Private Wealth
ISSUE 01 2013
HNW offshore investment
It’s not all about tax appeal Regional focus
Southern Europe’s woes, opportunities for the north
Country focus
Indonesia, Asia’s next big wealth story
FATCA
Interview with Tim Winter and Jane Mumby, Associate Director and Executive Director at Coutts
Interpreting today’s trends. Envisaging tomorrow’s.
introduction | Issue one
Welcome to the first edition of Private Wealth Insight – our new magazine for professionals in the private wealth management sector Each edition will highlight Datamonitor’s latest research into the essential issues affecting your industry. We’ll bring you a selection of topical feature articles written by members of our expert analyst team, based on our recently published research. In this first issue, we take a close look at offshore centres and the challenge that many now face from government initiatives to recoup tax on offshore assets. Our Lead Analyst, Helen Allingham, highlights that tax efficiency is not the only factor driving wealth offshore, and explains how wealth managers can continue to attract funds by focusing on service quality and investment performance. In the first of our regional focus features, Datamonitor’s Senior Analyst Matia Grossi looks at how the collapse in confidence in the PIIGS countries has created growth for countries in the north of the continent. Lead Analyst Andrew Haslip then turns the spotlight on Indonesia, one of the largest and fastest growing wealth markets in Asia. Our Insight would not be complete without discussing FATCA. Datamonitor’ analyst Ed Felmingham talks in depth with Jane Mumby and Tim Winter from Coutts to find out how they are turning a regulatory compliance issue into a growth opportunity. I hope you enjoy and find value in these insights. We’d love to hear your feedback and any suggestions you have for future issues of Private Wealth Insight. In the meantime, please continue to access your Financial Services Knowledge Center for our latest research and analysis. If you do not have a subscription, get in touch to learn more about our service, or visit our website: datamonitorfinancial.com. Thank you for reading, and enjoy.
Kieran Hines Head of Content for Datamonitor Private Wealth Management We actively encourage feedback from our readers, so if you have any comments or questions, please contact us at enquiries@datamonitorfinancial.com
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Private Wealth Insight
Issue one | contents
HNW offshore investment
It’s not all about tax appeal
Infographics
Size of wealth market in 2012 Norway $194bn
Nordic $982bn
UK $3,099bn
page 4
Southern Europe’s woes present opportunities for the north
W. Europe $17,362bn
page 8 PIIGS $4,404bn
Greece $193bn
Indonesia
Coutts & Co
Asia’s next big wealth story
“FATCA is an opportunity”
page 12
page 16
EDITORIAL Editor Giovanni Musio Art Editor Kazimierz Kapusniak CONTRIBUTING WRITERS Helen Allingham, Andrew Haslip, Matia Grossi, Edward Felmingham ABOUT Datamonitor Financial At Datamonitor Financial, we deliver intelligence-led insight and data on financial services markets, competitors and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Private Wealth Management, Cards & Payments, General Insurance, and Retail Banking. Our research on private wealth management will help you identify new market opportunities, track competitor activity and develop tailored propositions for the HNW individual.
Get in touch To find out more about Datamonitor Financial get in touch at: e: enquiries@datamonitorfinancial.com t: EU: +44 20 7551 9201 | US: +1 212 652 5353 | AP: +61 2 8705 6900 w: www.datamonitorfinancial.com tw: @DatamonitorFS DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor LTD, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor’s current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.
Private Wealth Insight
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FEATURE | HNW offshore investment
HNW offshore investment
It’s not all about tax appeal Helen Allingham Lead Analyst, Private Wealth Management @HelenA_DMFS
4
Developments in the global tax environment mean an increasingly tough future for offshore centers that primarily position their offering around tax benefits. However, Datamonitor Lead Analyst Helen highlights the opportunity for wealth managers willing to understand the other motivations behind HNW offshore investment.
Private Wealth Insight
HNW offshore investment | feature
O
ffshore centers have been increasingly in the spotlight since the financial crisis of 2008. Governments around the world, particularly in the West, have introduced a series of initiatives to recoup tax from assets held offshore. From tax amnesties to renewed double tax treaties and the introduction of the Foreign Account Tax Compliance Act by the US’s Internal Revenue Services, offshore centers are under pressure as never before. Yet, investing offshore is not always done for tax purposes; factors including better investment opportunities, international lifestyles, and concerns about political stability onshore also come into play. Understanding these motivations presents opportunities for offshore centers and international private banks seeking to reposition themselves in the new world order, as well as onshore providers seeking to improve their offerings to local customers. Datamonitor’s 2012 Global Wealth Managers Survey, which covers 22 countries, shows that high net worth individuals (HNWs) on average hold 18% of their portfolio offshore. The number one driver for offshore investment is that for many HNWs there are more attractive investment options offshore. Indeed, this was cited as the motivation in 33% of cases, while tax efficiency – the driver most popularly associated with offshore investment – was only given as the motivation 23% of the time. There are, however, significant differences between markets.
Offshore investing for tax purposes is increasingly restrictive In Europe, HNW offshore investment is largely motivated by tax efficiency and the client anonymity afforded by offshore centers. The UK is a classic case in point of investing offshore for tax reasons. Indeed tax efficiency is cited as the primary
driver in 53% of cases, with Switzerland and the Channel Islands of Jersey and Guernsey being the offshore centers of choice for UK HNWs. There are, however, increasing restrictions on this type of offshore investment. For example, the latest tax agreement with Switzerland means that there is no longer any advantage, from a tax perspective, for a UK HNW to hold deposits there. Other countries are also renegotiating their tax treaties and this has had a material impact. In the case of Switzerland for example, non-resident retail deposits have declined year-onyear since 2007, when they stood at $291bn. Indeed by 2011, non-resident retail deposits balances were $188bn.
Offshore centers need to highlight their product specialisms and investment expertise Outside of Europe, HNWs do invest offshore for tax purposes, but are also motivated more strongly by other factors. As we have seen, the most important driver at a global level for HNW offshore investment is the better or wider range of investment options offshore. One market where this driver is particularly strong is South Africa, where it is cited as the motivation for offshore investment in 81% of cases. The country that is the major beneficiary of this, as the booking center, is the UK. Unsurprisingly, there are also numerous South African competitors active in the UK wealth market, from Investec to Sanlam and Nedbank Wealth, which helps to provide a ready channel between South Africa and the UK for HNW investors. Of perhaps more note is the fact that HNWs in these markets tend to hold a greater proportion of their portfolios offshore: our Global Wealth Managers Survey shows for example that South Africans hold 32% of their portfolio offshore, compared to just 18% of UK HNWs. Ultimately, there is money for offshore centers and international private banks to gain from this segment; the key to winning it is developing and, more importantly, showcasing the relevant product specialism and investment expertise to both HNWs and wealth managers in the local market. Equally, there are lessons for onshore providers and local markets to take on board, not least in considering how the local investment market needs to be developed and what type of products should be offered by wealth managers
Investing offshore is not always done for tax purposes; factors including better investment opportunities, international lifestyles, and concerns about political stability onshore also come into play
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FEATURE | HNW offshore investment
More or better investment options are the key driver for offshore investment Source: Datamonitor Global Wealth Managers 2012
Diversification
2%
Concerned about political stability onshore
8%
Client anonymity
Used to live in the offshore centre
Tax efficiency
15%
16%
23%
33%
More or better investment options
HNW Offshore Investment to keep wealth onshore. In the interim, however, local wealth managers should consider in which markets they need to establish an offshore presence, whether directly or through referral agreements.
Political stability – or lack of it – is a more immediate driver of offshore investment While better investment opportunities are a notable pull factor for offshore investment, one of the push factors is HNW concerns about political stability onshore. Among
the countries surveyed, this was at a global level one of the least important factors for money moving offshore, only being a driver in 8% of cases. However, this driver tends to be very specific to certain geographies and its relative importance would undoubtedly be higher had some of the flashpoints for instability around the world been included in the survey. That said, while the term political instability typically conjures up the idea of unstable or oppressive regimes and troubled populaces, it can also apply to more stable countries. A striking example of this from the Global Wealth Managers Survey is France, where political instability onshore was cited as the motivation for offshore investment in 41% of cases. The story here is tied to the election of François Hollande in May 2012. Hollande is France’s first socialist president in 20 years and he won office on a manifesto that, among other things, looked to target
The key to winning it is developing and, more importantly, showcasing the relevant product specialism and investment expertise to both HNWs and wealth managers in the local market
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HNW offshore investment | feature
Non-resident retail deposits in Switzerland have steadily declined since 2007 Source: Datamonitor Offshore Deposits and Funds Database
290,786
Non-resident, retail deposits, US$m
259,892
214,102 195,144 175,270
2006
2007
2008
the wealthy through more stringent tax measures. The result led to much speculation that wealthy French citizens would move abroad; certainly it is anticipated that the number of French expats will increase in countries such as the UK; indeed London is already considered by some to be France’s sixth largest city in terms of the local French population. Equally, offshore investment, which currently only stands at 4%, is also likely to increase; this will be to the advantage of Luxembourg and Switzerland, the primary booking centers for French HNWs and where many French banks are already present to provide offshore services.
There is a strong link between expats and offshore investment Finally, the international lifestyles of many HNWs cannot be ignored as a driver of overseas investment: in Asia Pacific this was considered the main driver in 34% of cases. Prominent examples of this include Australia and Singapore and it is no coincidence that these markets also have a high proportion of expats among the resident HNW customer base. Moreover, visa requirements in these countries tend to favor HNW individuals, which acts as a further impetus.
2009
2010
187,519
2011
In the case of Australia, 28% of resident HNWs are also expats, with the main countries of origin including China, Hong Kong, Singapore, and the UK. These expat corridors do provide opportunities for wealth managers, in both source and destination countries. This is amply demonstrated by the well-served non-resident Indian (NRI) market, where Indian and local wealth managers have sought to develop targeted propositions for affluent NRIs in countries where there is a high such population. However, this level of targeting is less common for other expat groups, although this is changing as banks increasingly seek to target overseas Chinese wealth. A notable example of this is ICBC’s move into Australia, where it opened its third branch in November 2012 with the aim of targeting corporate banking and private wealth management, particularly from immigrant Asian HNWs. For further information, read the report: HNW Offshore Investment: Key Trends and Motivations Access the report through your Knowledge Center
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Private Wealth Insight
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DATA | The European divide
Infographics
Southern Europe’s woes present opportunities for the north
Matia Grossi Senior Analyst, Private Wealth Management
Europe is home to some of the largest wealth markets globally. With some exceptions, it also has a relatively even wealth distribution and large affluent populations that have emerged as a result of decades of economic growth. However, growth prospects for the next few years are bleak at best, with many countries experiencing the rapid deterioration of their economies and wealth markets.
The north-south divide will continue to expand We see a two-speed Europe with the strong north contrasting with the south. Norway is a striking example of this “virtuous” north; the country has outperformed the broader Western European market; similarly to the UK the second best performing market, in the period 2006-11. At the other extreme of the European spectrum we have the PIIGS (Portugal, Ireland, Italy, Greece and Spain). Greece wealth market has declined by double digit rates over the past three years and it is expected to continue declining at least until 2014.
Europe: a dynamic north opposes the shrinking south Source: Datamonitor Global Wealth Markets Analytics and Global Retail Savings and Investments
Size of wealth market in 2012 Norway $194bn
UK $3,099bn
W. Europe $17,362bn
PIIGS $4,404bn
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Nordic $982bn
Greece $193bn
The European divide | DATA
Stock market and GDP declines have hit savings and investments
The wealth market has barely grown in the past five years
Source: Datamonitor Global Wealth Markets Analytics and Global Retail Savings and Investments
Total retail S&I (W. Europe) 8%
2007
2008
GDP (W. Europe) 2009
2010
Stockmarket (W. Europe) 2011
2012
40%
6%
30% 4% 20% 2%
10%
0%
0%
-10%
-2%
-20%
-4%
Stockmarket growth rate
Total retail S&I and GDP growth rate
50%
The European wealth market has been impacted by both the collapse in the stockmarket in 2008 and the increasingly fragile economic recovery in the years following the financial crisis. These factors have taken the toll on the liquid assets held on the continent, with growth in the lower single digits or negative for the past five years.
-30% -6% -40% -8% -10%
-50% 2007
2008
2009
CAGR 2006-11 5.0%
CAGR 2012-16 4.6%
-60%
CAGR 2006-11 1.7%
CAGR 2006-11 4.8%
CAGR 2006-11 1.1%
CAGR 2012-16 3.3%
GREECE
PIIGS
CAGR 2006-11 -0.3%
2012
W. EUROPE
UK
CAGR 2006-11 3.6%
2011
NORDIC
NORWAY
CAGR 2006-11 4.2%
2010
CAGR 2012-16 1.5%
CAGR 2006-11 -4.0%
CAGR 2012-16 1.2%
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DATA | The European divide
Future growth prospects are grim at best On top of low or negative GDP growth, poor stock market performance, and economic volatility, a further element limiting growth in these struggling markets is the growing tendency to allocate the vast majority of retail liquid assets into deposits and bonds. This, coupled with the low-interest environment expected for the foreseeable future, is further curbing the growth prospects for these markets. According to recent declarations by Federal Reserve vice chair Janet Yellen, US short-term interest rates might stay near zero until early 2016. Given the globalized nature of the financial markets in developed economies, a similar trend is likely in Western Europe as well.
PIIGS investors move away from equities Source: Datamonitor Global Wealth Markets Analytics and Global Retail Savings and Investments Analytics
Contribution of total PIIGS retail S&I
52%
64%
63%
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17%
18%
19%
18%
13%
11%
9%
6%
7%
2006 Deposits Bonds Mutual funds Equities
2011 Deposits Bonds Mutual funds Equities
2016 Deposits 63% Bonds 18% Mutual funds 9% Equities 7%
The European divide | DATA
Two of the top 12 wealth markets globally are PIIGS
The troubles of the south present opportunities for the north
Source: Datamonitor Global Wealth Markets Analytics and Global Retail Savings and Investments
The difficulties being faced by the southern markets do present opportunities for some northern European markets. According to the Greek Treasury, as of May 2012 more than $40bn had left the country since the beginning of the sovereign debt crisis. Similarly, data published by the Swiss National Bank show that deposits from Greek clients increased fourfold between 2007 and 2011. Some wealth management firms in countries such as Germany, the UK, and Switzerland have already sought to take advantage of this trend. For example, Sparkasse in Munich has started offering its advisory services in Greek; according to the bank’s spokesperson, 500 of its customers originate from the country.
04
07
06 08 11 05
01
02
03 12
10
09
HNW liquid assets, $ billions
10,000
8,000
6,000
4,000
2,000
Taiwan
Spain
India
Brazil
France
Canada
Germany
Italy
UK
China
Japan
United States
0
For further analysis and the underlying data access Datamonitor interactive dashboards: Global Wealth Markets Analytics and Global Retail Savings and Investments Analytics Access the dashboards through your Knowledge Center
Global Wealth Markets Analytics Global Retail Savings and Investments Analytics
Request a free demo
enquiries@datamonitorfinancial.com quoting INSIGHT01.
Private Wealth Insight
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FEATURE | Indonesia
Indonesia
Asia’s next big wealth story Andrew Haslip Lead Analyst, Private Wealth Management & Retail Banking @AndrewH_DMFS
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As more private banks setup in Asia, wealth managers are looking outside of the traditional financial centres for opportunity. Indonesia’s rapidly developing wealth market offers both growth and scale that makes it an attractive expansion target, writes Datamonitor Analyst Andrew Haslip.
Private wealth Insight
Indonesia | feature
T
“Indonesia’s economic growth has outperformed every major Asian economy bar China in 2012”
he wealth management industry is looking for profitable growth in Asia. Finding it in the traditional entrepôts of Singapore and Hong Kong has been increasingly challenging due to rising costs on the one hand and fierce competition on the other, both of which have compressed margins below what can still exist in Europe. Turning to the less developed markets of Asia has been seen as an increasingly important strategy for wealth managers that are serious about growing in the region. Indonesia is therefore rising in importance as a market for private wealth management as it offers wealth managers opportunities that are increasingly attractive relative to the rest of developing Asia, such as high growth, a large potential market, and fast developing wealth scene.
and the US. Indonesia’s economic growth has outperformed every major Asian economy bar China in 2012, having proven resilient to the economic troubles in Europe and attracted inward investment generating annual GDP growth of 6.2% in Q3 2012. This in turn is driving wealth creation on a scale last seen on the Chinese mainland. According to the Japanese investment bank Nomura, the middle class population in Indonesia – those with annual disposable income of at least $3,000 – will total almost 150 million by 2014, a figure that few Asian countries can match even in terms of their entire populations. Similarly, Datamonitor predicts that the number of high net worth (HNW) individuals with over $1m in onshore assets in Indonesia will rise by over a fifth to approximately 108,000 in the next two years.
Indonesia’s growth and size rival Asia’s giants in terms of potential Indonesia is hardly the only market in Asia that promises growth, but it is one of the few to combine this growth with the world’s fourth largest population behind China, India,
Indonesia is dominated by self-made millionaires Source: Datamonitor Global Wealth Managers Survey 2012
Global
23%
25%
Asia-Pacific
27%
23%
2%
26%
Indonesia
9%
23%
58% 5%
22%
24%
3% 7% 23%
Earned income
First generation entrepeneur
Family business
Inheritance
Other
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FEATURE | Indonesia
The private banking market is set to explode in the next two years Source: Datamonitor Global Wealth Managers Survey 2012
Indonesia
Asia-Pacific
Net increase in demand from clients over two years, 2012
93%
77% 72%
68%
71%
49%
35%
Discretionary asset management
Advisory asset management
Indonesia’s HNW market is still very much in its infancy, pointing to further growth While Indonesia’s HNW market is growing fast, the fact remains that it is still very much an immature market. This is exemplified by the proportion of first-generation entrepreneurs that make up Indonesia’s HNW client base, which exceeds what private banks see elsewhere in the region. The country is early on in its economic development with sectors such as financial services still relatively unsophisticated, and so there has been little opportunity to generate wealth from other sources like inheritance or skilled professions.
31%
Financial planning
Inheritance planning
Second, the onshore opportunity is likely to be greater than it may initially appear. Not only are new millionaires being minted at a furious rate in the country, but a successful, locally based private bank can expect to gain additional assets under management from the onshoring of previously offshore assets. Asian HNW individuals prefer to invest close to home if economic conditions are ripe; the onshore investment opportunities in Indonesia are attractive due to strong predicted growth of as much as 6.7% in 2013 alongside moderating inflation, according to Bank Indonesia, the country’s central bank. If a private wealth manager can provide the services that HNW investors demand, net client inflows should prove attractive.
What does this mean for wealth managers? First, the local private wealth management market is stunted, limiting competition as well as the tendency among the wealthy to hire a local private wealth manager. Throughout 2012 the majority of Indonesian HNW wealth has been managed offshore, which is a much higher proportion than is common in the rest of Asia.
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HNW individuals with over $1m in onshore assets in Indonesia will rise by over a fifth to approximately 108,000 in the next two years
Indonesia | feature
Jakarta could easily claim the crown as the world’s Islamic finance capital With such a diverse and multi-ethnic population, it is sometimes easy to forget that Indonesia is the world’s most populous Muslim nation as well. Demand for Sharia-compliant products and services is predicted to soar over the next two years, well above the growth expected from other fast-developing Muslim countries or international financial centers that cater to affluent Muslim clients. Wealth managers looking for an edge in Indonesia will need to base Sharia-compliant banking units along the lines of HSBC Amanah Syariah, which has been in the country since 2003.
Indonesian HNW investors are hungry for Islamic banking Source: Datamonitor Global Wealth Managers Survey 2012
Malaysia
Switzerland
Singapore
21%
22%
30%
95%
United Arab Emirates
98%
Indonesia
Net increase in client demand for Sharia compliant products and services, 2011-12
Key wealth management services will drive the growth of the market The country’s growth story is as strong as anywhere in Asia, but Indonesia is on the cusp of an explosion in private wealth management. The market for key wealth management services and products is set to ramp up quickly, with demand for discretionary and advisory asset management services set to grow at a higher rate than elsewhere in Asia Pacific. The market is in the midst of a transition from being relatively unsophisticated and immature – with wealth being managed offshore in Singapore – to a market in which wealth management services will be increasingly required to manage onshore wealth in the country. Besides the basic planning and management of a client’s wealth, the single greatest growth in demand for services, barring Sharia-compliant versions of existing offerings, will come from inheritance planning. The aging of the firstgeneration entrepreneurs is very much a feature of the market and a major client concern will be passing on wealth in a way that accommodates local traditions and expectations while preserving the wealth and establishing a familial “legacy.” Legal
and trust services along with business succession advice will be key elements of any wealth offering to the Indonesian market.
The time to invest in an Indonesian branch is now While the market currently suffers from a number of challenges on the infrastructure front, ranging from the availability of experienced private bankers to the habitual traffic gridlock in Jakarta, the time to get serious about Indonesia is now. The private wealth market is immature and largely handled offshore but a private bank with the right services can turn this to its advantage. However, wealth managers looking to gain an early mover advantage are working to a timer that will run out when regional integration and inward investment within Indonesia receive a huge boost with the launch of the ASEAN Free Trade Area in 2015. For further information, read the report: Wealth Indonesia: HNW Customers Access the report through your Knowledge Center
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Private Wealth Insight 15
interview | Tim Winter and Jane Mumby, Coutts & Co
FATCA is an opportunity Coutts & Co
Edward Felmingham Analyst, Private Wealth Management
Datamonitor Financial recently sat down with Tim Winter, Associate Director of the US Competence Centre at Coutts, and Jane Mumby, Executive Director and Senior Wealth Manager for US clients, to talk about FATCA, the private bank and wealth manager’s strategy for its implementation, and the anticipated impact on its clients.
Tim Winter, Associate Director, Couts & Co
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Tim Winter and Jane Mumby, Coutts & Co | interview
Since its launch in 2010, what has been the biggest impact of FATCA for Coutts? Tim Winter: So far there has been very little direct effect on Coutts because final regulations are yet to be published; the UK intergovernmental agreement (IGA) has not been written into UK law yet, and so we are waiting on the draft UK legislation in December to confirm the major impact on clients. As such we’re not yet proactively raising the subject with our clients until there is further clarity. At the moment, the largest impact is both on the internal resourcing to manage the program, and the delivery of IT to ensure that our systems are capable of supporting the requirements.
How substantial will the effort be to meet FATCA compliance? Tim Winter: This will be different for those jurisdictions with IGAs and those without. At Coutts, we are very fortunate in having the same single IT platform, Avaloq, in all of the countries in which we operate. However, with FATCA, there are potentially different rules per jurisdiction and so there is still quite a lot of development required.
compliance. Think of the accidental American, born in the US but who hasn’t been there in the last 50 years and is living in blissful ignorance; unaware of the new rules that will affect him. That will provide challenges, but one of the strengths of Coutts is that given the close relationships we have with our clients, hopefully those conversations will be a lot easier to hold. Coutts is already obliged to conduct reporting for numerous regulatory purposes and so an additional piece of IT functionality, which is a one-off exercise, shouldn’t provide too much of an additional challenge.
The US Treasury is in IGA discussions with almost 50 countries. What does this mean for Coutts? Tim Winter: I think it is good that the UK is leading the way with IGA publication and interpretation. Once the details have been formalized, they will then form the basis for the other jurisdictions using the Model 1 agreement. That’s very useful from our point of view. We were quite pleased with the countries listed in the latest IRS announcement, although there were two countries within which Coutts operates that weren’t included, however this is not an issue because we can rely on the approach that Coutts developed based on the proposed regulations for these jurisdictions.
Where does the real challenge lie with FATCA: identifying, reporting, or withholding?
What has FATCA meant for your Swiss operation?
Tim Winter: Withholding will provide some challenges, and will still happen even within the UK. For example, it will still be possible to be a non-participating FFI, e.g. if you are an entity which is registered and domiciled outside of the UK, you could be nonparticipating. Identification will have the challenges of potentially difficult client conversations and deciding where clients lie within FATCA
Tim Winter: There is a team of bankers in Zurich with responsibility for US clients. The recently published model 2 IGA provides greater clarity regarding the FATCA requirements for the jurisdiction, and the interaction with existing data protection laws. These are issues affecting the whole industry, so whilst they affect Coutts they will also affect every bank operating out of Switzerland.
FATCA facts The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to support the US in identifying and combating tax evasion by US citizens holding financial investments in offshore accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS specific information regarding US-held foreign accounts, or foreign entities in which US taxpayers hold a substantial interest. The US Treasury is currently discussing intergovernmental agreements with 50 countries to ease implementation.
How receptive are US clients to FATCA obligations? Jane Mumby: From our experience so far, US clients are both very receptive but also very aware of their obligations. The fact that Coutts understands the US tax system and FATCA, means that we are already ahead of the competition and this leave us in a good position.
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interview | Tim Winter and Jane Mumby, Coutts & Co
KEY FACTS Coutts US Clients
4,000
1,500
5%
£1m
>30
Resident-non-domiciled and non-resident American clients.
US clients in Coutts international business
US clients represent 5% of total client base
Coutts client criteria is a guideline of a minimum of £1m of investable assets
Serving US clients for over 30 years
Why do you say Coutts is ahead of the game? Jane Mumby: Other banks aren’t having the same conversations with US clients. If anything, other banks are telling their US clients that, even on the banking side, they may not be able to remain as clients.
US address doesn’t automatically mean you are going to be a US Person, but the rules of FATCA say that you have to go through the same process as if the client had a US passport. That’s where the more difficult conversations are going to lie.
How about client attitudes towards FATCA? Do they understand FATCA? Do you see a niche market developing for USfriendly private banks in the UK and abroad? Jane Mumby: Absolutely. We are seeing strong inflows of new clients and I know that there are other banks, who are also embracing the changes that are also seeing it as an opportunity. We feel very comfortable because we have critical mass - in fact over 5,000 US clients - and we’ve been active in this market for a long time. Tim Winter: One thing that we recognised 30 years ago was that it is an important market to be involved in but it is also highly regulated. The IRS rules can be perceived as quite draconian, and the penalties for non-compliance can be high. If you invest in specialist adviser and have a control framework in place to ensure that you deal with US clients compliantly, then it is a profitable market to be involved with. We have a dedicated centre of excellence within Coutts to ensure that we are compliant in our approach, and by ensuring that our clients are also tax compliant themselves. In that respect FATCA is nothing new.
What is the challenge with non-US clients? Tim Winter: Some of the indicia themselves are quite obvious such as records of a client having a US passport, or a US address, and you could understand why you need to clarify their status by having documentation to prove it. However, some of the indicia get weaker as you go through them. Having a power of attorney with a
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Private Wealth Insight
Jane Mumby: Our clients certainly do; the majority are very sophisticated. There will be some clients where an education piece is needed but once it is explained there will likely be little resistance. Our US clients are very aware of US tax requirements. There is so much regulation in the US, as there is here in the UK, and they just accept that there is a lot of compliance. They are used to dealing with this. Tim Winter: One of the conversations that we will already be holding with clients is to ensure that we are confident that the client is tax compliant. If we have any concerns we would put the client in touch with professional advisors who could then help them address any tax issues. As Coutts is a Qualified Intermediary, processes for obtaining and validating Form W-8s and Form W-9s system are already in place and so for existing clients this is nothing new. Whereas for new clients to the bank, we will ask them to read and complete the forms as part of the process of becoming a client where required under FATCA.
What relationship does the FATCA team have with the US client desk? Tim Winter: The FATCA team is a project team rather than a compliance team. It is made up of compliance, IT, client-facing staff, and tax experts. We have a broad team working on FATCA to make sure it isn’t just a regulatory driven approach. This
Tim Winter and Jane Mumby, Coutts & Co | interview
KEY FACTS FATCA dates
US Treasury is discussing intergovernmental agreements with 50 countries
Jan 13
Jan 14
Dec 14
Final regulations expected early 2013
New individual account opening procedures to be in place by January 2014
Obtain appropriate documentation and identify pre-existing individual “high value” accounts by later of December 31, 2014, or year after entering into FFI agreement
central core team looks at compliance throughout the wealth division (Coutts, Adam & Company and RBS). There is a good relationship between project team and the client-facing teams, and there is strong two-way communication. These are the guys that are actually going to use the process so we need to make sure they are happy with it. Once the final regulations and IGA implementation rules have been published, we will be able to provide much more specific training.
Jane Mumby, Executive Director and Senior Wealth Manager for US clients, Coutts & Co
Jane Mumby: Sometimes we will go to this team when we need guidance with specific client questions and cases, and the fact that some members of the team are also client facing, means that they will often have an even greater understanding of the client’s perspective.
Is FATCA just the beginning of a wider global tax initiative? Tim Winter: I would be very surprised if the other jurisdictions didn’t look to implement similar reporting regimes, and FATCA could potentially be the start of a global tax sharing network. We fully support ensuring clients fully meet their relevant tax obligations, however regulations providing banks with obligations have to work for the industry as well. There needs to be a coordinated approach if other jurisdictions do implement similar requirements to FATCA, with the same reporting criteria and same information control that avoids us having to apply very different treatment strategies for clients managed out of the same jurisdiction. For further information, read the report: FATCA: Global Wealth Manager Responses Access the report through your Knowledge Center
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All the articles in this magazine are based on Datamonitor’s latest research into Private Wealth Management. For more information about any of these features, or Datamonitor Financial proposition, please get in touch. www.datamonitorfinancial.com enquiries@datamonitorfinancial.com EU: +44 20 7551 9201 US: +1 212 652 5353 AP: +61 2 8705 6900