21 October 2016
A flexible wealth management structure is essential for those seeking to preserve their funds amid constantly evolving regulatory and tax environments. Photo: Internet
A flexible wealth management structure is essential for those seeking to preserve their funds amid constantly evolving regulatory and tax environments. Photo: Internet

Challenge for China’s ultra rich: find the right wealth service

Amid global concerns over China’s economic growth, many Chinese ultra-high-net-worth individuals (UHNWIs) are seeking to preserve and grow their wealth by looking for overseas opportunities.

Yet international investment should be considered carefully; it carries risks as well as rewards. Choosing the correct wealth structuring service can be a challenging decision.

While the global economy continues its steady recovery, the outlook for China is less certain.

The 7.4 percent drop in the benchmark Shanghai Composite Index in late June of last year, along with the subsequent stock market plunge at the beginning of this year, has left some investors wary about the future of their finances in China.

The country is expected to have nearly 15,700 UHNWIs by 2024, according to the Knight Frank Wealth Report 2015. And many of these ultra-rich individuals have begun to look overseas for greater financial security.

Knight Frank reported last December that Chinese overseas investment in the first 11 months of 2015 reached US$28.3 billion, up 87 percent from a year earlier.

Many countries, including Britain, the United States, Australia and Dubai, have noted a surge in Chinese investment, with much of the cash flowing into property.

In London, Chinese buyers have become the biggest single nationality active in the residential market, with Chinese investment in the UK having reached US$29.2 billion since 2005, according to a study by The American Enterprise Institute and The Heritage Foundation.

Also last year, Chinese investors were reportedly the seventh biggest property investors in Dubai, while Chinese institutional real estate investment in New York and Sydney reached almost US$6 billion and US44 billion, respectively.

Global real estate services company Cushman & Wakefield reported a 22 percent year-on-year increase in Chinese investments in Europe’s commercial real estate market in 2015.

France and Germany, in particular, have seen an increase in interest among Chinese investors.

While many understand the benefits of investing part or all of their wealth overseas, the challenges, such as onshore and offshore tax and regulatory requirements, are often overlooked.

Ensuring full adherence to such requirements calls for an in-depth knowledge of the local system and its laws.

It is essential to choose a wealth structuring service that has the capacity to address and understand international residency and tax matters, and how they relate to investment opportunities.

The risk for those who choose a less proficient wealth structuring service is that there is the potential to misplace finances through incomplete or poorly-structured plans.

As the Chinese proverb goes, “wealth does not survive three generations”, a notion supported by a recent study by the Williams Group wealth consultancy.

According to the 2015 study, 70 percent of wealthy families will lose their wealth by the second generation, with that number rising to 90 percent by the coming of age of the third generation.

American business and finance magazine Forbes attributes the problem, in the majority of cases, to poor planning.

Indeed, studies have consistently found that only one in three successful business owners has created an effective estate plan.

It’s therefore crucial that China’s UHNWIs who do opt for wealth structuring plans find the right partner for them.

There are several elements to be aware of, including cost benefit, compatibility and planning processes:

Avoid allowing cost to outweigh service standards

While many UHNWIs have accumulated their wealth through instilling in themselves measured and controlled spending habits, when it comes to choosing a wealth structuring service, they should avoid choosing a partner solely based on price.

Attempts to save in the short term are likely to incur costs down the line, as investors suffer the results of a diminished service.

For this reason, it’s important to evaluate jurisdictions carefully on qualitative factors versus structuring plans according to cost.

Choose a wealth structuring service that provides tailor-made services

An investor’s relationship with a wealth structuring service provider should be a lasting partnership which allows them to preserve and grow their assets, manage risk, and achieve long-term financial goals.

By choosing a provider who takes time to determine an individual’s situation, before devising a tailor-made plan to suit the investor’s needs, UHNWIs can benefit from solutions which are personalized to their goals.

Be wary of opting for a stagnant planning process in an evolving market

As markets and their regulatory and tax environments continue to evolve, so too must the plans that UHNWIs and their wealth structuring services have built.

In the global and dynamic economies of today, the importance of understanding insights and infrastructure to build a flexible wealth management structure is essential for those aspiring to preserve their funds.

For Chinese investors looking to invest overseas, it’s crucial to remain mindful of whom to look for for help in understanding complex onshore and offshore environments.

Using wealth management services offered by leading finance centers, such as Jersey, can assist investors to understand the changing market landscape and make the most of the opportunities available to them.

Choosing a wealth structuring service that fully understands the investor’s wealth planning goals is crucial, in order to enable informed decision-making further down the line.

While cost is inevitably an element of the decision-making process, high compatibility, tailored services and a flexible plan are key to ensuring long-term investment success overseas.

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CEO of Jersey Finance

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