International wealth preservation and succession planning is now a core component of most successful private client practices. Legal Business assesses how far firms will go to keep it in the family
If innovation is a measure of how competitive London’s private client market has become, then the contest for top spot has only intensified over the past year. With London seen as a safe haven for many of the world’s high-net-worth individuals (HNWIs), the question for the capital’s leading private client practices is how to develop an edge over the competition. Strategies include international expansion, rare lateral hires, and offering entirely new service lines – all illustrating that private client lawyers have needed to adapt to a swiftly evolving and increasingly global market.
Withers has been one of the most active firms on this front. In February it announced the launch of Withers Consulting Group (WCG), a wholly owned subsidiary that will provide strategic advice to family offices and businesses. The new venture reflects a shift in private client demand that is less about tax planning (although that is still important) and more about wealth preservation and succession planning. The focus is on smoothing the passage of wealth from one generation to the next.
‘We’ve seen a lot of growth in the wealth planning market,’ says Margaret Robertson, managing director of Withers. ‘The change we’ve seen is that clients are now looking for non-legal advice. Many families are at a transition stage between generations and they want advice to decide how to do that without causing a family rift. These really large clients are looking for something different that led us to this consultancy. In the same way McKinsey provides strategic business advice to major corporates, we’re looking to provide it to major families.’
Family business
The blurring lines between private client and commercial law can be seen in the way that Withers has developed. The growing importance of the firm’s commercial law practice is reflected in the fact that Withers’ current chairman, Anthony Indaimo, was the first corporate partner to take the role. It’s a natural evolution that mirrors the changing face of the UK’s HNWIs as a whole. First generation entrepreneurs whose core assets are tied into the businesses they built have superseded families with inherited wealth, whose assets are largely made up of land and investment portfolios. Their succession planning is tied to their companies, and firms like Withers have expanded their offering to match their needs.
The UK’s most famous example of this entrepreneurial class is Virgin founder Richard Branson. His private client firm of choice is Macfarlanes, and with Virgin as a key corporate client, it is no surprise that the firm’s management recognises the continued value of its private client offering.
‘Some of our biggest corporate clients started out in life as private clients,’ says Jonathan Conder, Macfarlanes’ head of private client. Almost 20% of Macfarlanes’ revenue is linked to the private client department, either directly or indirectly, and of the firm’s 72 partners, 12 work on the private client side. This number will rise to 13 on 1 May when the firm completes the rare lateral hire of Charles Gothard from Speechly Bircham.
‘It’s absolutely unheard of as far as private client is concerned,’ says Conder. ‘We’ve never had a lateral partner the 20 years since I’ve been here. It is a very public demonstration of support from the firm and recognition of how well things are going.’
In the same way that Withers is establishing itself as more than just a private client firm, Macfarlanes’ management recognises the added value its private client practice brings. Not just to the bottom line, but also when marketing the firm abroad, particularly in Asia.
‘[Macfarlanes senior partner] Charles Martin is very much a believer in this very unique combination of private and corporate under the same roof being quite a powerful and distinctive feature for the firm,’ says Conder. ‘In the last few years we have led with the private client practice to promote the firm’s distinctiveness when further afield.’
International relations
Since the market for UK-born private clients has matured, it is this push further afield that is the ultimate driving force behind most of the latest developments. For a firm like Withers, nearly half of its work is derived from foreign private clients. In Baker & McKenzie’s case, when it comes to assessing the international market, private clients and commercial clients are often one and the same.
‘One of the really interesting things about wealth management is that outside of the UK most business is owned by families,’ says Ashley Crossley, chair of Baker & McKenzie’s Europe and Middle East wealth management group. ‘Private wealth is the driving force behind most of the commercial decisions that are made and also the ownership structures. Those clients are particularly suited to wealth management services. If you look in all our offices we do commercial contracts but also have wealth management partners. Most of these companies are owned by wealthy entrepreneurs that are investing in something else, and have family issues. It’s an integral part of being in a high-growth economies market.’
The influence that business has over private client work can be seen in every corner of wealth management, even family law. James Stewart, who chairs Manches’ international wealth group, sees his role as a family lawyer as an integral part of the overall wealth preservation process. After all, money can often be lost far quicker through divorce then it can through a bad business decision. This particularly applies to the increasing number of international HNWIs looking to live in the UK.
‘Nobody reputable wants to be dealing with overly aggressive tax planning.’
Carlos de Serpa Pimentel, Appleby
‘Marital agreements are quite often business-driven,’ says Stewart. ‘If you have a partnership or any sort of business and someone’s interest in that business is at risk through divorce, then it makes sense for everyone to have agreements in place to protect the corporate assets. Manches has historically acted for family offices, including ones in the Ukraine, Russia, and Sweden. Generally those families have an express requirement in a family constitution, that anyone in the family that is going to marry will enter into a family agreement.’
For most practices, this holistic view of wealth preservation is just as important, if not more so, than traditionally active areas such as tax planning, which are increasingly under the spotlight of government regulation.
‘Tax planning is still a driver but the emphasis is on sensible tax structuring,’ says Carlos de Serpa Pimentel, head of Appleby’s private client and trusts group. ‘Nobody reputable wants to be dealing with overly aggressive tax planning. Succession is huge; family governance is very important; forms of asset protection are also important.’
‘You don’t get entrepreneurs who come to us to find ways of avoiding lots of tax,’ adds Crossley. ‘The days of doing tax schemes are long gone. What we need to focus on is the international structuring.’
Singapore swing
For much of the wealth management industry, the biggest demand for international structuring is from Asia. The Asia-Pacific region as a whole is going through something of a perfect storm for private client lawyers. According to the 2012 World Wealth Report by Capgemini and RBC Wealth Management, Asia-Pacific now has more HNWIs than any other region. The number of Asia-Pacific HNWIs grew by 1.6% to 3.37 million in 2011, surpassing North America, which has 3.35 million, for the first time ever. This growth in HNWIs is coupled with a generational shift, creating an upsurge in demand for advice.
It’s no coincidence that Withers opened its Singapore office in May 2012, four years after opening in Hong Kong, and the fact that it recruited the Singapore-based private client partner Simon Michaels from Berwin Leighton Paisner (BLP) in December, illustrates how competitive the market is becoming. Aside from BLP, Taylor Wessing had one of the first private client practices on the ground. Having established an alliance with local firm RHT Law in 2011, in late 2012 it relocated private client partner Ryan Myint to work in Singapore. Lawrence Graham also secured a tie-up with Singapore firm PK Wong & Associates in February 2012, and in December it recruited private client partner Zac Lucas from Ogier.
‘It’s really playing well in Asia right now because it’s the first time wealth is transferring from one generation to the next,’ says Robertson. ‘For a lot of newer wealth there is a sense of Asia coming of age, that it can stand on its own feet, and that they want the advice on their own doorstep. Also, the language is going to be really important. The world has changed so much and people want advisers who look and sound like them, to be honest.’
And as firms like Withers expand further afield, this again will be driven by Asian demand. Responding to the needs of its Asian clients, Robertson says that Withers will have an office in California within the next five years – once it can find the right lawyers.
Homeward bound
Unsurprisingly, those firms investing in new offices insist that an on-the-ground presence is vital, not just for servicing clients and drumming up new business, but for distinguishing themselves from the competition.
‘The thing that differentiates us is that we have a very substantial firm in Singapore rather than a partner flying in and out,’ says Mark Buzzoni, head of Taylor Wessing’s private client, tax and incentives group. ‘Ryan [Myint], who has gone down there, sits with 30 partners in a full-service firm. RHT Law hasn’t done the sophisticated private client work that we can now offer but we can leverage off its connections. Ryan has also developed connections with the private banking and fiduciary market. He has been rushed off his feet generally.’
Buzzoni also sees the advantages back home, particularly when it comes to recruiting talent from rival firms, as Taylor Wessing did recently when it hired tax planning partner Amanda Nelson from Manches in October 2012.
‘At the associate level there are people who want to add an international flavour to what they do,’ Buzzoni adds. ‘We would certainly see as a hunting ground for associates and partners the good central London firms, that are either boutiques or not as international.’
Firms without international offices have mixed feelings over the latest raft of openings in jurisdictions like Singapore.
‘Being on the ground in Singapore does give you a competitive advantage over mere travellers,’ concedes Conder, although the likelihood of Macfarlanes ditching its single-site strategy for a Singapore office seems unlikely in the short term. ‘It would be wrong for me to say never. However, for the last few years we have been tackling the South-East Asian private wealth market much more systematically than we have done before by travelling a lot more frequently to the region.’
‘We’ve been instructed in some of the largest jurisdictional disputes involving Hong Kong and I can’t imagine we’d be instructed if we had a presence there,’ says Manches’ Stewart. ‘There is no point in suddenly deciding you want to internationalise your offering if you have a few lawyers who are good but largely domestic in focus.’
There is another line of argument that says that since these firms are based in London, there is no need to take the costly step of investing in new international offices. After all, most of the clients are coming to London anyway.
‘Where some smaller outfits are going a bit wrong is thinking that you need to set up an office abroad,’ says Crossley at Baker & McKenzie ‘What they don’t realise is that London is a very convenient location for foreign entrepreneurs. It’s very unlikely a Russian billionaire will come into your Moscow office, because he is worried about confidentiality and other things.’
London, on the other hand, is a desirable place to live in and a solid haven for investment, particularly real estate. Whichever route they choose, be it through international offices, or through a well-managed referral network, London wealth management practices can take some comfort from the fact that HNWIs will come to the capital for the foreseeable future. And for those firms that haven’t opened abroad, some well-placed marketing and a few extra air miles is a small price to pay when London, the largest asset in their portfolio, is just outside the front door. LB
anthony.notaras@legalease.co.uk