The majority (92%) of Gulf Cooperation Council (GCC)-based wealth management practitioners believe high net worth (HNW) clients in the region are poorly prepared and inadequately structured for the generational wealth transfer, according to a Jersey Finance report.
The ‘Wealth Structuring and the International Financial Centres: Perspectives from the GCC’ report reflects the views of more than 70 individuals working in the wealth management industry in the GCC.
It also found that respondents believe only 6% of family businesses will make it to the third generation if current structures are not made more effective and compliant.
According to Jersey Finance, which recently opened an office in Dubai, there is an estimated $1trn (£773bn, €888bn) of wealth set to transition between families and generations in the Middle East during the next decade.
Growing momentum
Richard Nunn, head of business development at Jersey Finance, said: “We are seeing a growing momentum among the older generation HNW individuals who are reviewing their wealth planning strategies while they are still firmly at the helm.
“As this is predominantly a family and very personal wealth market, wealth transition and succession planning are still two of the most important topics that the wealth management industry is focused on in this part of the world.
“As legal and financial infrastructures continue to evolve both globally and locally, there is a stronger need for first-class international finance centres (IFCs) and financial practitioners to provide a full suite of wealth management services to cater to the needs of GCC wealthy individuals.”
The study said that “clients in the Gulf need expert guidance in terms of both structures and products”, and “the services of IFCs will become increasingly important”.
There is also a “growing preference” from clients to professionalise the way succession planning is managed, despite the lack of preparedness.
The report added: “IFCs that can demonstrate their dedication to transparency, ethics and quality will survive and prosper in this changing environment.”
Client sentiment
Looking at clients in the region, the report found they are gradually refining their views on their structures in place.
Some 75% now stress test their existing wealth structures, while 42% see reputation as a critical factor when selecting an IFC.
The use of offshore jurisdictions is highly driven by the geopolitical climate and fears of instability (25%) and succession planning (25%), followed by privacy and confidentiality (17%), asset protection (17%), tax efficiency (8%), and diversification of jurisdictions and assets (8%).
Going forward
Around one third of respondents said HNW clients in the GCC are concerned about the cost of having multiple structures in multiple jurisdictions, with 75% of industry experts agreeing that clients are looking to increasingly concentrate their assets and structures in one centre.
The report said offshore corporate structures and private trust companies appear to be the preferred options for the core of GCC HNW wealth structuring, followed by trust structures, citizenship and residency planning, respectively.
Lastly, the research found that there is a gradual move towards Sharia-compliant structures, such as foundations and tax-transparent structures, and a shift away from jurisdictions that are coming under scrutiny due to privacy concerns and the fear of unwanted disclosure of their assets.
