Wealth Planning: simple solutions for difficult times

COVID-19 has prompted many families around the world to revisit their approach to the sensitive topic of legacy planning. In the past year-and-a-half, private clients have not only diversified their investment portfolios in the face of pandemic-driven uncertainty, they are also increasingly focusing on succession planning.

For many, the pandemic has increased awareness of our mortality and the fragility of the lives we have built for our families and ourselves. Lock-downs and forced isolation have further compelled many of us to address this "existential shock".

The pandemic has become a catalyst for families to review their future planning. The reason for this is universal - they want to ensure their legacy is preserved for future generations. What was once taboo has now become a vital topic of conversation for private banking clients.

Planning asserts control over an otherwise distressing prospect. In addition, as financial regulations and associated taxation matters become more complex, families increasingly need professional advice when planning the transfer of wealth between generations.

Times are changing

Asian customs most frequently dictate that the family patriarch - often the creator of the family wealth - decides which of his children will take control of the family's business and associated wealth.

This is traditionally the oldest son; but as social norms evolve, expectations are changing. As clients become more sophisticated and knowledgeable, their expectations regarding advice and solutions are also increasing. Meeting these requirements increasingly includes advising on sophisticated trust and family office structures.

To provide guidance and advice, a fully open-architecture platform provides access to global resources including selected partners for specialist services, such as trust creation and life insurance. These external and independent trustee services are geared to serve the client’s best interests.

The service providers and servicers should be vetted to ensure a standard of competence, capability and network, in the interests of providing comprehensive solutions.  An external trust provider is also preferable from a conflict of interest perspective, making the open-architecture platform even more attractive to clients.

Sourcing trust services externally creates significant client benefits. Because many high-net-worth individuals have relationships with more than one bank, they may end up with numerous trust arrangements, all set up by different institutions. An independent trust provider enables them to consolidate all their assets into a single trust, making it more efficient.

Family Office advantages

Linked to the trust, a family office structure establishes a legal governance mechanism for a family's wealth, including investments, insurance, tax advice, philanthropy and even concierge services.

A family office does not sell products itself, so it is free to source solutions that best suit the family's needs. Its focus is on the needs of the entire family, ensuring continuity and a holistic view of the family's assets, and this includes succession planning.

Singapore has a very strong family office eco-system and the number of family offices has grown strongly in recent years, cementing Singapore as one of the locations of choice for family offices not only in Asia, but also globally.

The Monetary Authority of Singapore (MAS) is also considering adjusting legislation governing variable capital companies (VCCs), which currently enables funds to relocate offshore structures to Singapore as onshore funds, a vehicle type also used by family offices.

Currently, VCCs require a fund management licence while family offices normally do not possess such licences. MAS is considering whether to widen the scope of permissible fund managers to possibly allow single family offices to also manage VCCs.

If this change is implemented, it would provide an additional avenue for clients with overseas assets to consolidate them in Singapore. Currently, there are approximately 200 family offices managing as much as US$20 billion registered in Singapore, and this number is rising.

A dynamic process

It is clear that an open-architecture approach is crucial to providing effective succession planning to clients. A good succession plan is a dynamic process, with reviews and close monitoring as important as the initial set-up.

The pandemic has catalysed many families to hey may end up with numerous grapple with succession planning. Combined with perennial factors such as changing regulatory landscapes globally and evolving family circumstances, a sound succession plan should always be a key part of a family's long-term financial strategy.