Certain "onshore" financial centres are attracting more wealth management action, driven by structural shifts in the booking centres and approaches towards where to park financial assets, according to the author of this article.

There are several “shores” in financial centres: Offshore, onshore and nearshore. How much these terms illuminate rather than obscure is debatable. In part, there is some pushback against “offshore” because of past associations with hiding from the tax authorities, although changes mean that is usually not the case anymore. Some offshore places can be cleaner than onshore ones. Sometimes the terms are trying to nail down whether those who use these centres actually live there or don’t do so. But that point does not necessarily mean that an “onshore” location will necessarily be more transparent in terms of financial bad actors. Offshore remains a big area, of course. According to Boston Consulting Group’s report earlier this year, Switzerland remains top of this category, holding $2.4 trillion of such money in 2019, ahead of Hong Kong at $1.9 trillion; Singapore at $1.1 trillion; the US at $800 billion (Delaware structures, etc); the Channel Islands ($500 billion); the United Arab Emirates ($500 billion); Luxembourg and the UK both at $300 billion.

Even so, pressures by major governments (albeit inconsistently) to cramp offshore centres’ style is presumably good news for onshore locations such as Luxembourg, Ireland and the UK (although after Brexit, some might debate how “onshore” the country is going to be). 

To address the prospects of onshore centres is Intertrust Group, a provider of specialised corporate, fund, capital market and private wealth administration services. This comment comes from Francis Parisis, Intertrust’s global head of private wealth, who examines the reasons behind the trend and explores what it means for the future of the industry. The editors of this news service are pleased to share these insights and invite readers to join the debate. The usual disclaimers apply to the views of outside contributors. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The debate about whether to structure onshore or offshore is one that has been going on for some time, but it has taken on extra resonance recently as we’ve seen an increase in the popularity of onshore jurisdictions. Before we explore the reasons for this, and what it means, let’s quickly examine what an onshore jurisdiction is.

Quite simply, onshore refers to a jurisdiction with a financial services specialism that is more regulated than any other jurisdiction. Examples of this in the EU include Luxembourg, the Netherlands or Ireland; in the US we’re talking about South Dakota and Delaware; and in Asia Hong Kong and Singapore could both be considered onshore.

They are generally international in scope, have bilateral agreements with many other jurisdictions and have access to tax treaties. Luxembourg, for example, has the highest number of bilateral agreements in the world. This matters because it has become more and more important for clients to be efficient from a tax and investment perspective and, of course, many ultra-high net worth individuals and families are living global lives with multiple geographic touchpoints.

Growth agenda
Efficiency and globalisation are just two of the drivers behind the increased popularity of onshore jurisdictions. Since the financial crash of 2008, and especially over the past five years, there has been a growing push towards global transparency (FATCA, DAC6 and CRS are all obvious examples of this) and there is a lot more scrutiny over investment vehicles.

Onshore jurisdictions satisfy these requirements and are gaining more recognition as a result from national and international authorities. Both France and Poland, to take just two examples, have recently become more receptive to their citizens structuring their wealth in jurisdictions which they regard as friendly and secure.

The private wealth industry has come a long way from its tax-centric origination; nowadays it is much more about the expertise of the wealth manager and the transparency of the jurisdiction in which that professional organisation is based.

Onshore advantages
The world is becoming smarter and more global, and private wealth is absolutely a part of that evolution. This is reflected in the common law vehicles and setups that have gained popularity in recent times, to the point that they’re even used in civil law jurisdictions.

The world has adopted the limited partnership (LP) model in most key countries and regions and this trend is working in favour of the onshore locations. The US has followed the LP model for some time, Luxembourg has used it for a couple of years, and Ireland is introducing it very soon. This means that structures are driven much more from a holding perspective, which is an advantage of onshore.

Common law and LP adoption both hint at the variety of holdings and entities that are available in onshore locations, and this begets flexibility - another key advantage of onshore.

Having a multifaceted toolbox at your disposal is absolutely essential to attract the wide variety of clientele that we as providers are faced with today. From a UHNW person to a bank, we need to have a suite of solutions to meet their needs, and onshore jurisdictions offer vehicles - from those that are unregulated to those that are heavily regulated - that will cater to the needs of wealth investors and investment managers. Whatever the situation, there will be a vehicle that provides the best solution.

Finally, stability is a huge pull factor for onshore jurisdictions, especially in an increasingly unstable world. Let’s look at Luxembourg again; it is an AAA-rated country with 140 different banks that can cater to any kind of UHNW individual from anywhere in the world. That is massively appealing to wealth managers and clients and, when coupled with a strong regulator and a stable political backdrop, makes for an attractive prospect.

Onshore is the new norm – the future is global
On the subject of regulation, it’s worth addressing the fact that increased levels of policing lead to increased costs, which is a challenge for onshore jurisdictions just as it was for their offshore counterparts before them.

For all the onshore is undoubtedly on the rise, offshore still certainly has its place. Its survival, however, depends on - you guessed it - regulation and, specifically, the framework that these jurisdictions put in place to manage it. The expertise in offshore locations is enormous, and the experience of those professionals in not only client service, but also managing those increased regulatory expectations, will ensure that work continues to be driven to these centres. 

The question that the rise in onshore poses is whether offshore is losing its place as the go-to solution for wealth holding and structuring.

The future is onshore – technology speaking
Many professionals are anticipating an acceleration of the trend towards onshore and are therefore pivoting to more integrated business models. If a private equity firm wants to invest in the US from their base in the Netherlands, they need a provider who can offer expertise and solutions in both places. 

As such, scale is obviously going to be important in the future, but so is the role of technology as an enabler for cross-border working. The way we perform traditional back-office and middle-office functions is changing drastically thanks to technology, and clients’ expectations for a seamless, global service are changing along with this.

Clients are living and working globally and they expect their wealth to be able to do the same thing. They want a provider who can invest wherever is best for them, and increasingly that is onshore and is driven by the authorities.