Growth of Wealth Management Industry in Asia
The growth of the Asian wealth management industry is well documented. Even amid global disruption and economic slowdown, the industry is expected to continue thriving, albeit at a slower pace.
According to the World Wealth Report by Capgemini, high net-worth (HNW) wealth funds in the Asia-Pacific grew by 7.9% in 2019 despite a slowdown in the global economy, international trade wars, and geopolitical tensions. Over the same period, the number of high net-worth individuals (HNWI) rose by 7.6%.
Key Asian countries such as Hong Kong, China, and Taiwan experienced double-digit HNWI growth in both population and wealth growth, whereas other major Asian markets such as India, South Korea, and Singapore recorded weaker progress in 2019, which led to lower growth in HNWI population.
In this article, we take a look at the following factors involved in setting up a family office in Singapore:
Why Hong Kong’s High Net Worth Individuals are Shifting their Wealth to Singapore
Traditionally, Singapore and Hong Kong, the leading financial hubs in Asia, have been the favored locations for asset and wealth management. Hong Kong’s geographical proximity to mainland China has made it the preferred destination for offshore Chinese wealth. However, recent developments in Hong Kong have created broader instability, which has caused HNWI and wealthy families to gravitate to Singapore.
While Hong Kong remains a gateway to China and continues to be an important financial and wealth management center, wealthy families will seek to diversify their risks and spread their wealth to other locations, Singapore being the main one.
Against the backdrop of ongoing uncertainties and the continuous growth of affluence in the region, Singapore’s reputation as the choice location for asset and wealth management for the HNWIs and wealthy families is expected to rise further.
There are several key attributes that champion Singapore’s attraction as a key Asian center for the rich and wealthy. At a macroeconomic level, Singapore’s stable political environment with a strong rule of law is a strong selling point as it instills confidence among the rich and wealthy – especially Chinese investors – that Singapore is a safe haven to park their wealth and assets. Its comprehensive network of double tax agreements and free trade agreements has contributed to its business-friendly environment.
Singapore Government Policies on Wealth Management Industries
The Singapore government has introduced policies to ensure the financial and asset management sector is well regulated and transparent. Its central bank, the Monetary Authority of Singapore (MAS), has been instrumental in constantly introducing new initiatives, as well as fine-tuning existing schemes, to promote the asset and wealth management industries. For example, the Variable Capital Company was recently introduced to provide greater flexibility to asset managers to establish investment fund structures in Singapore that are found in traditional fund locations such as the Cayman Islands, Luxembourg, and Dublin.
Singapore’s Attractive Tax Regime
The competitive tax regime has also propelled Singapore’s attractiveness. It does not impose inheritance or capital gains tax and there is a slew of tax incentives targeted towards the asset and wealth management sector, to incentivize asset managers to domicile in Singapore the funds that they manage. Being a common law jurisdiction, its established trust laws, as well as efforts to promote the trust industry, has seen the trusts being widely used as a useful tool for transferring inter-generational wealth and succession planning. Coupled with tax transparency and compliance with international standards to counter aggressive tax planning through the use of offshore jurisdictions such as the British Virgin Islands and the Cayman Islands, Singapore has become a preferred location given its reputation as a jurisdiction where it is possible to build real commercial substance due to its developed infrastructure and pro-business environment.
The strong ecosystem of banks, asset managers, lawyers, accountants, and other professional service providers, liveability within a cosmopolitan city with world-class amenities, and availability of a skilled workforce have all reinforced Singapore’s attractiveness. These are intertwined with Singapore’s openness to foreign talent, and policies to attract foreign investors who wish to relocate to Singapore and explore growth opportunities in the Asia Pacific, through the Global Investor Programme which offers Singapore Permanent Residence status to qualified applicants.
Singapore Family Offices
It is not surprising, therefore, that there has been an emergence of HNWIs and wealthy families seeking to establish family offices in Singapore and it has been nothing short of a boom in the number of family offices set up here. Well-known billionaires behind the biggest chain of hotpot restaurants as well as the most famous vacuum machine manufacturer have all been known to have established family offices in Singapore.
Wealthy families have traditionally held their investments and assets through the use of holding companies or special purpose vehicles. These complicated structures across multiple jurisdictions are motivated by the desire to maintain confidentiality and to ringfence risks. This creates many challenges in terms of management and efficiency.
The family office addresses many of these shortcomings. It is an entity set up to manage and oversee the wealth of HNWI and their families. The family office is an institutional platform that provides integrated wealth and family service management to wealthy families. More simply put, a family office acts as an organization that provides tailored and specialized services in various aspects including investment management, trust and estate planning, tax, and financial planning, risk and compliance management, with a growing focus on philanthropy, succession planning, governance, lifestyle services.
Singapore Single-Family Office
The Single-Family Office (SFO) employs dedicated staff to service the needs of one single-family and it integrates and coordinates all wealth matters of the family. It allows the family to retain a high level of control and privacy whilst enabling the alignment with the family’s goals, values and interests. The family office also serves as a platform for the family to create a boundary between its family business and the business of the family.
There is no “one size fits all” model family office structure. Each structure is dependent on the specific needs of the family with some focusing more on investment management, whereas the objectives of others are more towards legacy building, wealth transfer, family education, philanthropy, etc…
Key Considerations before Setting up a Singapore Family Office
- What are the objectives for setting up the family office – a good understanding of the key reasons for setting up a family office can help in the design of an optimal family office structure.
- What types of assets will be injected into the family office – knowledge of the specific assets that will be injected is important as specific tax and legal advice may have to be obtained so as to facilitate effective planning to determine the optimal method of transfer the assets.
- What is the investment strategy and investment mandate for the family office – it is critical to determine the investment objectives and risk appetite of the family so that a proper investment strategy that matches its risk profile and objectives can be developed.
- What are the licensing requirements and what tax incentives are available – the family office will need legal and regulatory advice on its licensing requirements and assess if an explicit exemption is to be obtained from the MAS. Tax advice will also have to be obtained to determine the tax incentives that are applicable to the family office.
- What are the ongoing operational requirements of a family office – the family office, like regular companies, will require a variety of corporate support services such as accounting, legal, information technology, corporate secretarial, human resource, tax, etc. services. To the extent the family office does not have the in-house capabilities, it may have to outsource to external service providers.
It will be worthwhile to give careful thought to each factor before setting up a family office, so as to ensure that the chosen structure fits snugly within the key objectives of the HNW family. Otherwise, inefficiencies within the structure implemented, or efforts to rectify the structure could prove to be costly.
Where to next with setting up a family office?
We have described the growing trend of family offices being set up and why HNWIs are now choosing Singapore as a preferred location for wealth management.
Our team of experts can help HNWIs navigate the Singapore wealth management industry and help you set up a family office easily in just a few hours.