Henley & Partners on Navigating Covid-19 with the Help of a Wealth Planning Toolkit
Life is unpredictable. The global coronavirus outbreak has reminded us that planning for and protecting our families’ futures is important and takes priority, says global citizenship and residence advisory firm Henley & Partners.The firm hosted a successful networking event and fireplace chat at the Widder Hotel in Zurich. At the event, moderator and former CNNMoney Switzerland TV Anchor Martina Fuchs interviewed Jacopo Zamboni from Henley & Partners, as well as Christina Cheng and Jyotsna Pandey from IPG Howden, about how ultra-high-net-worth (UHNW) Asian families are planning to lay the foundations for future generations’ growth and protect their families from unforeseeable events.
Martina: Henley & Partners is a global leader in residence and citizenship planning with some 30 offices worldwide. Each year, hundreds of wealthy individuals and their advisors rely on your expertise. Which migration trends are you seeing among UHNW Asian families?
Jacopo: We see specific trends if we divide the UHNW individuals by region. If you allow me to take a bird’s eye view, at a global level, the trend is clear. Having dual residence and/or citizenship is seen as a hedge against instability — be it political, financial, or a mixture of exogenous risks, as we can see with the Covid-19 outbreak.
The current situation has also raised awareness among those who were not certain whether the topic was relevant to them or not. Having dual residence or citizenship will not necessarily help you with visa-free travel if the whole world is on lockdown, but in most cases, it will at least grant you the right to decide to be with your family in a potentially safer place.
Most recently, this has allowed some of our past clients to help their countries of origin by organising shipments of medical equipment from more stable countries. Another example is that clients would send their families to their secondary acquired residence, while they would remain at their residence of birth and help their companies and employees during these difficult times, knowing that at least their families were safe.
Now going back to your question, Asian UHNW families are increasingly enquiring about residence in Australia, New Zealand, Singapore, and Thailand. Those looking further ahead also combine residence in these countries with dual citizenship in countries such as Cyprus or Malta.
Martina: With the UHNW Asian family diversifying their citizenships globally, do you see this trend impacting their estate planning decision and insurance portfolio allocation?
Christina: Once you diversify your citizenship or residence, you will have a more complex tax planning scenario, especially if you are dealing with high tax jurisdictions like Japan, the UK, or the USA. This is a question about liquidity and resolving the tax liabilities through life insurance solutions. This trend is expected to continue to grow. In reality, once their children have migrated, whether for school or work, our clients cannot control who they marry or where they will choose to live. Hence, this planning need is often a key discussion point for our clients.
Martina: According to the 2019 Knight Frank Wealth Report, the global UHNW individual population is forecast to rise by 22% over the next five years, meaning an extra 43,000 people will be worth more than USD 30 million by 2023. Will the Asia-Pacific region (especially China, India, and Indonesia) continue to drive this growth? Are there any other emerging markets we should keep an eye on?
Jyotsna: It won’t be a smooth curve but underlying demographic and economic growth trends for Asia-Pacific remain favorable over the long term, and wealth creation may benefit further from greater technology leverage. I believe countries like Vietnam should also be kept on the radar, especially since accelerating readjustments in trade and supply chains will be favorable for that market.
Martina: Your colleague Dr. Christian H. Kaelin, an expert in investor immigration and citizenship-by-investment and Group Chairman at Henley & Partners, showed in a recent article that there is a significant demand for an additional passport. Several smaller nations, such as Cyprus, Malta, Mauritius, and Monaco for example, see a business opportunity here. How will such residence- and citizenship-by-investment programs develop from here? (https://globecit.com/global-mobility-trends-wealth-migration/)
Jacopo: There is little I can add to this well-written article by our founder and chairman. What I could add is that it is not just a business opportunity, but rather it is sovereign countries trying to attract talents and capital, which will hopefully create positive societal value in the long term.
Remember that too much of everything usually has drastic consequences. This is also true if a country attracts too much in foreign direct investment. This is usually ‘money’ coming into the country at first, which then needs to be remunerated later, draining the local economy of resources. With investment migration, in many cases, investments or contributions are ‘sticky’ in the sense that they tend to stay for the long term. Also, if the investment is made by a person who is now a resident of your own country, this will usually not be classified as a foreign liability by the recipient state.
Martina: As globalisation continues, residence and citizenship have become topics of significant interest among mobile entrepreneurs and investors. Who are your main clients?
Jacopo: Our clients are quite diverse as we assist and help clients in over 30 countries, hence attracting individuals with a multitude of backgrounds. If I had to generalise, most of our clients are successful entrepreneurs.
Martina: Uncertainty is a key component and also a concern in the migration decision. How are insurance and relocation interconnected, and how are you at IPG Howden easing some of these worries?
Christina: It’s interesting you linked insurance and uncertainty together because the objective of insurance is to remove uncertainties. Factors such as cultural difference, language, schooling, tax reporting, traveling risk, health, and medical insurance can cause concern. When migrating to a high tax country such as the UK, we need to address the importance of pre-migration planning, which by using life insurance with a proper ownership structure, could minimise the potential estate or inheritance tax. Since life insurance is a ‘portable asset’, clients can keep it for life and the contract term will remain intact. Timing to plan and action is extremely important to maximise the tax optimisation before changing tax residence or citizenship.
Martina: A recent report by The Economist Intelligence Unit entitled The Wealthy Migrant showed that the global migrant stock rose to 231.5 million individuals in mid-2013 from 154.2 million in 1990. There are currently strong outflows of high-net-worth (HNW) migrants from China, France, Italy, and Russia and they’re heading to Australia, Singapore, the UK, and the USA. Where will the future global migrant want to move to?
Jacopo: What I can say is that these countries did indeed experience an outflow of wealthy individuals, for various reasons. However, nothing is set in stone. A client of mine recently reminded me that Europe was experiencing immense emigration flows — think of all the migrants that left for the USA or Latin America decades ago. Now, it is rather the other way around.
Perhaps the countries mentioned in the report will soon be able to reverse the tide? An example I like to cite is Italy, one of the countries I am responsible for in my role at Henley & Partners. Italy has recently introduced various interesting pieces of legislation that make it attractive for individuals (and Italian citizens) living abroad to relocate to Italy. We are seeing wealthy families all over the world relocate to Italy, some of whom are pensioners benefitting from a flat 7% on foreign pensions, or UHNW individuals from China who cap their taxation on foreign income (in most cases) at EUR 100,000.
Martina: Besides the mobility of people, we are entering the largest wealth transfer in history, as we see Asia’s aging tycoons are starting to pass wealth to heirs. However, according to Asian Private Banker, only half of all Asian HNW individuals have a retirement plan. How can IPG Howden support them?
In Asia, unlike the west, tycoons don’t exactly retire, even when younger generations assume greater responsibility. This means we have to straddle legacy and aspirational objectives at the same time. Such fluidity is precisely why life insurance products such as universal life insurance (ULI) can be used strategically by those on either side of the wealth transfer. Unlike contractual planning, which has to be exhaustive, can be contested and is cumbersome to amend, ULI structures offer legacy protection with flexibility on all key variables.
IPG Howden’s expertise in appropriately educating and positioning such tools can add practical value for clients, regardless of their stage in the wealth handover journey and by doing so, open the door for fuller legacy planning advisory opportunities.
Martina: In addition to Asia’s tycoons leaving a legacy for their families, we are also seeing an increase in charitable giving. Could you share with us how insurance can be used for charity purposes?
Christina: We see there are significant increases in UHNW clients who set up family foundations or trusts to ensure part of their legacy can be used for philanthropy. Life insurance contracts are often the most cost-effective tool to achieve this goal. For example, if a 55-year-old client plans to donate USD 20 million in the event of their death, they could achieve the same goal by paying insurance premiums at approximately USD 5–6 million for a USD 20 million assured payout upon their death. Life insurance proceeds of USD 20 million can be used for philanthropy and are free of probate, hence it also mitigates the risk of delaying the charity donation plan.
Martina: What impacts do you see for the HNW individuals in this global coronavirus outbreak? Do you see a new trend emerging?
Jyotsna: HNW individuals tend to employ strategies shaped by direct experiences across economic cycles. This crisis is clearly unprecedented; however, it will offer pockets of pain as well as value. Most recognize this to be a long, drawn-out period of uncertainty. We expect clients will generally want to move away from high concentration risk, introduce greater operational flexibility in their businesses, and look more carefully at their own housekeeping. This shall put even higher priority on family protection and legacy planning. At times like this, the dual features of ULI products — minimal market correlated and of course, death benefit — can be especially meaningful. We are also seeing more clients setting aside assets to fund saving plans for inter-generational gifting purposes.
Jacopo: I would not say that I see any new trends emerging, but rather a trend will be reinforced. Individuals will continue to incorporate alternative residence and citisenship into their investment portfolios, given their ability to expand business operations and extend market reach. This new asset class also secures greater global influence and opportunities and safeguards investors against volatile markets and political instability that put pressure on risk-based assets such as equities. Finally, countries around the world will continue to pursue and implement legislation aimed at attracting talents — and their intellectual and financial resources — to the benefit of their societies.
More from Jacopo Zamboni, Henley & Partners