The convergence of the ‘Great Wealth Transfer’ and the repercussions of the COVID‑19 pandemic has brought the next‑generation client into focus for wealth advisors and the wider private client community.
Never has the need for specialist experience been more apparent. With more than 13,500 finance professionals managing an estimated GBP1.3 trillion of assets, Jersey is well placed and ready to support the complex needs of the next‑gen client. The jurisdiction has been evolving its international proposition for many years, informed by a strategic vision set out over a decade ago. As a result, most of the new business coming into Jersey originates from markets outside Europe.
The significance and importance of the island’s global network is reflected by Jersey Finance’s presence in key markets, with offices in Dubai, Hong Kong and New York; representation in London, Johannesburg and Shanghai; and a virtual office in Mumbai. Our in‑region representatives outside Europe are witnessing emerging trends first hand. I met with each of them to discuss the trends in investment behaviours adopted by next‑gen clients in their respective markets.
ESG and technology
In the Middle East, says Faizal Bhana, Director, Middle East, Africa and India, many next‑gen clients are moving away from traditional real‑estate sector investments and ‘focusing on investing directly and funding start‑ups and series A and B investment cycles for both regional and global ventures’. It’s also clear that the pandemic has accelerated thinking and best practice in the sustainable finance and environmental, social and governance (ESG) space. ‘Driven in part by green initiatives from governments and a growing awareness of the power held by next‑gens, ESG and sustainable investing are the most significant trends in the Asia region,’ says Maria McDermott, Business Development, Asia.
It’s a similar picture in the Gulf Cooperation Council (GCC). ‘Advisors have seen a shift of assets towards impact investing, with next‑gens being more interested in the value proposition behind impact investing strategies,’ says An Kelles, Director, GCC.
In Schroders’ Global Investment Survey 2020, 45 per cent of those surveyed said their financial advisor only provides them with information on sustainable investing when prompted – evidence that the investment industry could be doing more to satisfy investors’ appetite for sustainable investments.
Financial services firms globally have learnt how quickly technological change can happen when barriers are swept aside by pure necessity – and clients have adopted or increased digital engagement with speed across age groups. But do next‑gens want to revert to pre‑pandemic relationships with their advisors?
‘In South Africa, we’re seeing an increasing number of intermediary practices using robo‑advisors in conjunction with traditional human advice,’ says Dr Rufaro Mucheka, who suggests a blend of both virtual and human advice to set goals, assess individual tolerance and develop personalised plans.
In India, Bhana says digital platforms and virtual solutions have been a ‘lifeline’ for investors and intermediaries throughout the pandemic. ‘Advisors have relied on technology to carry out real‑time, cross‑border work with multiple parties in different time zones.’
From a US perspective, says Philip Pirecki, Business Development, the Americas, ‘the challenge now is to deliver on value‑added and advisory services digitally. That said, both clients and intermediaries are looking to get back to in‑person meetings for discussing sensitive issues and relationship‑building, respectively’.
This change in client demands is an opportunity for international finance centres (IFCs) like Jersey to consider how they can maintain their competitive edge. Jersey is in a good position, with world‑class connectivity standards in place to support digital innovation. Out of 200 countries, Jersey ranks first in Europe and second in the world for broadband speeds, above Japan, the UK and the US.
The Great Wealth Transfer will see the next generation of wealth owners inheriting an estimated USD15 trillion by 2030, and advisors therefore have a vital role to help mitigate and manage conflicts between generations.
In Asia, family businesses are central to family wealth, yet most families are unprepared for the Great Wealth Transfer, according to Jersey Finance research carried out with Hubbis. Conflict is almost certain to arise when the ambitions and priorities of the next generation clash with the investment objectives of the older generations. ‘Advisors will be key in managing conflicts,’ says McDermott. ‘Next‑gens are often western‑educated and more aligned with western values, which will drive their investment objectives, but may also conflict with more traditional Asian values.’
In Africa, advisors are witnessing more positive developments among families. Bhana says there is a willingness among families to start conversations around succession and governance, not only at a family level, but also within family businesses. He believes ‘the fatal nature of the COVID‑19 pandemic has brought these discussions to the fore’.
Pirecki adds: ‘US advisors often see themselves as family mediators. A core part of their work is conflict resolution, and advisors often map out sets of values for the clients to reference long before they encounter conflict. These “game out” scenarios act as a useful touchstone when the inevitable conflict arises.’
As governments look for new revenue sources, political risk and the possible transformation of taxation regimes can bring uncertainty.
‘Changes in taxation regimes create an opportunity for advisors to help their clients mitigate the consequences,’ says Kelles. ‘For instance, the new VAT law introduced in Oman prompted businesses to turn to their advisors to assess their legal structures and supply chains to identify and highlight Omani VAT risk areas and review their contracts to ensure they contain the appropriate tax clauses.’
From an African perspective, this is nothing new. For some time, governments there have been driving and creating regulatory platforms that focus on treating customers fairly. Mucheka comments that ‘progressive regulations have become central to how intermediaries are expected to treat and charge clients’.
In the US, transformation of taxation is a significant consideration for private clients, Pirecki explains. ‘With the current administration’s interest in treating capital gains over certain thresholds as income, clients are having to make difficult choices about selling certain assets on an advanced timetable to avoid getting caught up in the proposed rule changes. Furthermore, there is a growing interest in protecting underlying assets from a range of potential non-commercial risks.’
In the Middle East, Bhana sees both the positive and negative effects of government interventions. ‘Positive developments have been the tech hubs, sandboxes and other incentivised initiatives allowing tech to develop and increase access to products and services for the benefit of the general public.’ On the negative side, he suggests digital taxes could adversely affect small and medium‑sized businesses.
In a constantly evolving environment, clients seek stability. Jersey scores higher than most IFCs when benchmarked against global standards. It achieved one of the highest scores globally when evaluated by MONEYVAL; is one of just 14 countries worldwide to be deemed ‘fully compliant’ by the OECD in terms of tax compliance after two peer reviews; and is a signatory to the US Foreign Account Tax Compliance Act and the OECD’s Common Reporting Standard. Added to this, the island’s legal framework provides vital support to its finance industry, making sure that it remains flexible and attractive for domestic and international markets.
Next‑gens and Jersey
The fact that Jersey has found favour among investors in recent years is no accident. As they look to the future, there are clear indications that investors, including next‑gens, will continue to have global ambitions and put their capital to work in sophisticated ways. To do so, they will need a platform that is stable, straightforward and well regulated, and that offers easy access to expertise.
On the digital side, Jersey’s finance industry recognises the importance of innovation as a differentiator and an enabler. With financial services firms looking increasingly to technology‑based solutions to provide better services for investors, it is Jersey’s ambition to be the easiest IFC to do business with remotely in a digital world.
By drawing on the expertise of our people to build and maintain strong relationships with global markets and develop innovative solutions, we are confident Jersey will play an increasingly important role on the international stage, setting it apart from other IFCs and placing it in a strong position to meet next‑gens’ demands.