Onshore wealth management will become more significant, and the number of offshore IFCs will consolidate as large countries sustain pressure against them, a Breakfast Briefing heard recently.

The world of onshore wealth management is likely to become even more important as large countries flex their muscles against offshore jurisdictions, producing consolidation among some IFCs in the battle for market share, a Breakfast Briefing meeting in London heard recently.

While the debate about what “offshore” or “onshore” mean is not settled, panellists at the event, organised by ClearView Financial Media, publisher of this website, agreed that old-style offshore centres acting as secretive locations for illicit funds were doomed. (The event at the Carlton Club in London’s St James’s district was held in association with Asiaciti Trust, the family-owned, independent fiduciary services group.)

The speakers at the event were Sean Coughlan, managing director of the Asiaciti Trust Singapore office; Seb Dovey, co-founder and managing partner of Scorpio Partnership; Andrew Goodman, partner, private client team, Taylor Wessing; Matthias Memminger, partner, PricewaterhouseCoopers, and Rupert Ticehurst, partner, private client department, Berwin Leighton Paisner.

Coughlan set out what he sees as one of the primary, and enduring, advantages of offshore financial hubs – the availability of products, pointing to the sheer range of options that people have in financial services and wealth structuring in offshore centres today.

However, a worry revolves around confidentiality of client data as governments push for more exchanges, he said. There are concerns about whether in some cases the data is exchanged to regimes that are corrupt or fail to provide suitable protections for confidential data.

Given the pressure currently being exerted by the larger western economies it is inevitable that some of the smaller players in the offshore list of jurisdictions will fall out of favour, he said. Another issue is simply of how larger, powerful jurisdictions can engage in “bullying” of smaller ones, Coughlan added.

One of the benefits in having a fund domiciled in a low- or no-tax jurisdiction is that this can to some extent mitigate periods of poor performance of funds, he noted.

Seb Dovey pointed out that the offshore sector, as a whole, continued to labour under the “bitter after-taste of the past”.

“The proposition of the offshore world was, in its time, as a practical approach to asset protection. But times have changed and the sector has lost its way a little bit,” he told delegates.

Dovey spoke of how the offshore/onshore debate must pay heed to two broad groups of client segments - high net worth/UHNW individuals in a fixed domicile who are already being courted by banks and other organisations, and the large group of global highly skilled and higher earning professionals travelling and working around the world. “These [the professionals] are clients that we [the industry] perhaps overlook in favour of the big obvious families,” he said.

“The future is not about being a safety deposit location. It is about being an active management location for wealth,” he continued.

“Some [offshore centres] will adapt; some were expensive, badly administered and not doing a very good job for clients. Both clients and advisors are acutely aware now that they must work with jurisdictions that are of a blue-chip status to ensure their clients’ structures are fit for the future,” Dovey said.

Dovey said that Switzerland has demonstrated a ruthless streak in a willingness to change in the past and would continue to do so. “The suggestion that Switzerland is doomed is myopic. The reality is that Switzerland is going through a transformation. It is possibly facing up to issues earlier than many other financial centres and it is doing something it is not accustomed to – which is having its decision-making viewed under a global spotlight,” he said. “That can be uncomfortable. However, the contribution of financial services remains a critical part of the overall economic strength of Switzerland.”

Dovey expects the likes of Switzerland, Singapore, the US, UK and Hong Kong to be the main wealth management hubs or “intershore powerhouses”, while there will be a second tier of financial centres formerly known as offshore centres. The latter group will find their business increasingly hard to sustain as the talent and offerings are largely handled by the large centres. Second-tier financial jurisdictions will have to focus on niche areas, he added.

Goodman, meanwhile, echoed the views of some other speakers in pointing out that smaller IFCs, regardless of precise definitions around offshore or onshore, are “easier to bully”.

He talked about the benefits to London/UK of the remittance basis treatment of non-doms. “London can be, for some very wealthy people, effectively a tax-free environment,” he said.

Although change is inevitable, it is hard to know what will be the shape of the IFC market in, say, 30 years’ time, he said.

Goodman was asked about the notion, that was put forward at recent policymaker gatherings such as the G20 meeting in the UK in the summer, of a public register of beneficial owner of firms/trusts.  “I think it is incredibly unlikely to happen,” he said.

“We are 100 years into registration of land in the UK and you still get properties coming up that aren’t registered,” he said.

The incentive for people to conceal wealth will remain as long as tax codes in onshore locations remain such a labrynth, he said. “Taxes in the UK and US have become horrendously complicated. It is a real problem for an onshore economy and one of the reasons why people try to evade tax,” Goodman said.

“The younger generation is less tied to privacy…by the time they are aged 25, it’s all out there,” he added.

PwC’s  Memminger said that for all the concerns about some parts of the international wealth management world, the market for ultra high net worth individuals around the world “is actively growing”.

The definition of “offshore” is down to where the client lives and where the business is booked, Memminger said, adding that there will always be competition between countries about tax and does not expect to see a day of total tax harmonisation around the world.

Ticehurst argued that the days of offshore centres banking away illicit funds are numbered. “Any offshore jurisdiction that focuses any of its financial sector on black money is going to be in trouble,” he said.

As for onshore, he said wealth planning in the UK, for example, was already in “the firing line”. “Even basic tax planning is something that people are becoming afraid of. The environment we operate in has changed dramatically over the last 18 months,” Ticehurst said.

 “Politically exposed persons find it very difficult to put money into offshore financial centres unless they can clearly demonstrate that it is generated legitimately,” he continued.

Asked about the idea of public registers for beneficial owners of trusts and other entities, he said: “I do think we must get used to the idea that revenue authorities will have access to details about taxpayers wealth, but people should not have to disclose their wealth to the public. It is [referring to the beneficial ownership issue] an incredibly sinister development.”

Ticehurst agreed with the idea that the number of offshore IFCs are likely to fall. One problem with the smaller IFCs is that they lack infrastructure, experienced lawyers and courts to work effectively, he added.