The offshore wealth management market is undergoing its biggest adjustment in a generation – or since last year, depending on your point of view.
The rollout of the Common Reporting Standard (CRS) is a major change to a market known for being opaque, and the 2016 figures are the first time its effects will be felt. Though there may be some impact on the classic tax havens, the major offshore markets will continue to grow as before.
The CRS, agreed in 2014, is the new multilateral automatic exchange of tax information, designed to combat tax evasion by moving the standard for sharing tax information among nations from upon request to automatically. 2016 saw the first collection of data occurring by the early adopters (broadly speaking the EU and dependent states), with the first exchange to occur in 2017.
Four out of the top five offshore markets are among the early adopters of the CRS, hailing as they do from the EU, and there is little evidence that offshore investors have shifted assets to avoid disclosure. All five offshore markets were the largest in the world in 2015 and continued to be so into 2016. As before, the institutional sector rather than individual investors had a better year, with the offshore sector becoming more based around the needs and plans of pension and investment funds of various types.
This is because the fundamental calculus of the offshore market has long been shifting away from client anonymity, which is now a driving force for offshoring among only 3% of HNW offshore clients according to GlobalData’s annual survey of wealth managers. The drive towards offshoring has shifted towards maintaining balanced portfolios through more general geographic diversification, now the top reason to offshore wealth among HNW investors according to GlobalData’s 2017 Wealth Managers Survey.
Booking centers such as those that feature among the top five offshore booking centers provide this platform for global investment as part of their role as major financial centers in their own right. To be sure the tax advantages of being a non-resident are still a useful draw, but this is less of a USP and doesn’t require anonymity to be effective. Instead the range of international companies, funds, and products with global scope, coupled with personnel experienced in international finance, are what pull in footloose HNW wealth. The CRS will simply ensure the focus remains on these features, meaning the big international finance centers get bigger.
For further information please see our Offshore Investment: Booking Center Preferences 2017 report.
By Andrew Haslip, Head of Content for Asia Pacific