Old money still resides in the US and Europe, but private wealth growth has exploded in China and India. Wealth management teams at some UK law firms are matching the needs of a new wave of global clients by offering high-end, commercial advice on an increasingly global platform
One case in recent years sums up how the global wealth landscape has shifted. The high-profile Alhamrani dispute, which settled in 2009, six and a half years after it all began, was Jersey’s most expensive court case. Although the trial never concluded, it lasted more than 100 days and involved trusts worth more than $100m. Jersey advocates teamed up with solicitors from London and elsewhere in the world. The hearing, which began in 2008, involved so many firms, such as Carey Olsen, Crill Canavan and Mourant Ozannes, and so many documents that the Jersey Royal Court didn’t have the space to accommodate the dispute. Instead, the first part of the hearing took place in a hotel that had closed for the winter.
At the centre of the dispute was a Saudi Arabian family at loggerheads, with brothers pitched against brothers over two Jersey trusts. In addition to J.P. Morgan Trust Company, the main protagonists were seven brothers and two sisters – whose late father had left them a large sum in trust.
‘The wealth management market is a lot broader and a lot more international than UK private client.’
Ashley Crossley, Baker & McKenzie
The legal fees incurred by the parties in the Alhamrani case were most probably way beyond the means of most individuals and, in terms of the level of resources thrown at such a dispute, it was pretty unique. But the changing face of wealth management and the shift in the demographics of those who wield personal financial power means that this type of case could be a more frequent occurrence.
The population of high-net-worth individuals (HNWI) has spread wider around the world. As they have become older, the need for bespoke succession planning and wealth structuring advice related to new money has become more pressing. Complex, multi-jurisdictional trust structures used to distribute wealth among family members across a multitude of global financial centres have become the norm. And now these clients need global law firms to provide bigger picture legal advice. Localised services have their place but the shift in the demographics of private clients and the breadth of their investments means they need banks, trust companies, investment managers – and yes, law firms – that can see the wood for the trees.
Full steam ahead
After a two-year hiatus, the world’s wealthy are back making more money than ever. In our focus on wealth management last year (LB204, page 66) we reported that the world’s population of HNWI – those with investable assets of $1m – had contracted by 15%, with the population’s net wealth dropping by nearly 20%. However, according to the 2010 World Wealth Report (WWR) published by Capgemini and Merrill Lynch, 2009 showed signs of recovery and the number of HNWI started growing again.
The world’s population of HNWI grew 17.7% to ten million in 2009, returning to levels last seen during the peak of the previous boom in 2007. Their wealth also swelled in dollar terms, rising 18.9% to $39trn. And after plummeting 24% in 2008, the wealth of ultra-HNWI – those with assets of over $30m – made up nearly all its lost ground, growing by 21.5% in 2009.
These results show not just how much damage the global economic crisis wreaked on the global wealth management community but also the resilience of those with self-made wealth. In 2006 the WWR estimated that the assets of the world’s wealthiest families would grow 34% by 2010, up to $44.6trn. Although this target looks unlikely, the fact that this figure has grown 17% since 2005, despite two of the worst years economically for a century, shows why wealth management not only remains a crucial source of revenues for banks, investment managers and trust companies but also for law firms.
The WWR also reported last year that the world’s wealthy had proportionately more of their wealth invested outside their home jurisdictions by the end of 2009 than they had a year earlier. This shift demonstrates a swing back towards the appetite for global investment that was evident before the financial meltdown. Immediately in the wake of the crisis in the 2009 report, there was evidence that the wealthy were repatriating their assets. Now that the rich are ready to start investing abroad again, the need for global, high-end wealth management structuring advice is greater than ever.
‘It’s about the bigger picture,’ says Ashley Crossley, chair of Baker & McKenzie’s Europe and Middle East wealth management practice group. ‘The wealth management market is a lot broader and a lot more international than UK private client.’
‘The major wealth at the moment is coming from the emerging markets,’ says Marc Farror of trust company Vistra, which recently opened in Singapore and Guangzhou. ‘You need to have networks in place to appreciate that work.’
Catherine Grum, vice president of Wealth Advisory for Barclays Wealth, makes the position for legal advisers wanting a piece of the global action quite clear: ‘With markets that are growing and developing quickly, clients expect their legal advisers to be taking part in the journey with them,’ she says. ‘The advisers that we see being particularly successful in these markets are those that have committed to a local base or who make such regular visits that their presence can be relied on by the local wealth managers and their clients. In the private wealth management industry, there is a great depth of expertise in more established jurisdictions like the UK and US. However, advisers based in those jurisdictions cannot expect to rely on this pedigree alone if they wish to ride the waves of success predicted for the emerging markets over the next few years. They cannot advise in a bubble.’
Asian tigers
While the US, Japan and Germany alone account for more than half the world’s population of HNWI, undoubtedly the strongest growth in private wealth over the past five years has taken place in Asia. According to the WWR, the size of Asia’s high-net-worth population matched Europe for the first time ever in 2009 (three million). The wealth of the richest in Asia-Pacific was up by 30.9% to $9.7trn, with the continent growing twice as fast as the US. Seven countries within the region saw their HNWI populations surpass 2007 levels, while the total wealth in the region exceeded Europe by $0.2trn.
‘The advisers that we see being particularly successful in these markets are those that have committed to a local base.’
Catherine Grum, Barclays Wealth
Unsurprisingly, international private banks have sharpened their focus on Asia, recognising the shift in financial power. The frequently quoted statistic is that around 80% of privately owned wealth in Asia is going to pass to the younger generation in the next decade or so. The bulk of this wealth is first-generation new money, making the requirement for comprehensive succession planning a prerequisite.
Barclays Wealth has been growing at a phenomenal pace in Asia over the past few years. In addition to hiring senior bankers to continue to capture growth in key target markets, particularly Greater China, India and Indonesia, the private bank has been expanding its regional footprint aggressively, with several recent developments that reflect its strong commitment to Asia. In June 2010 it set up a Singapore Trust Company to conduct trust business in Singapore. The following month it announced a private banking joint venture with Sumitomo Mitsui Banking Corporation and Nikko Cordial Securities to provide wealth management services to HNWI in Japan. In November it established a booking centre in Hong Kong, its second in Asia, after Singapore. Finally in December it launched a 30-strong South Asian private banking team, which it says cemented its leading position as a private bank for non-resident Indians in Asia.
Others have also made their move. In November 2010 RBC Wealth Management announced its acquisition of Fortis’s wealth management business in Hong Kong. The bank named Singapore-based former ABN AMRO banker Barend Janssens as head of its emerging markets division, part of wider strategic changes to its organisational structure that started in September. RBC Wealth Management is to split out its international wealth and asset management business into two distinct units – UK and emerging markets, with the emerging markets unit focusing on new high-net-worth clients in Asia, EMEA and Latin America.
And it seems the law firms that look to win the premium global wealth structuring work have followed suit. In September Withers announced it would be looking to exploit wealth planning opportunities for China’s HNWI by signing a tie-up agreement with financial services advisory firm BeA asia in Shanghai. The consultancy agreement will enable Withers to target the wealth market in China but, according to partner Richard Cassell, who jointly heads the firm’s wealth management practice, the intention is not to open in mainland China. Rather it will continue to service wealthy clients from the firm’s Hong Kong office, which opened in 2008.
‘We’ve seen people participating in the Hong Kong Stock Exchange and this has created a significant need for wealth planning services that we are servicing out of our Hong Kong office,’ he says. ‘We have no plans to provide classic tax and trust services in mainland China but we do have every desire to service them effectively from our Hong Kong office.’
Cassell points out that many of the tax rules in mainland China vary significantly from province to province, requiring a lot of local knowledge at a huge cost.
‘China is difficult because it can be hard to plan international private wealth structures for the Chinese because of exchange control restrictions and differences in tax regimes,’ agrees Iain Johns of Equity Trust. ‘It certainly assists when Chinese become mobile and take their wealth with them. Hong Kong is the place to be to take advantage of that.’
For SG Hambro Bank group commercial director Phil Mcilwraith, Hong Kong may be the easiest route to tapping China’s HNWI market but the Société Générale Private Banking Group is also committed to mainland China. ‘I guess we can see this from both sides as we have an office in Hong Kong and three in mainland China,’ he says. ‘We see opportunities both onshore and offshore in China. I can understand the comments made about the difficulties associated with doing business in China but clearly we view China as a long-term market.’
Singapore swing
But while Cassell is convinced that China can be effectively serviced from Hong Kong, Withers, like many firms, also has its eye on Singapore. Although he says the firm has no specific plans, he confirms that the country is ‘absolutely in our sightlines’.
Singapore has been described as the ‘Switzerland of Asia’ in terms of its general appeal as a wealth management centre and a natural hub to service clients throughout an entire geographical area.
In fact, Singapore has been an important route to accessing Indian clients, particularly non-resident Indians, exploiting Singapore’s convenient location as an axis for the so-called ‘Chindia’ market, including the rest of South-East Asia.
But Singapore is generating wealth in its own right, as well as operating as an international finance centre. And while the country has long been a key market for international corporate work, law firms have been building their international wealth structuring capabilities in the country. Such are Singapore’s obvious attractions, the flow of imports into the market has been rapid, and no longer for corporate, shipping or insurance work but to target the wealthy individuals that have made their fortunes from those industries.
The most recent example is Berwin Leighton Paisner, which has made a real push into international wealth restructuring, with a string of high-profile lateral hires in London, including Murray North from Clifford Chance and, most recently, Rupert Ticehurst from Herbert Smith. In December last year it hired senior associate Simon Michaels from the Singapore arm of Bakers’ leading international team. Michaels joined BLP as a partner, and is now heading up a new practice supporting and developing private clients based in South-East Asia.
LG is another firm that has its eye on South-East Asia. Its recent experience includes advising a wealthy Singapore-based family on the creation of a family office, and implementation of a global estate and succession plan, covering both private and business assets in Singapore and in six other jurisdictions. The firm has dedicated its private client group to an ultra-high-net-worth client base, winning the 2010 Legal Business private client team of the year award for the impressive development of its international private client group. It launched in Dubai in 2007 and its private client practice specifically targets ultra-wealthy clients via its so-called ‘Billionaires Club’, which includes more than 30 of the world’s wealthiest families. More than 85% of its private capital practice turnover comes from non-UK clients, meaning that a high-profile move into Singapore or China would make sense. However, Anthony Thompson, head of LG’s tax and private capital group, refuses to confirm any plans to open in Singapore any time soon. ‘I think we have to look at South-East Asia and certainly Singapore would be one place we would be very interested in,’ he says. ‘But there’s nothing concrete on that at the moment.’
Richard Pirie of recently merged Jersey and Guernsey firm Collas Crill says that his firm has identified Asia as a possible location for its first foray abroad. Singapore would be a logical step but he refuses to be drawn on specifics. ‘The merger between the Jersey and Guernsey firms has given us the critical mass that neither of us have had before and one of the items on the agenda is opening an office in Asia,’ he says. ‘Obviously it’s quite an investment to open a foreign presence but we’ve done the homework on Asia and decided that’s the place to be.’
‘Singapore is an extremely competitive market,’ says Equity Trust’s Johns, which announced the arrival of local expert Sharon Yam to become general manager of its Singaopore private client team in March. ‘It’s probably the most competitive market around at the moment. It’s an excellent jurisdiction with a strong financial services infrastructure. The government has been very clever in how it has positioned itself to take advantage of shifts of wealth east.’
Singapore’s strategic importance in servicing the Indian market cannot be overlooked either, particularly because of the ban foreign firms face in setting up their own operations on the ground there (see LB212, page 24). In terms of growth in its high-net-worth population, India is the standout performer in the latest WWR. Whereas China’s wealthy population grew by an impressive 31% in 2009, India’s leapt an astounding 50.9%, almost ten times the rate of Germany (although Germany has eight times as many HNWI to begin with). According to a report published last year by MarketsandMarkets, India’s richest will see their wealth grow at a compound annual growth rate of 12% and will reach close to $949bn by 2015.
This is why Singapore and Mauritius are important locations for those looking to be first in the queue to win wealth structuring work from India’s super rich. ‘When we are dealing with our Indian clients and Indian intermediaries one of the first things they ask us is whether we offer Singapore,’ says Johns.
Mature markets
Whereas China and India are making the headlines thanks to the meteoric rise of the HNWI population in those countries, Russia and the Middle East are also important sources of work for international law firms specialising in global wealth structuring.
Russia’s population of wealthy individuals climbed an impressive 21.3% in 2009 but this wasn’t quite enough to bring levels back to where they were in 2007. However, no one is in any doubt that this commodity-rich nation will continue to produce extreme wealth, with a requirement for sophisticated structuring advice to match.
Bakers’ global wealth management team has been advising Russian and other CIS clients on their private affairs for several years, and embarked on a clear business plan to provide international wealth structuring advice around seven years ago. Crossley, who leads the firm’s London-based Russia/CIS team, explains that the firm has regularly provided high-end commercial structuring advice to some of the world’s wealthiest HNWI. The team has been at the forefront of some of the largest restructurings undertaken by private clients since the financial crisis began, providing advice to individuals on significant margin calls.
‘It’s a big step to open a foreign presence but we’ve done the homework on Asia and decided that’s the place to be.’
Richard Pirie, Collas Crill
‘Whereas ten years ago Russian clients would have just had a company domicilled in the British Virgin Islands, now they are much more sophisticated,’ says Crossley. ‘They understand private trust companies, they understand the different things they have to do to access funds in their corporate structures. They’ve discovered a level of sophistication that wasn’t there before.’
BLP also made an aggressive play into Moscow in 2008, taking on a team of around 70 lawyers from Pepeliaev Group. Although head of trusts and personal tax Jonathan Kropman says that inbound Russian private client work is not yet part of Goltsblat BLP’s armoury, outbound work is buoyant and an on-the-ground presence is a possibility.
‘Our presence in Moscow is a significant corporate, competition and litigation practice acting for a lot of multinationals going into Russia,’ he says. ‘However, the office acts for a number of businesses with very wealthy owners. I anticipate our wealth structuring work in Russia will continue to grow as it is a huge centre of industrial activity.’
The Middle East, despite suffering hard during the financial crisis, remains a gold standard jurisdiction for wealth structuring work. In 2009 the Middle East HNWI population and total wealth grew by only 7.1% and 5.1% respectively, as the hangover from damage done to Dubai during the crisis was keenly felt. However, much of the Middle East has enjoyed sharply rising prosperity, particularly with the spiralling oil prices over the past decade. With increasing internationalisation of wealth has come a greater focus on the application of Islamic law, both from an investment and an inheritance perspective. Little wonder then that LG has put considerable effort into strengthening its offering in the region. The firm moved into the emirate in 2007 and has built up substantial experience advising the Gulf Cooperation Council’s ultra-high-net-worth families, assisting them to preserve their family wealth through the generations, providing a bespoke dynastic structuring solution.
‘Dubai is a very good example of the cross-over between corporate and private wealth because wealth tends to be held by individuals rather than public companies,’ says LG’s Thompson. ‘Clients in the Gulf particularly want an adviser that can look at investments and structures in the round, not just on one thing or another.’
In addition, Investec Trust chief executive Xavier Isaac points out that often wealthy entrepreneurs and families prefer to use legal advisers in key hubs such as London or Switzerland, citing the Middle East clients as a good example. ‘In the Middle East there are many corporate law firms and very few private client firms, which demonstrates that when families in that part of the world have a need for legal wealth structuring advice, they will ask a corporate lawyer on the ground for a contact in London or Switzerland,’ he says.
Equity Trust, the world’s largest fiduciary and trust business, does not have a Middle East presence at the moment, despite extensive global coverage through more than 30 offices. ‘We’ve explored the idea for a long time and have come close from time to time,’ says Johns. ‘We have a very large Middle East client base but whether those clients want Equity Trust on their doorstep for wealth management purposes is something we get mixed reviews on.’
Discussions over the lack of a Middle East presence for Equity Trust will soon become moot. The firm is due to merge with Doughty Hanson & Co’s subsidiary TMF Group, after Doughty Hanson acquired Equity Trust for £293m earlier in the year. TMF has its own branch in Dubai.
Another way
Equity Trust’s lack of a Middle East office has not hindered its business. And despite the push by international private client law firms into target markets, and the insistence of many private banks and trusts that global services are the way forward in wealth structuring, just as they have been in the corporate arena, there are plenty of examples of firms that have avoided expansion and still performed well.
Step forward Legal Business Private Client Team of the Year, Maurice Turnor Gardner. The boutique practice has hit the ground running since spinning out of Allen & Overy in 2009, and has fast become a major player in the private client and wealth structuring market. During 2010 it won coveted places on Barclays’, The Royal Bank of Scotland’s and Nationwide’s legal panels, and pulled in first year profits of £2m. The fact that MTG has managed to maintain close ties with legacy practice Allen & Overy means that it is able to service both UK and international clients from a boutique platform.
‘A noticeable feature of international private client work is the devolution of wealth between the generations.’
James Johnston, Bircham Dyson Bell
This boutique’s entrepreneurial approach appeals to the type of international HNWI that the firm is targeting. The approach is mirrored by another firm that saw the benefits of operating in a boutique format, Berkeley Law. This niche practice was set up last spring by a group of four partners from LG’s wealth planning team who wanted to establish their own specialist private client firm.
Another firm that has not let a lack of a global footprint stand in its way is Macfarlanes, acknowledged as a global competitor on wealth structuring by the key international players. Macfarlanes has been a strong corporate firm in the UK that has always seen the benefit of maintaining a dedicated private client practice and this has paid dividends: at 42% the firm has a profit margin that outstrips many of its London competitors. The London-only presence has been no barrier to international work with a private client angle: in 2010 Macfarlanes teamed up with an undisclosed firm in Moscow to advise on the structuring of five trusts that together control a business valued in excess of $10bn.
Speechly Bircham is another UK-based firm that despite a recent significant merger (with Campbell Hooper & Co in 2009) and the inevitable adjustment that followed, has recognised the strength of its private client practice and has been successful in selling that to international clients.
‘More than 50% of our private client work is international and wealth management-related work represents an increasing percentage of the firm’s total turnover,’ says Charles Gothard, head of international tax and trusts at the firm. ‘Having 21 private client partners gives us the luxury of being able to focus on the firm’s six key geographic regions – the US, the Gulf, Nordic, India, Far East and Switzerland – regularly visiting each, developing expertise and strong relationships with local firms through regular workflow.’
Gothard adds that for international clients there is a strong emphasis on ‘wealth protection’ advice – going beyond traditional tax and estate planning to help protect wealth against attack from disgruntled spouses, feuding family and ge0political risks. As such, there has been a firm-wide focus on the private wealth sector across all practice areas, such as advising entrepreneurs, wealth managers, family offices and celebrities on corporate, litigation and other services. This follows a path that has been taken by firms such as Bakers and Withers, with Bakers particularly specialising in advising multi-national corporations and banks that are owned by ultra-wealthy entrepreneurs.
Gothard claims that many wealthy entrepreneurs, particularly from the Middle East, actually prefer to have wealth management advisers based remotely in London given the private nature of their personal wealth and succession planning. ‘There continues to be strong appeal in different parts of the world for a lawyer in London who is perceived as having a better overview of the solutions that can be achieved in different jurisdictions,’ he comments.
James Johnston, a partner in the private client team at Bircham Dyson Bell in London, also points to the growing internationalistion of work for UK firms. ‘A noticeable feature of international private client work is the devolution of wealth between the generations, along with related international tax advice,’ he says. ‘In particular, there is a generation of business owners, mainly in the Middle East and Asia, but also Russia and Continental Europe, who are reaching retirement and are keen to put in place governance arrangements to ensure the protection of wealth within what can be quite large extended families. They are now looking to London advisers to provide this sort of guidance, along with advice on succession law, tax planning and wealth holding structures.’
Philip Harris, head of UK private clients at RBC Wealth Management says that despite the bank’s recent push into Asia, London will always remain a priority market. ‘There is clearly a current flowing from west to east and we’d be silly if we didn’t recognise that,’ he says. ‘You can look to a number of big global players that are relocating, but I don’t see those major financial players tearing up their links with London or Switzerland just yet.’
On this evidence at least, the UK private client market has moved beyond the Harris Tweed era, advising blue bloods on landed estates issues. While some firms lack the firepower or inclination to pursue work from HNWI on the ground in the emerging global economies, their practices have evolved sufficiently to cater for those clients from London. However, Speechly Bircham’s Gothard says the firm has recognised the need to move beyond its traditional London base to capitalise on new opportunities. ‘We think the strategy of doing all international wealth structuring work out of a single office is not necessarily the most efficient. The firm sees that pursuing a multi-jurisdictional private wealth strategy is the way forward. This is why, as is widely known, we are toying with the idea of opening in other jurisdictions.’ The question is whether, as the world’s wealth continues to shift east, London and other European cities can continue to maintain their value as wealth structuring hubs. LB
mark.mcateer@legalease.co.uk