WWL conducted research with leading private client practitioners across more than 50 jurisdictions, gaining valuable insight into the global market. Lawyers we spoke to noted continuing changes in the legal frameworks governing the space, and highlighted the political and economic influences on the market that work to drive governmental policy. Private client continues to be an attractive and interesting area for practitioners, who, from their interviews with us, clearly enjoy the complexity and cross-border nature of the work.
While not a trend that has necessarily developed in recent months, practitioners continue to note the global drive towards transparency in the private wealth space, with serious questions continuing to be asked.
Following numerous high-profile leaks that shed light on the international world of wealth structuring, such as the Panama and Paradise papers, governments across the globe continue to implement legislation targeted at achieving transparency of private wealth. These efforts towards increased transparency are not a shock to practitioners in the field, who have noted that this has been a continuing trend for some time, even before the increased public scrutiny. Additionally, lawyers told us that their clients are committed to remaining compliant with the regulatory frameworks that affect them, recognising the importance of transparency and the ethical importance of properly declaring their assets.
However, it is this commitment to remain compliant that is driving an ever-increasing amount of work for practitioners. One source highlighted that the “legislation is now extremely complex, which means that it is a challenging and lucrative time for practitioners, as few understand the current rules and are able to adequately communicate them to clients”. The legislation in question often touches on various important elements within the private client space, such as residency status or rules governing asset holdings, but with the common thread being the tax implications for clients. Taxation and the spectre of tax evasion is at the heart of the drive for transparency and the resulting desire for compliance.
A continuing factor in the market are mechanisms such as the Common Reporting Standard (CRS), governed by the OECD, which calls for global information exchange that in turn results in the drive towards “globally compliant structures”. In addition to the CRS, there have been efforts in the British parliament to introduce legislation obligating offshore jurisdictions to create registries of beneficial ownership, as well as the Requirement to Correct, which compels those with overseas assets to ensure compliance with UK tax requirements or face financial penalties. Such mechanisms mean that “the relationship between onshore and offshore jurisdictions is therefore shifting”, as one interviewee commented. Other practitioners also highlight that “anything offshore is now high-voltage”. While it is highly unlikely that offshore jurisdictions will cease to have a presence in the market, the international drive towards transparency means that the old-world approach of seeking flexibility in wealth structuring by using permissive tax regimes is likely to change. As one lawyer put it, this approach was “something very much pioneered by the older generations that younger generations don’t want anything to do with”.
As clients strive to be compliant with the regulations, it is a significant challenge for clients and practitioners to navigate the complex legislative requirements. The need to balance transparency with clients’ privacy continues to be a common topic of conversation in the field, as discussed in detail in last year’s trends and conclusions report. The importance and difficulty of striking a balance between the twin competing aims of transparency and privacy is apparent to all yet remains a hotly contested debate, and not just in the private client space.
Many practitioners in the space commented this year on the ways in which private clients themselves are changing. Some of the changes are relatively small, for example client demands, with lawyers noting a desire for “24/7 responses”, although this is a phenomenon not limited to the private client field.
Another, perhaps more significant, shift is the increasing internationalisation of clients and their families, companies and assets. Practitioners in diverse jurisdictions from Hong Kong to Ireland noted the increasing movement of clients and a resulting increase in the cross-border nature of work, with one peer stating that “most of our clients are from at least two jurisdictions, if not more”. This increasing movement poses an obvious boon for practitioners who are frequently called upon to coordinate administer the diverse assets of families across a variety of jurisdictions. However, such a comprehensive service also requires in-depth knowledge of the various legislative frameworks that can be at play.
A major influence on this movement is the sensitivity of clients to the particular economic and political factors present in countries where they are domiciled or hold assets. One such example is Russia, with lawyers noting that “Russian clients are finding it difficult to move their assets out of Russia” while another stated that they are seeing “more and more regulatory requirements for Russian private clients”. This is evidently a result of the specific geopolitical conditions, but is not limited to Russian clients, with practitioners noting that any kind of uncertainty triggered by economic or political concerns causes clients to assess their options. Other such examples noted this year include the potential effects of Brexit or the possibility of a Jeremy Corbyn-led Labour government in the UK.
Another significant change that lawyers noted is the current generational shift and the subtle change in the values of the new younger generation. While private clients continue to value the wealth management and structuring advice practitioners provide, there is also the perception that they are more attuned to ethical and moral concerns as well. As stated above, one example of this is related to transparency, as clients are increasingly disinterested in tax avoidance schemes, not just because of potential penalties but also perhaps due to a sense of civic obligation. Another shift highlighted by one interviewee concerned family disputes, with them noting that younger generations tend to avoid the kind of disputes around inheritance claims that occur frequently in the field.
Indeed, some practitioners commented that the current generational shift may in fact trigger a potential change in governments’ approach to taxation. Their argument rests on the idea that as baby boomers retire, this could lead to an increasing shortfall in tax revenues due to decreasing income tax payments. This in turn could prompt a “greater attention paid to estates and inheritance tax as a method of compensation”, said one lawyer. While such projections currently only exist in theory, there are certainly interesting discussions to be had in future around any possible changes in the focus of tax legislation worldwide as a result of shifting demographics in society and the client base.
The legal market for private client work should be becoming more competitive, with lawyers noting that the levels of activity and potential for long-term relationships with individual clients are making it an attractive practice area for firms to either increase or develop their teams. Practitioners noted that the “Big Four” accounting firms, among others, are seeking to position themselves in the market, causing something of a stir among established players. However, there are a number of reasons that make breaking into the private client field a tricky proposition.
Because of the relatively wide range of elements that can be at question in a typical private client mandate, anything from art holdings to trust structuring, practitioners who are able to advise clients on a broad array of matters and provide clarity in a varied and fast-changing area are invaluable. As a result, lawyers and teams are increasingly expected by demanding clients to be highly knowledgeable in a disparate array of topics. As mentioned above, these matters can be highly complex, with multiple jurisdictions involved or conflicting demands from within a family. Various sources highlighted that “only a handful of practitioners are really fully capable of doing the top-tier work” and only those “who really specialise in this field can do the work well”. As a result, much of the truly high-end work is currently distributed among a fairly small field of lawyers, insulating them to an extent against severe market competition.
In addition to the steep learning curve and the breadth and depth of expertise required, there are other barriers to smaller, newer firms breaking into the private client market. The increasingly high expectations of transparency and the resulting efforts to keep clients compliant with a harsher regulatory environment drive up costs and require larger, skilled teams to manage the client’s needs. Another issue is the significant sensitivity of the matters and backgrounds of clients, with one practitioner stating that the work is dominated by “long-standing relationships that have been built up over time”. They added, “You do not pitch for private client services, this would be highly inappropriate.”
Such problems may have potential solutions in the form of technology, which could enable smaller or newer firms to gain a foothold in high-level private client work. The increased ubiquity of artificial intelligence tools that drive down the costs of document review may make smaller firms more viable prospects and also make it harder for medium-sized firms to justify running large teams. However, at the same time the ability of behemoths such as the “Big Four” to deploy their own bespoke tools and bring their wider financial experience to bear may help to ease their transition to major players in the field.
The private client market remains one with great potential for knowledgeable, tenacious practitioners, particularly as there continue to be large numbers of high net worth clients who are becoming increasingly mobile. This, tied to global demands for high level transparency competing with clients’ demands for privacy, ensure that the necessity for top-tier advisory work will continue undiminished. However, it is clear that it is a market that is facing change and some uncertainty brought about by various factors and it is likely to be an interesting few years for practitioners in the field as well as market observers.