By Derek Baudains, CEO, Louvre Group, Guernsey
This year, the aftermath of the Brexit vote and the American election result will inevitably bring changes at a macroeconomic level, and the ripples of change and general uncertainty will affect investor confidence.
It’s generally agreed that the creation of wealth is slowing, with wealth generation threatened by taxes and global economics. Succession planning and protection are top of the agenda for ultra-high-net-worth individuals (UHNWIs) and we will also see philanthropic activities increasing, which is good news for the Channel Islands’ financial services industries.
South and East Asia and Africa remain the areas with fastest growing wealth – these are prime markets for 2017. While there will be an economic slowdown in China, they still forecast growth of around six per cent.
We also believe that Chinese demand for investing in overseas assets will grow significantly in 2017 as the weakening yuan prompts the wealthy Chinese to diversify.
If Trump pulls America out of the Trans-Pacific Partnership, Asian countries are likely to look increasingly towards Europe and the UK as friendly nations, and finance jurisdictions such as Jersey and Guernsey could benefit.
I believe China might abolish its exchange controls. If that happens there will be a flight of capital abroad, particularly into property. London will be a prime investment area. The benefits of using offshore structures to own investment property have decreased, but Channel Island banks will see increased interest for mortgage lending.
High-net-worth clients and family offices are turning to the establishment of private trust companies and foundations to meet their demand for protecting their family assets in suitable structures where they can have a degree of influence over the investment opportunities.
I think we will see this trend mirrored in the UAE as well, where we'll see more and more family offices being established and an increased level of sophistication in the wealth structures they are favouring.
The reserved power trust has long been a popular choice for Asian clients and both Channel Islands offer this structure, with subtle differences to choose from. However, with the Chinese love of property, the private trust company offered by both islands will really come into its own.
The desire for effective philanthropic giving is increasing. Over the next year, we predict that the use of foundations and charitable trusts by family offices will increase. Jersey Finance has been promoting these services and attracting major enquiries over the previous 12 months, and Guernsey also has much to offer clients interested in impact investing, possibly through private funds.
Brexit will encourage trade with the UK from non-EEC companies. This will provide opportunities for using offshore structures in the Channel Islands for tax planning and perhaps trade finance.
The merchant banks, seen as a dying breed, were experts in this type of business, but there could be a rekindling of need for this service.
Looking at the looming regulatory changes of the Common Reporting Standard (CRS), March 2017 will see the first reporting by financial institutions in early adopters – which includes both Channel Islands – and exchange of information will commence in 2017.
For both islands, the impact of the CRS rules on transparency will provide a level playing field for all international financial centres. Premier jurisdictions such as Switzerland and the Channel Islands have planned for the impact; other less well-known jurisdictions lag behind. We need to capitalise on our market advantage. Our more intangible assets, such as the islands’ reputation and perceived expertise, must be developed and promoted to help us to differentiate our offering.
Finally, we will see the need in the coming year for more innovation, as clients demand personal and real-time services, as well as more variety in the products and structures available. This could prove to be both a challenge and an opportunity for the islands. Traditionally Jersey and Guernsey have shown themselves to be agile and able to respond quickly to changing needs.
Only time will tell how the islands can meet the changing needs of UHNWIs in the next 12 months.