UK firms may still be piling into the traditional private client powerhouse of Switzerland, but the jurisdiction faces stiff competition from Asian upstart Singapore
Switzerland and Singapore may be geographically and culturally far apart, but with six office launches this year by UK firms, the jurisdictions are the top two international hotspots for high-net-worth individuals.
Singapore, the emerging wealth management centre, has brought in LG, Withers and Channel Islands firm Collas Crill. The prediction is that more firms will follow.
On a basic level, the new offices illustrate the globalisation of wealth. Private client work does not only involve acting for UK-domiciled individuals structuring their wealth and assets abroad. A new generation of tycoons – Russian oligarchs, Latin American mining magnates and Gulf families – are building their own books of wealth but looking to manage these outside their home markets.
“Increasingly, we find that clients need to know how they can structure their wealth over a number of jurisdictions, whether that relates to the UK or not,” says Nick Dunnell, a private client partner at Farrers. “Not all advice is tax-driven. Many countries have fixed rules on who can inherit so we advise on more flexible mechanisms for succession planning.”
Switzerland has been the prime jurisdiction for wealth management and trusts for decades, so it is no surprise that individuals – and law firms – congregate there. The country has more than 300 banks and securities dealers, many servicing high-net-worth individuals.
“Lots of international wealth tends to be managed out of Switzerland and lots of wealth from high-value individuals, especially from the Middle East and Eastern Europe, flows through the country,” Dunnell says. “It makes sense to have a presence where the wealth is kept.”
Farrers and the other recent Swiss entrants, including Speechly, cite an uptick in regulatory work as a driver to open in Zurich. Switzerland has increasingly been in the spotlight over legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010, while the UK and US authorities have been more determined to track down undeclared assets in the Swiss accounts of their citizens.
“Our main clients are the banks that manage the wealth, as well as their private clients – as individuals or their family offices,” Speechly managing partner Michael Lingens says. “The banks are increasingly requiring advice on regulatory issues, tax-compliance and what financial products are viable for people domiciled and not domiciled in the UK.”
Lawyers highlight the Liechtenstein Disclosure Facility (LDF), started in 2009, as a central piece of legislation that, Lingens says, “has prompted a surge in work from the Swiss market”.
The LDF is effectively a tax amnesty available to UK residents with undeclared accounts anywhere in the world who open accounts in Liechtenstein. Clients need to make a full disclosure to HM Revenue & Customs and pay their UK tax liability plus a 10 per cent penalty. Many of those affected by the facility are domiciled in – or have wealth managed from – Switzerland.
“We’re working with Swiss banks and lawyers to assist in this process,” says Dunnell. “Meetings with these clients can take place in the UK or Switzerland – it makes no material difference as the disclosure rules are the same – but clients seem to prefer the latter option.”
Clients affected by the LDF and other regulations usually go to a bank as their first point of call, which is another factor behind the recent Swiss launches – securing those all-important referrals.
“These [international] clients will often want to purchase assets in the UK so at some point they need advice on UK law matters such as tax or property and will require an English law firm,” says Lingens. “As such, the banks managing private wealth are a major source of referrals for many UK practices.”
Some banks are, of course, easier to pick up work from than others. Credit Suisse, for example, has a core panel of around 40 global service providers covering law, accountancy and tax, that drives the bulk of its private client business too.
Others are more relaxed on recommending firms to clients. John Conder, a partner at Macfarlanes, says the firm was recently referred a Central and Eastern Europe (CEE) investor by a Swiss banker despite not being on the approved list.
“A number of banks allow that freedom, although the larger banks do tend to stick to their formal panels,” he comments.
Despite the abundance of regulatory work and referrals for firms in the short-term, there is a feeling that the growing amount of red tape may start to harm Switzerland’s standing.
Catriona Syed, a private client partner at Charles Russell, believes that although Switzerland does have a long-term future, clients are now looking for alternative destinations to structure their wealth.
“Centres that are of increasing interest to private clients are those outside the influence of the EU Savings Directive for Europe-based clients, or the influence of the US for those who do not wish to be caught up in its reporting requirements,” she says.
Top of the list is Singapore. The jurisdiction has emerged as a credible alternative to Switzerland on the back of the booming Asian wealth market. Indeed, Pricewaterhouse-Coopers’ (PwC) 2011 report on private wealth predicts an almost 20 per cent rise in wealth management revenue growth this year from Asia (more than twice the growth in Emea and the Americas).
The Singaporean government has been making a concerted effort to attract this wealth, principally with regulatory changes to ease investment. For example, it has brought in a tax exemption scheme for family-owned investment holding companies registered in the jurisdiction. Likewise, the highest rate of personal tax is 20 per cent, corporate tax has been sliced from 25.5 per cent to a flat 17 per cent and income and capital gains for non-Singapore investments held by non-residents is exempt from tax.
All of this makes Singapore an ideal place for clients disillusioned with Switzerland’s regulatory hurdles as well as rich individuals from markets such as Malaysia and Indonesia. The PwC survey even suggests that Singapore will overtake Switzerland as the most successful wealth management centre by 2013 in the eyes of investors.
Lawyers are dubious about that prediction. Nicholas Jacob, a private client partner at LG, believes that, although Singapore is “not quite the new Switzerland”, it is growing in stature.
“Singapore has attracted a lot of trust companies; around 50 have opened there in recent years,” he says. “These trusts are trading with private banks and individuals, and that is attracting a lot of workflow from places like Switzerland.”
However, Singapore does not have a clear path to attaining Asian investors. Hong Kong, the other prime regional jurisdiction based on English law, has been attempting to position itself as a wealth centre too. For example, legislation is going through the country’s parliament that will revamp trust law by removing the need for a perpetuity period and the rule that the settlor of a locally registered trust must be a Hong Kong resident.
“If Hong Kong does license trust companies there could be a surge of interest from Chinese investors,” Jacob remarks. “Singapore has the infrastructure for wealth management but its economy is not as big as Hong Kong’s. Chinese investors, however, have not been interested in creating trusts so far, so it will be interesting in five to 10 years’ time when they start to.”
The feeling is that Singapore will be the main focus in the immediate future, while Hong Kong could become a player in the medium term, although being part of China rather than an independent state may dissuade investors. Some even predict a split in the Asian market, with Singapore as the hub for South East Asian investors and Chinese clients choosing Hong Kong.
Era of expansion?
So are the shifting international dynamics of private client work going to prompt more office launches for firms? Probably, but few are keen on following Withers’ global model, which saw it launch in the British Virgin Islands and New York in the last few years. The US market is too competitive and the Caribbean mainly generates work from offshore organisations rather than high-net-worth individuals or the banks.
Dubai and Bahrain are also potential markets, although recent events have dulled the allure. “We find that Middle East clients, for example, will choose not to book their international wealth in Dubai as political instability in the region means they want to diversify their assets across different markets,” says Conder.
But firms are certainly monitoring the international market. Charles Russell – which has Geneva and Monaco branches – has been keeping an eye on Singapore, although Syed believes that “it will be some time before it is an attractive place for us”.
Speechly opened in Luxembourg and Zurich, although its emphasis is on funds work, while Forsters believes the next challenge will come from Far Eastern clients but has no plans to open in Switzerland or elsewhere, although it is keeping this “under review”. LG says it would probably be in Switzerland “in an ideal world”.
Macfarlanes, Boodle Hatfield, Harcus Sinclair and Manches do not have any foreign bases. The consensus among such firms is that they can win instructions through regular visits to Switzerland and strong links with local firms in other key markets.
“Our current thinking is that the benefits of our existing approach outweigh the advantages of having a local office,” says Carole Cook, a partner at Forsters. “We’re not trying to compete with firms in other jurisdictions, which has allowed us to develop informal links with a number of firms to facilitate mutual referrals and contacts. It also allows us to select the best firms to meet the needs of our private clients in particular countries.”
Outside the box
Any office openings outside of Switzerland, though, are unlikely to be exclusively private client. In LG’s case, private client will be the main focus in Singapore in the early stages, but the office will cover corporate, funds and dispute resolution too.
“Most of [our Swiss work] is private client work, and it’s harder to justify an office that has such a narrow remit, unlike in Singapore where we’ll have a broader remit,” says Jacob. “Places like Singapore have a much broader economy, so we can focus our investment efforts on jurisdictions that can provide work for other parts of the practices too.”
Cross-practice referral is the overriding theme for all private client firms, irrespective of geographical strategy. Private clients are snapping up assets around the world, so if a firm does a good job on one matter for either an individual or a bank, more opportunities could filter through to other departments.
“There was a recent example where one family-owned company had historically provided an international firm with its corporate work,” Conder says. “We acted for one of the family members on a separate matter and they then recommended us to their company – we won a significant instruction ahead of the other firm.”
Some law firms are even hoping to use their private client prowess to ease aside the large London practices that traditionally advise the top banks on general matters but have mostly abandoned private client work. Not only are major players such as UBS and Credit Suisse based in Zurich, but the private wealth side of most banks’ business is comparable to the investment arm and bankers interchange between the two sides.
Also, for all the talk of international expansion, many of the new generation of high-net-worth individuals have yet to look at issues such as succession and estate planning, political protection or tax. And, as Conder says, “the greatest concentration of expertise on these issues is in the UK”.
The strategy for most private wealth advisers then is not to follow their clients around the world. Ventures in Switzerland and Singapore are ways of securing referrals and instructions for the London engines. The push is as much about domestic expansion as it is about international expansion.