Private Client 2018: Discussion

WWL brings together Morven McMillan at Maples and Calder and Tahera Mandviwala at TDT Legal to discuss issues facing private client lawyers and their clients today, including recent regulatory changes, the increased use of family offices and privacy issues. 

To what extent have regulations such as CRS, FATCA and the general push for greater financial transparency affected the privacy granted by offshore trust and company structures?

Morven McMillan: Offshore trusts and company structures to a great extent operate privately on a day-to-day basis and are compliant with international standards in financial transparency. The pace of change in the international regulatory landscape over the last decade or so has, however, been remarkable. While the USA led the way with FATCA, the Common Reporting Standard aims to achieve automatic exchange of financial information among signatory countries and it has been groundbreaking. These developments, and innovations like them, have clearly had a profound effect on clients’ understanding and expectations of privacy. That said, for the most part, there are still limits on the accessibility of that information by the general public. Further, as rules and regulations change, so do expectations and for sophisticated clients financial transparency is becoming an integral part not only of doing business but also in their planning for the future. 

Tahera Mandviwala: Governments, both domestic and foreign, are now mandating greater financial transparency. In addition to complying with applicable foreign regulatory requirements (including disclosure norms), Indian high-net-worth individuals (HNIs) have to also disclose their worldwide assets and income (including financial interest in any offshore entity) to the Indian income tax authorities. Also, recent data leaks of offshore accounts have created some stigma around offshore structures as they have shown that even if wealth is parked offshore within regulatory norms, having one’s name on such lists could affect one’s reputation adversely and bring one into the spotlight. These and various other factors are to a certain extent now discouraging Indian HNIs from using offshore companies and structures solely for parking assets and wealth abroad. Furthermore, with the Indian government tightening its treaties with favourite foreign tax haven jurisdictions, and with increased information-sharing between governments, there is a conscious shift in some of the offshore jurisdictions used. 


How has the increased use of family offices by the super-rich changed the nature of your practice in recent years?

Morven McMillan: Practitioners in the field of trusts and private client law have long been accustomed to dealing with family offices. As families have become more mobile internationally, their homes, education, investments, philanthropic and business interests are no longer confined to the country in which they were born and consequently demand for family offices has increased. It makes sense in those circumstances to have a centre of operations from which a range of services can be provided, including in some cases to coordinate the instruction of external service providers like lawyers. In contrast to the position, say, 30 years ago when a family would be assisted by a single “trusted adviser”, the diversity of their investments and business interests and the scope of operations generally often require a team for support. The family office becomes the structure through which that specialist support can be provided and directed to where it is most needed.

Tahera Mandviwala: Family offices are a relatively new concept in India but they have become a fast growing trend. Existing in many formal and informal forms, family offices are now recognised and used by many Indian HNIs. Not as evolved as their foreign counterparts, Indian family offices are still at a nascent stage and are structured in varied ways depending on client specific requirements and regulatory concerns. As advisers, with the advent of Indian family offices, our scope of private client work has obviously increased to that extent. From advising on the need and best structures for family offices (including multi-family offices) to incorporating the family offices, assisting with all the documentation and working closely with the families and advising them on management, investment and other activities of such offices, our long-standing corporate and investments specialisations have over time become integral to our strong private client services. 


Our sources have revealed that the privacy of high-net-worth (HNW) clients is a concern, in terms of both their identity and financial status. What are the major issues you see and what strategies are there for addressing them?

Morven McMillan: For some this is a great concern. It is all the more important in those circumstances for every jurisdiction participating in the automatic exchange of information to implement and maintain robust measures to preserve confidentiality. At worst, if that information was to find its way into the wrong hands, some fear that they or their children may face the risk of kidnap, violence or robbery; others fear their names appearing in the newspapers, and the potentially adverse impact that knowledge of the extent of their wealth may have on their children or their peers. Some have apparently chosen to restructure their finances in jurisdictions that do not (yet) participate in the automatic exchange of information; others have taken steps to increase their personal security, for example, by moving their home base to a safer jurisdiction. If recourse to the courts is involved, application can be made to preserve the confidentiality of proceedings.

Tahera Mandviwala: Privacy is of course a major concern and an important requirement of HNI clients. Internally, as private client advisers, we impose the strictest confidentiality norms on our entire private client team. As regards external factors affecting HNI privacy, as discussed above, one such notable factor is regulation, which nationally and internationally is moving towards higher transparency. Indian HNIs who are very concerned about their privacy are therefore opting for comparatively lesser regulated structures such as private trusts which, depending on their operations, would need to make fewer public disclosures under Indian law. Moreover, some HNIs may, among other things, use professional management as the face of their company or choose to be investors in companies owned by others or use professional/multi-family offices for their investments, but there could be factors other than privacy leading to such decisions. The appropriate strategies and structures in each case would depend on various factors including the specific needs and concerns of each client. 


HNW clients are now more mobile than ever. What challenges does this bring to private client practice and how do you address them?

Morven McMillan: Wealth structuring advice must take into account several factors linked with the increasing mobility of HNW clients: domicile, tax residence, the domicile and tax residence of spouse and beneficiaries, the nature and location of assets, conflicts of laws, to name but a few. This means it is increasingly important that expert advice is obtained and coordinated in every jurisdiction where it is required, before the client makes a decision on the structure that will best meet her aims and expectations. It is also increasingly important not only that firms have international reach, but also that practitioners have a wide network of fellow professionals and service providers across the world that they feel comfortable recommending to their clients should the need arise. As our clients have become increasingly international, so too have our professional lives.

Tahera Mandviwala: India is witnessing a surge in HNI migrations. Last year, with an increase of 16 per cent, about 7,000 HNIs left India permanently. There were also several instances where next-gens who had travelled abroad for education opted to permanently settle outside India. Additionally, there are many Indian HNIs who are not completely migrating out of India but they are substantially growing their businesses, assets and wealth in one or more foreign jurisdictions. Succession planning and smooth transition become even more crucial in such circumstances. With individuals, assets and wealth in multiple jurisdictions, private client services have to be provided, inter alia, keeping in mind the different cultural, regulatory and tax implications of each jurisdiction along with the applicable cross border restrictions. Proficient multi-jurisdictional capabilities are required to deal with such cases. To efficiently assist such clients, we not only have foreign-qualified lawyers in our private client team but we also work very closely with some of the best private client practitioners globally. 


To what extent has succession planning become more of a priority for clients than tax management? What effect has this had on your practice?

Morven McMillan: Estate and business succession planning have always been at the heart of sensible wealth structuring; for example, trust structures have for decades been established primarily to effect the smooth transition of wealth from one generation to the next. That said clients are increasingly aware of the destructive effect that the transition of wealth between generations can have on a family and its business if appropriate succession plans are not put in place during their lifetime. I firmly believe that communication is key; communication between client and adviser obviously but also among the family members. It is rarely a simple question of the matriarch or patriarch settling their assets in trust for the benefit of their children and future generations. Proper consideration has to be given to the wider family structure and dynamic and how everyone envisages the future of the family business after the passing of the founder.

Tahera Mandviwala: Succession planning has recently gained much importance in India. A topic that used to be shrugged aside due to cultural and control issues is now on the agenda as, among other things, a large number of current Indian CEOs are reaching retirement age, many next-gens are choosing not to lead the family business and/or there is a need to professionalise management. Indian regulators also now require listed companies to have a succession plan in place. Furthermore, there are several examples in the public domain of successions gone bad and major family disputes affecting businesses and reputation badly. Having said that, though Indian HNIs do recognise the need to have a succession plan, this for most families is still not very high on the agenda and in practice is looked at more as a formality. A recent survey shows that for most boards succession planning still falls behind regulatory compliance and sustainability matters.

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