Changing clients’ perception of wealth management
From Tax & Technical Nov 8 2011 BY: Christopher Shaw
, Group Head of Wealth Planning
, SG Hambros
A recent survey conducted by MDRC, a leading wealth management industry consultancy, concluded that high net worth individuals were more willing to pay for tax or legal advice than they were for financial advice.
According to the organisation’s ‘UK High Net Worth 2011 Report’, more than half of all respondents believed they should pay their accountant more than they paid their financial adviser, with even more believing they should pay their lawyer more.
Why? Apparently it has to do with historical opaqueness with respect to fees and commissions, general perceptions of the financial industry, and the advent of internet research.
What the report arguably does not take into account is the increasing interaction between accountants, lawyers and wealth managers. At the heart of the matter is a shifting definition of wealth management – away from a financial planning/investment oriented service, towards a more “all ‘round” wealth management-focussed package, which covers not just financial matters but also personal affairs, tax and assets, such as real estate and businesses, which are “not investable”.
Wealth management, in this sense, incorporates elements of a client’s financial and personal affairs that are significantly more complex than would have been the case previously.
Issues such as wealth protection, cross border considerations, estate planning and tax administration now need to be taken into account, whereas before these areas used to be the exclusive domain of specialist (and therefore expensive) lawyers or accountants.
This trend has developed as global markets and opportunities have opened up, and created new ranks of individuals who tend to have more wealth than the average person – so-called HNWs – whose lives are also increasingly lived in more than one country.
Other factors, such as an increasing incidence of divorce and litigation, and fluctuating equity markets, have resulted in asset protection becoming a higher priority for many individuals. This wealth preservation is particularly pertinent as these HNWs increasingly find themselves the popular scapegoats for all that is wrong with the state of the nation and taxed accordingly.
As a consequence, the wealth management landscape has drastically changed, with legal and tax issues becoming more intertwined with financial matters than ever before.
Retaining clients
Wealth managers cannot be expected to be “jacks of all trades”, of course. But they do need to have a broader understanding of, and experience in dealing with, more complex issues.
The demands on wealth managers are significantly greater than they were even 15 years ago, partly due to globalisation. Individuals are now able to invest in far flung markets which give promise of high returns; they can set up business in foreign countries and physically relocate more easily than ever.
Wealth managers who wish to retain these individuals as clients need to become better versed in the cross-border characteristics of their clients. They should be able to identify potential pitfalls and have a good understanding of not just the one tax system but those necessary to serve their clients, and how those tax systems interact.
Not having the correct knowledge could put a client in very hot water.
Take, for example, a UK individual who temporarily relocated to the US to work who had not been advised that he would need to disclose details of his non-US investments for US tax purposes. If the individual failed to disclose details of his offshore bonds, ISAs and the like, he would be committing tax evasion in the eyes of the IRS, albeit unknowingly, since the tax breaks these products offer to UK residents do not extend to US residents.
And for the industry, the challenge will lie in how it is to remodel itself along these lines – while working more closely with lawyers and accountants, rather than in isolation from them.