Article initially published on Paperjam. Read the article here.
The demand for international wealth management solutions is going from strength to strength, as the asset base of high net worth individuals (HNWIs) hits new heights. As clients are increasingly mobile, Luxembourg life insurance is becoming an increasingly efficient wealth management solution.
Their net investable assets are set to rise from approximately $55 trillion today to $70 trillion by 2021, according to research by EY. This is three times the level seen in just 2006. Asia is the fastest growing region, hosting eight of the ten top countries with the fastest growing ultra-HNWI populations. However, Europe still has the largest high net worth population with over 70 thousand individuals.
At the same time as this growth in wealth is creating opportunity, a cocktail of increasingly complex regulation and tax legislation across jurisdictions and scrutiny on tax avoidance schemes is creating challenges, and the need for flexible, transparent solutions. This is having a significant impact on the wealth structuring strategies employed by high net worth investors, and their appointed representatives.
Increasingly complicated cross-border needs
At the same time as the size and wealth of the population of high net worth individuals are increasing, the needs of high net worth individuals are also changing. Family structures and businesses are increasingly international, operating across multiple borders. For instance, it’s not unusual for a high net worth family to have children in school in one country, live in another jurisdiction, with a business in a third – and potentially plan to retire in another country altogether. With this level of mobility, it’s not a surprise that according to latest available figures, over US$10 trillion in private wealth was booked across borders.
Meanwhile, global regulations continue to evolve, and individual tax and legal requirements do not stand still in each jurisdiction. This dynamic is creating stronger demand than ever for specialists who are well versed in cross-border wealth planning, as well as the need for increasingly flexible wealth and inheritance planning solutions.
Succession and inheritance planning come to the fore
As the wealth and number of high net worth families grow, so too will the amount of assets being transferred to the next generation. While we are seeing first-generation entrepreneurs considering how to pass on their wealth, we are also witnessing a burgeoning number of high net worth baby boomers in the US, and second and third-generation wealth creators in the Asia-Pacific region. The amount of wealth changing hands is startling. Wealth-X and NFP’s “Preparing for Tomorrow: A Report on Family Wealth Transfer” estimates that in excess of US$30 trillion of assets will be transferred over the next 30 years alone.
Inheritance and succession planning, therefore, is the top priority for many high and ultra-high net worth individuals when seeking financial planning support. In fact, Knight Frank’s “Wealth Report’s Attitudes Survey” pinpoints succession issues as the biggest financial concern globally.
The need for transparency is clear
Governments are taking a closer view on the level of wealth moving across borders, and the level of wealth being passed on to younger generations. As they do so, reporting requirements and the need for transparency are growing. Alongside an increased regulatory compliance burden, this is bringing increased scrutiny on the finances of high and ultra-high net worth individuals. In the UK, for instance, the government’s Public Accounts Committee (PAC) has recently criticised HMRC for failing to pursue the wealthiest taxpayers.
In this environment, the wealth planning solutions employed must be not only transparent, but established within the legal and fiscal regimes in which they are to be utilised. Of course, this is one of the key benefits of a unit-linked life insurance product. As an insurance solution, it is fully recognised in both common law jurisdictions (such as the UK), and civil law jurisdictions (across Europe, including France and Spain).
The future is bright for Luxembourg life insurance
In recent years, the role of unit-linked life insurance as a recognised wealth management solution for high net worth individuals has become more widely understood. It is all the more relevant, given the context of a growing number of mobile high net worth individuals, the amount of money being passed to the next generation, and increasing regulatory scrutiny.
A unit-linked insurance plan enables the appointed investment manager to invest in qualified investments (for example, equities, bonds or mutual funds). It brings with it succession planning benefits, and in many jurisdictions, it can be gifted to family members without an immediate burden on the estate. Moreover, as it is a portable solution, recognised by regulators globally, it provides the flexibility clients need when creating international wealth structures to support their mobile lifestyles.
As awareness for this type of solution grows, and its benefits, so too will its popularity, bringing simplicity and flexibility to an increasingly complex marketplace.
By Simon Gorbutt
Director, Regional Head of Wealth Structuring Solutions
Lombard International Assurance