In our first in-depth look at our awards shortlisters, the private wealth contenders show how they have shined in the face of globalisation and tougher legislation
The trend running through this year’s Private Wealth Team of the Year entries for The Lawyer Awards, sponsored by Duke and Rawson, is internationalisation. Of the five shortlisted entries, three are heavily international and the remaining two are for pieces of work which, while UK-based, could still have implications for foreign private clients.
It is common knowledge that business has taken a more international direction in recent years. Cross-border transactions are the norm, giving rise to an increase in global advisory outfits including, of course, law firms. Wealthy families have followed the trend. Although a family’s base might be in Moscow or Riyadh, they are now likely to own assets – houses, companies, yachts – around the world.
As more governments implement tax transparency measures, how best to manage affairs is a concern for such families or trusts.
In turn, the largest wealth management businesses around the world are looking at their own future. Some financial institutions are questioning their involvement in the private wealth industry, while others are capitalising on the global growth in capital.
“In this industry there’s no one who isn’t an international client,” says Burges Salmon partner Beatrice Puoti.
Perhaps the most traditional of the shortlisted entries this year are those of legacy Lawrence Graham and Taylor Wessing. Both firms were acting for high-net-worth family clients from overseas, with issues involving succession planning and redomiciliation.
“We’re seeing a massive movement of people and capital as a result of geopolitical risk,” says Taylor Wessing partner Nick Warr. “Ultra-high-net-worth families and individuals are moving their capital around the world, reducing the risk of that capital disappearing. It’s a huge trend.”
Wragge Lawrence Graham & Co partner Catharine Bell says there is a constant flow of work advising families on succession issues, particularly where it has a ‘family office’ or similar investment company to utilise its assets. The approach often taken is one many corporate lawyers would find familiar.
“It’s how you can continue running a successful investment company with underlying commercial activity, yet still involve family members,” Bell explains. “The way we do this is to bring all the commercial governance and corporate structures you get with third-party companies into the family structure.”
The result is a structure that gives family members access to wealth but crucially also allows them to leave the structure, for example by cashing in shares, should they wish.
“You have to really understand how corporate governance works,” says Bell of the work. “We’d look at the stock exchange rules for example, and include suggestions in the company’s memorandum and articles.”
She says the bulk of such work is coming from the Middle East, Russia and CIS countries, although the driving force within the families varies. Bell explains that Russian succession planning is generally pushed through by the head of the family, whereas in the Middle East it is more often a son looking to persuade his father that the family’s wealth should be looked after.
Warr adds that the UK is “top of the list” as a jurisdiction in which to domicile assets or people, due to its reputation as a safe, multicultural society that can satisfy the demand for somewhere stable to move to.
Like Bell, Warr says the CIS and the Middle East are the main sources of redomiciliation work, although there is some money moving from Asia.
Warr picks out trusts and foundations as the most popular structures to be used, adding: “There’s not a one-size-fits-all structure here. It depends on family dynamics.”
He stresses that such private client work can involve significant sums and be incredibly complex.
“The size of these clients is bigger than most listed entities and they’re far more nimble in the way they move their capital around than the big corporates,” he notes.
But there is also movement in the corporate arena. Burges Salmon’s private client team spent much of last year handling the sale of one
financial institution’s wealth management business to a major private bank, with the work involving billions of dollars in assets under management and trusts in many jurisdictions around the world.
“There’s a lot of movement in terms of who’s consolidating their wealth business and who’s selling it,” says Puoti. “It’s happening across the board. To be in this business with all the tough compliance rules being put in front of us, you have to be really committed to doing it.”
Such rules include regulations from the EU and UK as well as the US Foreign Account Tax Compliance Act (Fatca). Puoti thinks the cost of complying could prove prohibitive for some players.
“The smaller players are going to suffer in terms of the cost of compliance – a lot of them will have to consolidate,” Puoti predicts.
For lawyers, Puoti says market knowledge as much as expertise in tax and trusts law is vital to success in the private wealth market.
UK property tax in focus
Nevertheless, tax continues to be a key driver behind many transactions. For Boodle Hatfield it was an important element in the work for a major UK landlord in navigating new rules on the taxation of residential property. With many private clients and high-net-worth individuals owning property in the UK, the impact could be enormous.
Boodle Hatfield head of private client Sara Maccallum says the taxation of UK property is not a new issue, but it is growing.
“All the usual issues around private wealth are still there but we’re looking more at tax in UK property,” Maccallum says.
Like Puoti, Maccallum points to regulation as a trend, with internationalisation also an issue even for a firm with no presence outside the UK. “It’s going to become more international because we live in an international world – clients have global assets and interests,” she says, adding that Boodle Hatfield has vastly expanded its overseas client base in recent years.
Tax and changes to UK legislation were also an issue for Withers in the work the firm submitted for the awards, which involved the structuring of a literary and artistic estate in the most efficient possible way.
“It’s not just a case of paying the least tax, it’s keeping the legacy intact and making sure the work is curated,” says partner Robin Paul. “It’s not for the benefit of the family, it’s for the benefit of the nation in trying to keep it intact. It’s getting away from the purely selfish tax-driven angle to a more curatorial approach.”
Paul says the media coverage in recent years about tax avoidance has brought the issue to the front of many private clients’ minds.
“Clients are much more conscious now of the reputational aspect of tax planning and they are being more cautious,” he adds.
His colleague, Withers joint wealth planning group head Filippo Noseda, brings the themes back to those highlighted by Bell and Warr.
“A lot of our families are thinking about how to keep their assets together,” he says. “We see a lot of potential in Europe for this type of succession planning, which often springs from the existential need to survive.”
Private client lawyers expect the type of issues shown in this year’s awards shortlist to continue being a feature of their practice. Internationalisation is very much here to stay, and families are perhaps more exposed to succession issues than ever before. Meanwhile corporates playing in the private wealth field are all also dealing with similar issues and facing the challenges of new regulation – making legal advice a critical part of the picture.
team has been acting for a major UK landlord on the impact of Government changes to the taxation of residential property. The firm reviewed the company’s property portfolio and its strategy to ensure it was in line with the new rules, acting swiftly to restructure the portfolio.
Burges Salmon’s entry
focuses on its private client team’s work for a European private bank as it acquired the international wealth management business of a large financial institution. The transaction, involving billions of dollars of assets under management, involved considerable cross-jurisdictional work on structuring and documentation.
Legacy Lawrence Graham’s submission looks at the firm’s estate planning advice for a wealthy Middle Eastern client, which involved the restructuring of a family-run investment company dealing with assets in France and making sure the solution was Sharia-compliant.
helped a foreign couple redomicile to the UK. The firm had to apply new legislation and make sure the client was meeting its requirements, all within a tight timeframe. Several jurisdictions were involved and the firm also needed to make sure assets could be protected in the event of a divorce.
found itself heavily occupied with literary estates last year, restructuring trusts to ensure copyrights are retained and maximum tax benefit achieved. This work was done in the context of new regulations on inheritance tax and the relief that can be claimed on artists’ work, meaning Withers’ work sets important precedents.