Succession planning becomes a top priority for GCC’s wealthy

Dubai: High net worth individuals (HNWI) and wealthy family businesses in the region are increasingly focusing on orderly transition of their wealth to the next generation said Geoff Cook, Chief Executive of Jersey Finance; in an interview elaborating the findings of a research on the region’s wealthy.

The report Driving Forces Behind GCC HNW Investors from research conducted by Jersey Finance, in association with Hubbis, the international wealth management firm throws light on the top priorities of the region’s wealthy individuals and families on wealth creation, preservation and transition.

The research reflects the views of over 90 practitioners working in the GCC market, across private banks, trust and fiduciary services providers, consultants, law firms and other professional services firms.

A key issue facing the wealth management market within the region is the fact that countries within the GCC are relatively new to the tradition of inheritance. The report highlights that, while many Europeans are familiar with the concept of inheriting over different generations, a considerable amount of the wealth in the GCC remains in the hands of the first generation.

“We’re seeing a clear and growing demand for succession planning from GCC investors, which is to be expected given the importance of family businesses to the region’s economy. However, there are many misconceptions about the issues and solutions, shared by investors in the region, as well as a lack of practical solutions,” said Cook.

For these reasons, he said there is a stronger need for financial practitioners to provide a full suite of wealth management services to serve the needs of GCC wealthy individuals.

Fear of losing control

The research showed that about two thirds of the survey participants said that the GCC’s wealthy hold back decisions relating to succession planning for reasons ranging from lack of awareness, fear of losing control or simply don’t know how to go about the process.

The study by Jersey Finance showed that 34 per cent are not aware of solutions available, 21 per cent don’t know to where to start the discussion and 15 per cent are also concerned about the lack of relevant Sharia structures in the market.

“More broadly in terms of misconceptions around the very concept of wealth structuring, over half [55 per cent] say that they are afraid of a loss of control, while 23 per cent highlight the lack of transparent structures. A key point about this though is that the wealth management sector in the region has quickly matured and these firms can support family businesses address and resolve these misconceptions,” said Cook.

Evolving structures

Research shows that family office structures (53 per cent), followed by trusts (17 per cent) and private trust companies (17 per cent) as the most popular structures among GCC families today in managing their wealth.

The UAE and other GCC countries have increased legislative efforts to build a platform for wealth management and structuring, the robustness of these local solutions need to be tested before it is widely used by family businesses.

While the development of onshore wealth management platforms is a work in progress, it is complemented by offshore solutions, where internationalisation of wealth is required. Leading international financial centres offer legal certainty, stability and substantial wealth management experience.

New challenges

As legacy planning and succession is becoming an important concern for the region’s first generation wealthy individuals and families, global regulations and compliance requirements are posing new challenges.

New tax transparency initiatives such as Common Reporting Standard (CRS) and Automatic Exchange of Information (AEOI)) are creating new challenges for both GCC HNWIs and advisers. For wealth managers and advisers, ensuring the right information is being disclosed by the clients is becoming a big challenge.