The insurance firm, which specialises in wealth structuring and management solutions, talks about trends in global wealth management.

The following guest article about wealth management issues is from Jurgen Vanhoenacker, executive director, sales and wealth structuring solutions at Lombard International Assurance. The editors are pleased to share these views; readers who want to respond can email tom.burroughes@wealthbriefing.com

The demand for international wealth management is going from strength to strength as the asset base of high net worth individuals hits new heights. The global value of high net worth individuals’ assets is set to surpass $100 trillion by 2025, based on current growth trends. This is four times the level seen in 2006.

While the Asia-Pacific region is likely to be a key driver in this growth as it sees more rapid economic expansion, Europe will remain a key market. The population of high net worth individuals in Europe increased by 4.8 per cent in 2015, with 4.2 million individuals collectively holding $13.6 trillion in assets (source: Knight Frank).

At the same time as this growth in wealth is creating opportunity, a cocktail of increasingly complex regulation and tax legislation across jurisdictions and scrutiny on tax avoidance schemes is creating challenge, and the need for flexible, transparent solutions. This is having a significant impact on the wealth structuring strategies employed by high net worth investors, and their appointed representatives.  

It’s complicated

At the same time as the size and wealth of the population of high net worth individuals is increasing, the needs of high net worth individuals are also changing. Family structures and businesses are increasingly international, operating across multiple borders. For instance, it’s not unusual for a high net worth family to have children in school in one country, live in another jurisdiction, with a business in a third – and potentially plan to retire in another country altogether. With this level of mobility, it’s not a surprise that in 2014, $8 trillion in private wealth was booked across borders.

Meanwhile, global regulations continue to evolve, and individual tax and legal requirements do not stand still in each jurisdiction. In the UK, for instance, April brings with it a change to the way many resident non-domiciled individuals are taxed. This dynamic is creating stronger demand than ever for specialists that are well-versed in cross-border wealth planning, as well as the need for increasingly flexible wealth and inheritance planning solutions.

Succession and inheritance planning

As the wealth and number of high net worth families grows, so too will the amount of assets being transferred to the next generation. While we are seeing first generation entrepreneurs considering how to pass their wealth on, we are also witnessing a burgeoning number of high net worth baby boomers in the US, and second and third generation wealth creators in the Asia-Pacific region. The amount of wealth changing hands is startling. One report estimates that in excess of $16 trillion of assets will be transferred over the next 30 years alone.

Inheritance and succession planning, therefore, is the top priority for many high and ultra high net worth individuals when seeking financial planning support. In fact, Knight Frank’s latest Wealth Report’s Attitudes Survey pinpoints succession issues as the biggest financial concern globally.

The need for transparency is clear

Governments are taking a closer view on the level of wealth moving across borders, and the level of wealth being passed onto younger generations. As they do so, reporting requirements and the need for transparency are growing. Alongside an increased regulatory compliance burden, this is bringing increased scrutiny on the finances of high net and ultra high net worth individuals. In the UK, for instance, the Government’s Public Accounts Committee has recently criticised HMRC for failing to pursue the wealthiest taxpayers.

In this environment, the wealth planning solutions employed must not only be transparent, but established within the legal and fiscal regimes in which they are to be utilised. Of course, this is one of the key benefits of a unit-linked life assurance product. As an insurance solution, it is fully recognised in both common law jurisdictions (such as the UK), and civil law jurisdictions (such as France and Spain).  

The future is bright for life assurance

In recent years, the role of unit-linked life insurance as a valid wealth management solution for high net worth individuals has become more widely understood. It is all the more relevant, given the context of a growing number of mobile high net worth individuals, the amount of money being passed to the next generation, and increasing government scrutiny.

A unit-linked insurance plan enables the appointed investment manager to invest in qualified investments (for example, equities, bonds or mutual funds) while the holder of the plan enjoys a number of advantages including the deferral of tax. It brings with it inheritance tax benefits, and in many jurisdictions, including the UK, it can be gifted to family members without an immediate tax burden. Moreover, as it is a portable solution, recognised by governments globally, it provides the flexibility clients need when creating international wealth structures to support their mobile lifestyles.

As awareness for this type of solution grows and its benefits, so too will its popularity, bringing simplicity and flexibility to an increasingly complex marketplace.