HNW Offshore Investment: Drivers and Motivations 2018

This report draws on our 2017 and 2018 Global Wealth Managers Surveys to analyze the drivers behind offshore investments in the HNW space. It examines and contrasts HNW offshore investment preferences across 24 jurisdictions, providing readers with an in-depth understanding of what is motivating HNW investors to look for new homes for their wealth.

The proportion of HNW individuals who invest offshore has been on the rise despite the scandals that have shaken the industry. While the reasons are diverse and differ from country to country, global diversification benefits and tax efficiencies top the list. This suggests that assisting HNW investors in minimizing their tax liabilities is key. However, it is important to realize that the boundaries between tax evasion and tax avoidance are becoming increasingly blurry. The days of secrecy and illicit structures have passed, and providers need to ensure they are well equipped to conduct their due diligence and provide sound advice spanning multiple jurisdictions. Avoiding the reputational and financial damage associated with any further scandals is both in wealth managers’ and investors’ interests.

Scope

- At a global level, 17% of HNW wealth is invested outside one’s country of residence.

- European investors offshore the largest proportion of their wealth to achieve tax efficiencies (24%), while North Americans invest the largest proportion offshore to diversify (41%).

- 48% of global HNW wealth is held via equities, 18% via bonds, and 16% via property.

- Economic and political instabilities are driving 16% of global HNW wealth offshore.

- HNW expatriate money flows are responsible for only 5% of HNW offshore wealth, but are of particular importance in expat hubs such as Singapore.

Reasons to buy

- Understand the global trends that are driving offshore investments in the HNW space.

- Learn why certain HNW offshore drivers are more relevant in some countries than in others and how this affects your business.

- Learn how political and economic instability affects client preferences, and how global markets shape investment behavior in the HNW space.

- Give your marketing strategies the edge required and capture new clients using insights from our data on HNW drivers for investing offshore.

Companies mentioned

UBS

Investec

HSBC

Kendris

UBS

Investec

HSBC

Kendris

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Providing tax advice spanning multiple jurisdictions is key 2

1.2. Key findings 2

1.3 ...

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Providing tax advice spanning multiple jurisdictions is key 2

1.2. Key findings 2

1.3. Critical success factors 2

2. GLOBAL TRENDS DRIVING HNW OFFSHORE INVESTMENTS 8

2.1. Offshore investments have been on the rise despite global scandals 8

2.1.1. Diversification benefits remain the number one offshore driver in the HNW space 9

2.1.2. Tax efficiencies is now the second most important factor driving offshore investments 10

2.1.3. Other drivers include the expectation of better returns and access to better products 10

2.2. Significant regional differences exist in the motivations for offshore investment 11

2.2.1. Offshore propositions must be tailored at a country or regional level 11

3. DETAILED DRIVER ANALYSIS 13

3.1. Local market factors drive the variety in HNW individuals' motivations for offshore investment 13

3.2. Driver one: HNWs invest offshore to achieve diversification benefits 13

3.2.1. Players looking to attract offshore HNW wealth should highlight the benefits of geographic diversification, while smaller companies should promote funds 14

3.2.2. Geographic diversification alone is not enough 15

3.3. Driver two: The desire for tax efficiency represents an opportunity 16

3.3.1. Taxation is a crucial consideration for a number of reasons, including high rates, complex tax systems, and changing regulations 16

3.3.2. Being able to provide sound tax advice is becoming more important than ever 18

3.3.3. Compliance is becoming an increasingly big headache, but technology can assist 19

3.3.4. The US and fake residency information are the biggest issues facing CRS 20

3.4. Driver three: Instability is increasingly driving offshore investments 23

3.4.1. Economic factors are marginally more important than political ones as an offshore driver 23

3.4.2. Political and economic instability are major concerns in Turkey and South Africa 24

3.4.3. Hong Kong investors worry about the effects of an economic slowdown 26

3.5. Driver four: HNW investors are betting on better returns offshore 27

3.5.1. HNW investors are increasingly tapping equity markets offshore to boost returns 27

3.5.2. The comeback of China’s QDII program could have an adverse effect on offshore holdings 30

3.6. Access to a broader and better range of investments is also an important consideration in the offshoring decision 31

3.3.2. Domestic market sector concentration bias drives offshore investment in the developed world 32

3.6.1. Access to a broader range of investment options is an important driver in markets with limited investment options 33

3.7. Other drivers: The importance of currency volatility, client anonymity, and expatriate money flows varies across markets 33

3.7.1. Client anonymity is only of relevance in a select few countries 33

3.7.2. Currency volatility as a driver for offshore investments is becoming more important 34

3.7.3. Wealth managers will do well to keep an eye on emerging markets 36

3.7.4. Helping HNW entrepreneurs formulate a foreign exchange management strategy is becoming increasingly important 36

3.7.5. HNW expat money flows are responsible for only 5% of HNW offshore wealth, but there are notable exceptions 37

4. APPENDIX 38

4.1. Abbreviations and acronyms 38

4.2. Supplementary data 38

4.3. Definitions 42

4.3.1. Affluent 42

4.3.2. CRS 42

4.3.3. Exchange of information 42

4.3.4. HNW 43

4.3.5. Liquid assets 43

4.3.6. Mass affluent 43

4.3.7. Residency 43

4.4. Methodology 43

4.4.1. GlobalData’s 2018 Global Wealth Managers Survey 43

4.4.2. GlobalData’s 2017 Global Wealth Managers Survey 44

4.5. Bibliography 44

4.6. Further reading 45

List of Tables

List of Tables

Table 1: Offshore investments as a proportion of total managed HNW wealth, 2017-18 38

Table 2: HNW offshore investment drivers, 2018 (part ...

List of Tables

Table 1: Offshore investments as a proportion of total managed HNW wealth, 2017-18 38

Table 2: HNW offshore investment drivers, 2018 (part 1) 39

Table 3: HNW offshore investment drivers, 2018 (part 2) 40

Table 4: HNW offshore investments by asset class, 2018 41

List of Figures

List of Figures

Figure 1: Scandals have not taken a toll on the global HNW offshore market 9

Figure 2: Diversification benefits are driving offshore ...

List of Figures

Figure 1: Scandals have not taken a toll on the global HNW offshore market 9

Figure 2: Diversification benefits are driving offshore investments in the HNW space 11

Figure 3: Geographic diversification is a key consideration in North America 12

Figure 4: Diversification benefits drive offshore investment in markets at various stages of development 14

Figure 5: HNW investors prefer to book their wealth close to home 16

Figure 6: Tax efficiencies as an offshore driver are of particular importance in the UK 17

Figure 7: HNW demand for tax planning is strong in the vast majority of countries surveyed 19

Figure 8: Kendris’ app keeps professionals updated on compliance deadlines 20

Figure 9: Opinions on whether CRS will benefit non-participating jurisdictions are divided 22

Figure 10: Political and economic instability are key offshore drivers in a number of countries 23

Figure 11: Political stability is a real concern in South Africa and Turkey 24

Figure 12: The majority of both South African and Turkish HNW wealth is booked in safe havens 26

Figure 13: HNW investors in Sweden are betting on better returns offshore 27

Figure 14: The average HNW offshore portfolio is increasingly biased towards equity investments 29

Figure 15: The DAX and S&P 500 have outperformed the OMXS30 since January 2013 30

Figure 16: Access to a broader range of investment options is of particular importance in Hong Kong 32

Figure 17: Client anonymity as an offshore driver is important in only a handful of countries 34

Figure 18: The Turkish lira has enjoyed a wild ride over the past few years 35

Figure 19: Investec provides non-resident mortgages to South African HNW investors 36

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