The rapid increase in the assets of high net worth individuals around the world is unlikely to be matched by an equally fast rise in wealth invested offshore as governments try to clamp down on so-called tax havens, according to a new report. The assets of HNW individuals are set to rise to $75 trillion by 2012 from $50 trillion in 2007, says Oliver Wyman, the management consultancy. Oliver Wyman’s report, “The Future of Private Banking - A Wealth of Opportunity?” says the bull market in equities and strong wealth creation have driven a 12 per cent year-on-year growth in HNW individual assets. However, due to a tougher market environment because of the global credit crunch, annual growth in assets is expected to decelerate to a still-robust 9 per cent rate over the next five years. But the rise in assets, which has driven rapid growth in the wealth management industry since the turn of the century, will increasingly bypass traditional offshore financial centres, Oliver Wyman says. It cites attempts by major industrialised nations to prevent citizens putting money in offshore locations and tightening rules on structures such as trusts. It says that an estimated 16 per cent of HNW Individuals’ wealth was held offshore in 2007 but the share of tax-driven offshore banking is set to decline in coming years, it says. “A sustained trend towards 'onshoring' of financial assets and tax-transparent offshore banking is likely to lead to a change in strategy both for private banks and for offshore centres themselves, which may have to rethink their raison d’être,” the report says. The role of international financial centres such as Liechtenstein and Monaco has come under the spotlight in recent months as governments, such as Germany’s, have complained these locations are used by citizens to avoid paying tax. In the UK, the government’s recent clampdown on non-domiciled individuals has prompted fears of a mass exodus of wealthy individuals and businesses to more benign tax jurisdictions such as Switzerland. The Paris-based OECD has estimated that there are about 40 offshore financial centres around the world. A slowdown in asset growth means it is critical that private banks have the strategy to cope with a more demanding client base. “Decisions relating to geographic footprint, the choice of distribution model and the choice of corporate structure will become much more important,” said Oliver Wyman's report. In its analysis of distribution models, Oliver Wyman said client relationships in the European onshore private banking model, on average, create three to four times more value for shareholders of these businesses than those in the traditional US broker/dealer model. Stefan Jaecklin, head of the wealth and asset management practice at Oliver Wyman, said: “Wealth managers must develop a thorough understanding of their main value levers beyond just assets under management. Important areas for management attention include corporate structure, risk management systems, branding and positioning.”