A panel of experts assembled by Hubbis at the India Wealth Management Forum discussed the central concerns of India's high-net-worth families, what products and services they need, what investment strategies they tend to pursue, if they need to revise older structures in offshore jurisdictions as global regulations and compliance inexorably tighten their grips, and whether they are receptive to discussions around estate planning and succession.
The growth of India’s private wealth is being driven by entrepreneurs. The country’s blossoming wealth management industry is working out how to ensure that top-flight concepts and solutions can be discussed and attained with these individuals as well as the other wealthy families.
Is the wealth management industry putting its message across that it can help India’s swelling ranks of high-net-worth individuals (HNWIs) and ultra-HNWIs manage their wealth and help them transfer this effectively to younger generations through comprehensive estate planning? What are the key trends in their investment preferences? Do they go offshore for structures, or to buy foreign assets? Do they even follow the path so well-trodden by numerous non-resident Indians (NRIs) and migrate to other jurisdictions? Five leading wealth management experts from India and from abroad exchanged their views on these key matters in the second panel of the Hubbis India Wealth Management Forum.
“I see a very challenging environment for wealthy families here, which is awkward for them but positive for the advisory industry,” commented one international panellist. “The pain and pressure points are very much on the regulatory side, as the intense local and global drive for transparency is top of the agenda and confidentiality is effectively dead.”
He referred for example to the Common Reporting Standard (CRS) and to BEPS, which stands for Base erosion and profit shifting and is part of the OECD’s effort to hammer tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
“All this means worldwide we are seeing a period of rationalisation, with more people reviewing what they have, where they have assets, the types of jurisdictions that they are currently doing business with, the types of jurisdictions in which they want to be doing business in the future and probably for the first time really having a close look at the types of jurisdictions and entities that will still be here in around 10 to 20 years’ time.”
This is also changing the mindsets of HNW families he added. “We are seeing a real change in the types of investments and the methodology. There is much more bravery for families now, seeking out different asset classes and the world is becoming incredibly small in that respect. For example, what once worked, buying some real estate in Europe perhaps through a historic structure or an old jurisdiction might no longer work, so the families are looking more diversely across numerous asset classes.”
Another expert commented that this is an ideal time for the expansion of the wealth management industry. “There has never before been such a wide range, breadth and depth of solutions and products available across asset classes. Families are striving to pick the right strategy for investing for the future and also for long-term planning. There is more emphasis on performance within the family offices, with more decisions delegated to professionals to manage the wealth. We are now beginning to see discussions on legacy planning with a 10 to 15-year perspective, whereas traditionally the outlook was a few years at most.”
He added that the regulatory and tax complexities today demand better solutions and appropriate use of jurisdictions. “No one solution fits all. Indian families are at different stages of their wealth accumulation and therefore have different priorities and time horizons. We have seen many owners sell in the past decade and now want their wealth managed, so this industry is growing and there are multiple players now to choose from. It is an exciting time.”
In India, remarked one expert, about 70% of listed companies are family owned, which means a massive amount of work in the future as the owners and the businesses transition. "But conversations along these lines are not easy with individuals and families," he noted. "Discussions about my time in the sun are always awkward and there is always great complexity in the way each family is structured and operates, across the generations. The good news is that egos and preferences can be better managed with structured approaches and there is a growing understanding and appreciation of the separation of ownership, management and value. For the adviser, we must be careful to handle all the elements professionally and sensitively to ensure all parts are well handled."
Another expert commented that many of those in the room might not have a clear structure for their future. “When it comes to a will, to demise, succession, many families do not want to discuss these worst-case scenarios." The suggestion, therefore, is to begin with discussions around taxes and inheritance tax as a first step and then evolve the dialogue to include the subject of succession and other sensitive areas.
“Clients, in all honesty,” said one panellist, “used to think about ways of hiding assets, accounts and so forth, but today that is changing to asset protection, from creditors, from spouses and also in relation to succession. Nevertheless, at the same time, they are fully aware that their information will become known, either by the authorities or simply by way of a nuisance leak. In the aftermath of the Paradise and Panama scandals, Indian HNWIs have been tidying up their accounts in those sorts of jurisdictions and also considering moving residency to mitigate tax or taxes on their estates. And finally, I would add that HNWIs realise they need to pay up for specialist expertise.”
The discussion turned to the importance of international financial centres for offshore investment and structuring. “If you look ahead 10 to 20 years there will be a lower number of IFCs, for sure,” stated one expert. “The impact of global regulation will force it to happen. And within each surviving jurisdiction, there will more investment and more consolidation going on.”
He also highlighted how clients across the middle east and India are revising structures they might have set up in the 1980s or 1990s or the 2000s, driven by demands from administrators in these jurisdictions for more information, possibly including the source of wealth, even going back several decades. More work creates more fees and that means jurisdictions that were lower cost are now more expensive and less competitive with those markets that have long exercised tighter administration and standards.
Impact investing and philanthropy have both been rising in prominence in India. “This has all been very personal to the families and behind closed doors,” said one panellist, “but now they realise that there are regulations and that this needs to be handled in a more structured manner.”
Different generations amongst the wealthy families of India are increasingly building family constitutions, although a reality is that the older generations still believe that their values and their ways are the only way forward. “However, it is important to engage the younger generations, who are the future of the families,” explained one expert. “Communication of family values and objectives and open communication with the advisers are essential. It is all about balance, the older generation might be wise, but the younger generations might be very smart, so as advisers and service providers we need to ensure that all their different views are heard and incorporated. That also helps the bankers or advisers maintain their business relationships across these generations.”
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