in the UK in the summer, of
a public register of beneficial owner of firms/trusts.  “I think it is incredibly
unlikely to happen,” he said.

“We are 100 years into registration of land in the UK and you
still get properties coming up that aren’t registered,” he said.

The incentive for people to conceal wealth will remain as
long as tax codes in onshore locations remain such a labrynth, he said. “Taxes
in the UK
and US have become horrendously complicated. It is a real problem for an
onshore economy and one of the reasons why people try to evade tax,” Goodman
said.

“The younger generation is less tied to privacy…by the time
they are aged 25, it’s all out there,” he added.

PwC’s  Memminger said
that for all the concerns about some parts of the international wealth
management world, the market for ultra high net worth individuals around the
world “is actively growing”.

The definition of “offshore” is down to where the client
lives and where the business is booked, Memminger said, adding that there will
always be competition between countries about tax and does not expect to see a
day of total tax harmonisation around the world.

Ticehurst argued that the days of offshore centres banking away
illicit funds are numbered. “Any offshore jurisdiction that focuses any of its
financial sector on black money is going to be in trouble,” he said.

As for onshore, he said wealth planning in the UK, for
example, was already in “the firing line”. “Even basic tax planning is
something that people are becoming afraid of. The environment we operate in has
changed dramatically over the last 18 months,” Ticehurst said.

 “Politically exposed
persons find it very difficult to put money into offshore financial centres
unless they can clearly demonstrate that it is generated legitimately,” he
continued.

Asked about the idea of public registers for beneficial
owners of trusts and other entities, he said: “I do think we must get used
to the idea that revenue authorities will have access to details about
taxpayers wealth, but people should not have to disclose their wealth to the public.
It is [referring to the beneficial ownership issue] an incredibly sinister
development.”

Ticehurst agreed with the idea that the number of offshore
IFCs are likely to fall. One problem with the smaller IFCs is that they lack
infrastructure, experienced lawyers and courts to work effectively, he added.