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06 Feb 2019

A wealth of advice - February 2019


Welcome to the first issue of 'A wealth of advice' - Stephenson Harwood Middle East LLP's private wealth newsletter.

Growing our footprint

Coupled with the recent flurry of regional activity in the private wealth management sector and our global award winning advisory team and expertise, we are delighted to announce the launch of our private wealth services from our Dubai offices. The team shall be led by Sunita Singh-Dalal and shall focus on assisting clients in the GCC, Middle East, Africa and SW Asia.

In this first edition we look at the antecedents of the wealth management industry and emerging trends found in the region. Going forward we invite independent service providers to contribute in our guest column and cover topical issues relevant to the private wealth industry.

Traditional wealth management 

Interestingly, within the geographical regions of the Middle East, Africa and SW Asia the concentration of wealth has historically been privately owned by a minority of business families, as opposed to being publically owned using corporate structures. Decision-making and operational management has traditionally been the sole responsibility of the family elders and their trusted advisors. Culturally and socially, families across these regions are actually more similar than diverse, and issues faced by many such families as they contend with changing trends and modern day management, are all too familiar.

Change is afoot …

The past decade has seen a regional increase of business empires and family run groups adopting a corporate culture of governance, resulting in the personal aspect of management being removed from the equation. Gone are the days when personal expenses for travel, education, properties, vacations and high ticket luxury purchases, are purchased using company funds. As the ownership of business is now being depersonalized and accountability becomes the global norm, this has triggered the inevitable segregation of personal wealth. In India the current hot topic of debate is not if Estate duty will be introduced, but when will it be introduced and in what form? In the Middle East advisors are often being asked to opine on international ownership structures which do not necessarily conform to the traditional Sharia'h principles of division of family wealth.

Emerging trends and asset classes

Whilst informal and traditional wealth management measures and practices have been used to date, there is clearly a change in how the second and third generations are now looking further westwards and adopting wealth preservation practices to safeguard their interests and protect their ancestral wealth. Furthermore, one notes that the ownership of assets is no longer restricted to being within the close proximity of the actual physical presence of the family. Assets are now being purchased regardless of their geographic location and the new generations are making investment decisions based upon pure economic merit, as opposed to restricting themselves to geographies and cultures that they are more culturally akin to and familiar with. Even the type of assets that are being acquired is fast changing breaking all previous stereotypes. The new generations are actively exploring asset classes such as art and technology, both of which may not necessarily conform to their core industry, but both of which command handsome investment returns. However this emerging trend in turn requires a virtual management and advisory team with relevant core expertise in place, coupled with competent global advisors who are able to work hand in hand with family businesses when such investment decisions are being taken. Acquiring assets isn't the real challenge;  preserving those assets ensuring they translate into sustainable wealth for the next generations, is an entirely different ball game.

The emergence of the private wealth industry

Simultaneously, the wealth management industry in these regions has also witnessed an interesting growth spurt as many professional advisory firms boost their teams with experts who can advise on wealth management and succession planning. In the UAE alone, the increase in the number of newly incorporated family offices is certainly reflective of the fact that families prefer to govern and manage their wealth themselves, whilst consulting with independent trusted advisors, as required from stage to stage. The stereotypical Swiss private banker who flew around meeting and advising clients, has now been substituted by advisors in each region and why not? Cultural familiarity yields a sense of trust and comfort and if talent and competence is on hand, then it makes perfect sense to avail of it.

A hub of activity – why the UAE? 

The UAE has always been an attractive business hub for many family owned business empires and 2018 was a year of change and progression as the UAE saw new legislation being introduced that will positively impact private wealth management and succession planning for both Muslim and Non-Muslim families. Such changes are clearly designed to further enhance and position the UAE’s current ranking and preferential positioning as a popular centre for managing global wealth.

The Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) introduced new legislation promoting the Foundation Structure. This is a first in the region and will undoubtedly be an attractive option for those groups with direct ownership of both moveable (stocks and shares) and immoveable (real estate) assets.

The Foundation Structure

Ironically, the governance system of a Foundation is not so dissimilar that that of the traditional family group, with seniors holding the position of guardians, gatekeepers and protectors, whilst the junior members are entrusted with day to day management and control.  This scenario maintains the status quo and harmony within the family group, whilst bringing governance into the 21st century and protecting assets as it removes the personal element entirely.

In our next edition of 'A wealth of advice" we shall throw a spotlight on the Foundation Structure and discuss how it can be effectively used as part of a restructuring scheme.