Speaking the same language

Saturday, 01 February 2014
Marcus Leese reviews the opportunities, and cultural challenges, that Asia presents for practitioners.

Asia is a vast region, comprising a multiplicity of extremely diverse and distinctive nations, languages and cultures. The Asian region has changed hugely in the past three decades and is continuing to develop apace. Many of those changes present significant opportunities and challenges.

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First and foremost, Asia has become a genuinely huge market, and one which is continuing to grow. It is already home to a material proportion of the world’s overall population. Birth rates remain high in many countries within the region, increased prosperity has been a catalyst for the return to the region of many born (or with family connections) there and ex-patriot migration from the West remains high. Whichever demographic group one looks at (whether ultra high net worth, high net worth, mass affluent, middle class, etc), the absolute numbers are very large and growing.

In addition, the Asian region has seen, and is continuing to see, rapid growth in wealth and living standards. Booming economies throughout the region, assisted by the supportive mix of economic liberalisation in many countries, high levels of domestic investment, increasing levels of domestic demand, strong international demand and considerable inward investment from the West, have resulted in very significant wealth creation for many.

Moreover, wealthy individuals in the Asian region (like their counterparts in the West) are beginning to appreciate that with greater wealth comes greater complexity in their lives. For example, many are actively seeking greater exposure to foreign jurisdictions (notably the US, the UK and western Europe), whether through expansion of their businesses, property ownership or education for family members in those countries. Those greater foreign connections tend to throw up new and unfamiliar issues – immigration and visa matters, tax liability, regulatory burdens, information filing and disclosure requirements, etc.

These factors (and doubtless many others) offer huge potential opportunities for trust and private client practitioners. However, all these positive factors do not necessarily make the region a panacea for these practitioners; it is unquestionably the case that there are many challenges as well. Moreover, many of those challenges are ones with which Western-trained advisors may well be unfamiliar. Listed below are a few examples.

Appreciation of need

Clients from the Asian region are generally highly astute business or professional people who are successful (often exceptionally successful) in their chosen field. Despite this, for many (particularly first-generation wealth creators) the world of trust and private wealth planning is entirely new. Moreover, many of these clients simply do not appreciate (or fully appreciate) the need for such planning, the benefits such planning can provide and the considerable difficulties (and potentially very great costs) which it can help to avoid. By way of example, many clients are often keen to obtain residence or other suitable immigration status in another country for themselves and/or for family members (either to further their business interests or as part of their education). But few appreciate the tax or other legal consequences which may arise from this and fewer still appreciate the need to obtain comprehensive advice before proceeding, or to consider implementing some form of structuring to reduce or possibly even eliminate the adverse consequences which may arise. Accordingly, there is a very important educational challenge which practitioners face.

Appreciation of value

Linked to the lack of appreciation of need is the common issue of lack of appreciation of value. Simply put, many clients do not appreciate the value of implementing robust trust and private wealth planning. For example, many clients in Asia hold assets via one or more BVI companies. Upon the death of the client, the transfer of those shares (and commonly the day-to-day management of companies where the client is the sole director) will be delayed pending the BVI court probate process. This can be avoided if, instead of the shares in the BVI companies being held by the client personally, they are held by a professional trustee under the terms of a simple BVI VISTA trust structure. The legal advice and the establishment and operation of such a trust will inevitably have a financial cost. Even though that cost may be extremely modest in comparison to the value of the assets held by the relevant BVI companies, nevertheless many clients struggle to appreciate the value of establishing such a trust when its benefits (essentially avoidance of the probate process) are largely intangible and deferred until some indeterminate time in the future. Once again, there is an important and time-consuming education process required so that clients begin to appreciate the true value of robust and appropriate planning.

Continued control and involvement

When an asset-planning structure (such as a trust or foundation) is established, it’s quite usual for clients (wherever they’re from) to want to retain some degree of involvement in the stewardship of the assets (and all the more so when the client has been actively involved in the creation or generation of those assets). This desire is particularly strong for clients in the Asian region. Irrespective of what the reasons for this may be, the result can often be a tension between the desire to retain as much involvement or control as possible versus the need to demonstrate transfer of ownership and control away from the settlor (for creditor protection, fiscal, succession or other reasons). This can often place advisors in a difficult position, having to counsel their client (who often has very strong views as to the ‘necessity’ of retaining control) on the potential legal and practical detriments of a structure that is superficially highly desirable. An example: where the settlor’s proposed trust deed not only provided that every specific, as well as general, power of the trustee was subject to protector consent, but also the settlor reserved to themselves the right to compel the trustee’s exercise of all such powers. The settlor may consider this a triumph of drafting, but the solicitor may take a rather different view.

Limited information sharing

Many clients in the Asian region are reluctant to disclose fully all relevant background facts to their particular situation. While there may be a range of reasons for this (and such reasons are likely to differ as between different clients), the end result is always the same. Advice is necessarily based upon the background facts that are received – incomplete facts will inevitably lead to incomplete advice. While the omission of certain facts may not be critical, that is by no means always the case and can’t be relied upon. The planning and structuring for a Hong Kong resident-and-domiciled settlor and his family may be quite straightforward, but it may look very different had the settlor disclosed that his two children are both US persons and he has spent the majority of each of the past three years in the UK developing his business interests. It is critical to ask as many questions as possible and to probe as far as one can in order to try to elicit as much relevant information as can be had in an effort to avoid unpleasant surprises later.

Nature of assets

Clients in the Asian region may be actively involved in business either as first- or second-generation wealth creators, or as part of later generations of entrepreneurial families. As such, a significant proportion (often the majority) of their wealth comprises interests in operating businesses, real estate and/or other business-related assets. As practitioners will be well aware, assets of these types raise a range of issues that simply do not exist (or, at least, not to the same extent) in relation to financial assets.

Language

It is frequently the case that clients from Asia do not have English as a first language, but do speak English as a second or third language (in many cases to a very high standard – many having lived in and/or been educated for at least some period in an English-speaking environment). Despite speaking English, the complex and sensitive nature of many of the issues dealt with in trust and private wealth planning is such that clients (quite understandably) may prefer at least some part of the process to be conducted in their first language, whether that be discussion at planning meetings or on conference calls, or possibly the core planning documents themselves (or explanatory summaries of them). That requires practitioners, either themselves or via senior and experienced members of their team, to have suitable language skills. This is not simply an issue of having access to a suitable translation service provider – clients are increasingly expecting that at least some of the team of professionals who are actually working on the relevant matter day to day, and who have the relevant technical knowledge, are able to provide the translations.

Final remarks

Asia offers huge opportunities for all aspects of private wealth planning. However, it is extremely important for practitioners to be fully aware that these markets do present challenges, and many of them differ from those you may have experienced in other parts of the world.

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Marcus Leese

Marcus Leese TEP is a Partner at Ogier in Hong Kong.

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