Securing the longevity of family wealth

Allan Wood
June 10, 2020

 

The economic impact of the most catastrophic pandemic of this century is yet to be realised, creating significant global uncertainty.

As a dynamic and resilient international finance centre, Jersey has a role to play in supporting global financial flows through these unprecedented circumstances, helping to channel capital to where it is needed most.

For almost 60 years, Jersey’s modern and sophisticated legal framework has enabled it to lead the way in delivering private client services, which have proven vital in safeguarding assets and enabling families to pursue their global objectives. Never before has the need for this specialist experience been so apparent.

Families are diversifying geographically and strategically

Looking ahead, the next generation of wealth owners are already focusing on how their investment decisions can make a positive impact. To secure the longevity of their wealth, families are increasingly diversifying geographically and strategically.

Research also suggests that the next generation seek more innovative and sustainable investment strategies. UBS’s 2019 Global Family Office Report predicts portfolio shares in sustainable investing will rise to 32 per cent within the next five years, up from 19 per cent.

To sufficiently support the needs of the future family office, it is vital to have a clear and in-depth understanding of the issues faced by the next generation. Jersey’s experts, with their global experience spanning not only the UK and Europe, but also the Gulf region, Asia, Africa and the US, are absolutely focused on meeting the next generation’s needs head-on to ensure a smooth generational wealth transfer, and to support their ambitions in making a positive impact, now and in the future.

Knowing ‘how’ wealth is managed can help avoid rifts between generations

Having strong governance structures in place is vital. Jersey Finance’s independent research on the evolution of family offices in Asia backs this up.

In the Gulf region, for instance, recent research by PwC and Family Business Council Gulf shows that less than one-third of large family businesses have effective policies and practices in place to govern the family business. Specifically, they lack policies to address challenging family dynamics and common conflicts, a significant finding given that family businesses make up 90 per cent of the private sector in the region.

Encouragingly, meanwhile, there has been a trend for the next generation to work more closely with external advisors to professionalise family wealth structures.

In Asia, for example, historically families have relied on basic succession tools such as simple wills or holding companies. Now it is increasingly common for the founder generation in Asian families to bring in the next generation and integrate them into the business, working with external professional advisors.

In addition, families are increasingly exploring digital opportunities in terms of both investment and professionalising their own infrastructure. The next generation place a huge value on the role of technology in facilitating business, complying with regulations and building global relationships.

For families wanting to explore new technology, Jersey fits the bill. More than 400 digital and creative businesses are based in Jersey, which is also home to 3,000 digital and technology professionals.

Understanding the diverse needs of UHNW families

While there are similarities in the behaviours and needs of ultra-high-net-worth (UHNW) families, there are also differences unique to each market.

For example, in the US, Jersey’s key role is supporting families with a US connection by offering bespoke solutions. US families find Jersey an attractive jurisdiction because of the political stability and legal certainty it offers.

In Asia, meanwhile, the traditional command-and-control style of business is being challenged by the next generation, who are looking for innovative ways to change leadership models. Jersey’s sophistication as a wealth management centre means it has unparalleled experience in transforming succession planning models, and this resonates with Asian families.

In Africa, wealth creation is on the rise. In the next five years, it is predicted there will be 16 per cent more millionaires in South Africa, 22 per cent more in Kenya and 11 per cent more in Nigeria.

Some of this wealth may not stay in Africa, with children sent to be educated in the West often settling there. Family structures need to be tailored as a result, with Jersey’s private trust structures frequently being used to protect and manage international assets.

Meanwhile, the Gulf region has become home to a pool of talented women actively shaping their countries’ financial future.

In addition, there is a strong push by governments to become front-runners in adopting the internet of things, artificial intelligence and blockchain. Jersey, with its wealth management expertise and flexible structuring options, is supporting families in the region as they explore new ways to reflect gender dynamics and technologies in their wealth planning.

There is a growing desire to be driven by principles and values – and COVID-19 is accelerating this trend

In the US – home to more UHNWIs than Asia and Europe combined – impact investing is growing rapidly, with more families looking to align their investments with their values. Measuring positive impact through, for instance, sustainable finance will become increasingly important to the next generation, and those jurisdictions that can demonstrate specialist expertise in impact investing will be well placed to support this trend.

Equally, a 2019 Jersey Finance study conducted with Jersey-based family offices found they all shared a common aspiration towards philanthropy. This pursuit of ‘doing good’ matches up with the findings of the Knight Frank Wealth Report 2019, with almost 70 per cent of respondents saying their clients’ philanthropic activities were increasing.

A flexible legal framework that supports charitable activity and structuring has helped position Jersey as a centre of excellence for global philanthropic work.

Jersey-based Simon Morgan, Worldwide Chair of STEP, is optimistic about Jersey’s work to support philanthropic activity for wealthy families: ‘We have had the real pleasure of working with some incredibly inspiring people. It’s fantastic to know that the wealth of our clients is doing such great work across the world.’

This includes the work of Dr Hannes Schmid and his Smiling Gecko aid project in Cambodia; and OnSide Youth Zones, an amazing proposition for children in the UK, who can use the Youth Zones after school 365 days a year.

First-rate infrastructure and an international client base

Looking to the future, Kevin Lemasney of Locate Jersey, the team within government responsible for guiding HNWIs and HNW families through the process of locating to Jersey, expects the current migration of family offices to stable jurisdictions to continue:

‘I see an excellent future for family offices in Jersey. Our infrastructure is first rate and is already attracting clients based in Asia, Africa and the Middle East. Everything needed to run a successful family office can be found here.’

Against an unprecedented backdrop, providing families with the platform they need to respond positively now and plan for the future is absolutely vital. Jersey’s core attributes of stability, flexibility, service quality and international connectivity make it a clear choice for the next generation.

Visit locatejersey.com to find out more about how a move to Jersey could benefit you, your family and your business.

About the Author

Allan Wood

Global Head of Business Development at Jersey Finance

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