Farhaz was attracted by the way Private wealth management Singapore provides a grandstand view of the global economic engine as revealing shifts in its output norms can be observed, and cheered on, by the high net worth (HNW) and ultra-high net worth (UHNW) citizens of the world, who, as this article attests, have good reason to toast their collective well-being. Our grand source of wealth is the world economy, which creates the wealth that enables governments to provide services and infrastructure to enrich human living, invest in education and human capital, and conduct research and development to produce new technologies of great impact such as the internet, and support the invention of new financial and business models to create new industries. It never hurts to remind ourselves that the great unspoken question that has been answered in the affirmative by global capitalism is: is it possible to produce complex modern economies with good living standards that supply services across the economic spectrum to an ever-increasing population of consumers. It is to a great extent by satisfying aspirations for education, housing, transportation, communication, affordable and tasty food, healthcare, and entertainment that citizen satisfaction with social institutions and individual well-being is nurtured. Remembering to the source of it all is a useful exercise if only to remind ourselves of the great need to nurture and to grow the economic engine of the world.
This article features Mr. Pamer Wang, Managing Director and Chief Investment Officer, Private Banking, The Hongkong and Shanghai Banking Corporation (HSBC); and Dr. Farhaz Thanoon, Partner, Withers KhattarWong LLP. It weaves the views of these two Singapore-based experts, who come from disciplines that cover two cornerstones of private client wealth management, and in so doing will provide readers with the thoughtful and at times thought-provoking insights to help in thinking about preserving and growing private client wealth. Pamer graciously accepted our invitation to give us a high-resolution view of the risks and opportunities facing investors in these troubled and uncertain times. Despite the daily thrills and spills that the financial markets are going through at the moment, determined long-horizon investors will want to focus on the horizon where the investment opportunities are.
Understanding Wealth Management
The global demand for wealth management services has increased, mainly due to the world’s wealth concentration and wealth growth. Furthermore, increasing longevity is likely to exacerbate wealth concentration, increasing demand for the future services provided by external wealth managers. The current, growing fiscal problems at the national and regional levels result in the need to increase indirect taxes, inflation, local content requirements, and capital controls. Therefore, many international programs intend to control the tax situation by exchanging the tax information between an increasing number of countries’ fiscal authorities in a tax-friendly manner. To avoid undesirable fiscal effects, an increasing number of contacts lead to wealthy individuals’ search for professionals to protect their assets and minimize the global tax burden.
Wealth is a factor that, in varying degrees, affects all economic agents. Broadly speaking, it refers to a person, firm, or country’s money, goods, values, and other items that are capable of generating income or value. Unfortunately, wealth does not undergo a similar concentration process as income, which usually converges to few people. Furthermore, wealth is often disregarded in many economic studies. Historically speaking, Gross Domestic Product (GDP) and its potential have always been the research focus. However, the economic policy fields have changed their objective, which has turned to the pursuit of economic development with a better standard of living. Moreover, there is a consensus among economic scientists that wealth is the fuel for savings, investments, education, and sustainable economic growth. If wisely managed, wealth should reduce poverty, income disparities, and labor income concentration. Unfortunately, the reality is different because the world keeps growing and it shall continue to grow. Wealth management is a continuous activity and a discipline that covers many fields, such as accounting, economics, finance, investment, tax planning, and settlement, as well as it is a cross-port discipline.
Definition and Importance
Talk of inheritance or estate planning is made up of succession planning of family businesses, legacy planning, trustee governance, kinship concerns, family education, personal feelings, and trust building among other humanitarians. Most states recognise that the accumulation of wealth should not be an end in itself, but one part of estate preservation. It can be seen that when we expand our vision, it is the duty of anyone with a vision of life to make long-term provisions that result in a just binary paradigm of the fiscal, social, and economic challenges. Wealth management is defined here as call appropriate tools and the common laws governing the insurance system. Nevertheless, it does involve risks and trade-offs between, for example, cost and value, between work and wages, savings and future gain, and function the attainment of solo under certain conditions.
Wealth accumulation should not be the end goal of estate planning. It is one part of estate preservation and may affect social harmony. A successful estate planning requires objective perspective, balance, suitable tools in the correct order, and a professional team. Wealth preservation and growth is about setting the right balance of long-term fiscal, social, and economic challenges. When we talk about certain wealth management concepts, I hope to bring to everyone’s attention that it actually involves several issues. People may have different legal backgrounds, nationalities, investing preferences, expected returns, liquidity needs, retirement needs, family sizes, future expenses, potential offspring, and other factors.
Key Principles
Unfortunately, this ‘re-using’ of old knowledge is not as straightforward as it seems, for every policy action taken nowadays exacerbates the future pain. These actions have led to a significant devaluation of the fiat currency, the destruction of major economies and their upcoming retirement programs (as implemented), exploding premiums for many types of casualty insurance due to the transmission mechanism in states’ quantitative easing, deflationary magnetic force from the interior section of an imploding shadow banking credit market. Taken together, these problems at the regulatory, policy and world economy levels are too fraught with risk for complacency. Perennials instead need to work even harder to stand still and are probably wiser to return to educating and sharing knowledge with governments and other investment institutions. In short, Perennials have to work hard to preserve their capital and to protect the next generation.
Some of the key principles in investment that the earlier generation of investors learnt must not be, in the words of the wise Solomon, ‘forsaken’ for the sake of new ideas. This does not mean that innovation does not have its place in investors’ long term strategy. Rather, innovation should be grounded securely in the timeless principles which have produced the concepts that are now taken for granted. Nothing revolutionary needs to be invented – the key in investing is to take these principles and theories, as well as practices like portfolio planning, risk management, psychology and emotions management, and crafting them into solutions that fit the current market conditions.
Role of Wealth Management Experts
According to financial consultants at Mercer, a leading global financial advisory firm, most HNWI don’t have the capability of evaluating, negotiating, and coordinating different types of services to accomplish a certain goal. Wealth seekers seek their services because they don’t have the fitting knowledge of the products and services available in the market, and lack the expertise to understand future trends and plans required to take advantage of them. Businesses also face the added challenge as they need to help their valuable employees ready themselves for the financial challenges that lie ahead, often at a time when life is becoming significantly more expensive. In conjunction with the inability to handle pressures of the evolving marketplace and without compelling rewards and benefits, these valuable employees often start to search for new positions, leading to a ripple effect.
A decade ago, the possibility of obtaining professional services of an immigration consultant or a wealth management expert wasn’t on the radar of most high-net-worth individuals (HNWI). It was typically a middleman, like the private banker, who would offer advice on what to invest in. Yet, faced with the financial challenges of a rapidly changing economy that’s characterized by the rapid rise of dual-income families, factors often overlooked in conventional financial planning (like how changing demographics have disrupted traditional retirement goals), HNWI and their families require professional services to guide them and answer their questions.
Singapore as a Global Wealth Management Hub
The high quality of governance in Singapore has been a key and important factor towards creating a hardworking, resilient, proactive, and adaptable populace. Singaporeans are schooled and have imbibed the culture of hard work, thrift, not looking to the state to solve their daily problems, looking out to the next generation in their quest towards education and knowledge enhancements to be part of this modern, open, and diverse society that upholds high standards of integrity, honesty, social and racial harmony, and economic renaissance. Singapore as a premier financial centre is growing and has more than 250 banks onshore, affiliated with 1,600 of the world’s top banks, serving 30,000 firms in various corporations. Singapore ranks high as an excellent professional centre in brokerage, establishing the precepts of an efficient, diligent, and cost-effective banking system. MNCs setting up there have also raised Singapore’s profile as a key Asia Pacific wealth management centre.
Singapore has been referred to as the Switzerland of the East. Central to its policy of wealth management has been its pursuit of fiscal and economic prudence and transparent liberal economic policies and active pursuit of financial development. It has no mineral wealth and is able to provide for the larger population through its pursuit of quantifying the respective capabilities of its citizens, sound governmental planning, and the attraction of the best and brightest from the rest of the world. The quality public infrastructure and facilities attract foreign investors and high net worth individuals.
Overview of Singapore’s Financial Landscape
Fixed Deposits (FDs) have gained popularity as financial products in Singapore against the backdrop of a turbulent and volatile financial market environment in the last decade. C2C Banks offer Fixed time deposits as part of their product mix, with tenors of between 7 days up to 60 months and interest payment options that can be amortized, compounded to maturity, or paid at maturity.
People’s deposits have played a major role in the evolution of the Singapore Dollar deposit market, with a compounded annual growth rate of 15.8% from 2005 to 2014, compared to a positive 4.3% for the corresponding central bank reserve requirements, as the Singapore Dollar internationalizes. SGD deposits in Singapore made up 45.3% and 53% of the total SGD deposits in 2010 and 2014, respectively.
For most of the last ten years, deposit markets in Singapore have evolved amidst turbulent economic conditions and the robust age of technology, but low interest rate environments with peak rates seen only briefly.
Singapore’s financial landscape comprises the Multi-Currency Accounts and local banks. Multi-Currency Accounts (MCAs) were introduced in 1999 and have gained popularity as a facility that enables all the main FDIs in Singapore, with the exception of an Australian Bank, to provide the convenience of multiple currencies under a common management platform. It provides for fund transfers on a 24-hour basis, 365 days a year in any of the ten designated currencies and no delayed processing of a foreign exchange transaction. It also offers higher interest rates compared to a regular savings deposit account.
Factors Contributing to Singapore’s Success
There are three main reasons why change worked and Singapore became a successful story. Number one: the ruling elite realised very soon that they need to take a global strategy. In the 1960s, they couldn’t feed people. They needed to take three different approaches. At that time, developmental economists agreed that to stop piracy and at the same time economic growth, you need to create an environment where people can further develop. Countries like Hong Kong, Taiwan, and Korea did so, but Singapore did so much more successfully in terms of its competition. In Europe, only Greece had less credible elite than Singapore. Then, the one-way attitude started something that is in the books of economics, is now called the Singapore paradox. Some call it paradox because hierarchy had no formal checks and balances. There are also some negative aspects. Indeed, from my point of view, these three elements worked well.
The interesting question, of course, would be: What are the contributors to Singapore’s success? From my point of view, there are three important simple concepts. Firstly, we have to see whether the system was worked by choice. Secondly, the quality matters. Thirdly, sustainability in terms of governance structures and behaviour of citizens. Singapore is an interesting case to observe because it’s a little bit isolated. There is no natural resources, only between 3% and 5% of the GDP base of the oil industry. Nevertheless, Singapore is now ranked number one on the list of innovation countries.
Regulatory Framework and Investor Protection
In recognition of the need to have an appropriate regulatory framework to support the development of a vibrant Trust and Wealth Management Singapore, the Trust Companies Act was enacted in 2005. However, in its current form, the TCA is regulatory over-prescriptive and appears to have been designed with the traditional family office structure in mind where the trustee of the underlying family trust is a corporate entity. Unfortunately, while we all agree on the need for flexibility, with Singapore’s growth in talent to consolidate its position as the leading global wealth management hub, we need to manage the trade-off between flexibility and creating a regulatory haven for dubious activities. Albeit, it must be realized that the dubious activities may not always reside within the Trust and Wealth Management space. Given the significant shift towards open architecture as well as transparency in reporting, traditional banking secrecy and trust activities offering nominal and bare trust services are not activities that are the focus of trust companies in Singapore.
In the 1960s through to the late 1970s, the focus was on expanding our loan syndication business and our leases and credits business to the region and Africa. We did bond and equity flotation, unit trusts operation financing largely in the area of real estate and commodity-related activities from the late 1970s through to 1985. Singapore then established itself as the International Financial Hub in 1985, focusing mostly on Offshore Bonds and its related activities such as custody, fund management, administration, legal, and accounting services. As for in 1985, the major contributors of our finances into the sector were largely multinationals such as IBM, Royal Dutch Shell, Nokia, etc. It was a challenging effort to change the business preference from that of International Companies to that of Institutional Investors, who are the gatekeepers to the financial market which we hope Singapore will be the central of in this region.
Singapore has certainly grown from strength to strength. However, amidst our aspiration to transform Singapore to a success higher on the value chain, we have forgotten that every significant change in our journey as an international financial hub was a result of significant external pressures on an international scale and we had adjusted and coped through painful changes.
Strategies for Preserving and Growing Wealth
Certainly, if everyone starts investing in the industry, that means returns go down! You have to be careful in identifying the opportunities. Growing returns in the sugar industry is a simple matter of growing sugar per log. This fact has been well known for two hundred years. Almost all the heyday companies in the sugar industry were sugar-growing companies. In recent times, the industry was concept-bound in Europe surrounded by mountains of butter and sugar. Agricultural wages became high and higher. People stopped investing. Last year, British sugar had the best results in its history. It was the industry that delivered the highest shareholder returns over the period. Shareholders in British sugar have had a compounded annual total of 0 percent for the past 18 years. Can you believe that?
Every investor in the world, regardless of how seasoned, will agree with me on this – there are no sure returns. But, I believe there are good chances. What I am trying to address is – where are those good chances? They can be in particular industries. If you look at the world, every stock is good for someone else. If you know where to look in particular markets, how to look and manage your risks, there are particular industries which are very attractive. There is no better industry to invest in than the sugar industry. Most people find my statement surprising. Growing and preserving your wealth is about making money; investing in the industry doesn’t seem to deliver. This is where I must tell you that you have to understand the business model before you understand how to invest.
Diversification and Asset Allocation
This ensemble of relatively high yielding income assets that are mostly not performance-correlated between themselves can provide diversification to a portfolio, in our view. Equities are expected to provide the most significant yield enhancement over the medium to longer term, and more will be allocated here to achieve a balanced risk to returns profile. A large part of the non-equity assets (representing 25%) in this recommended combination could be managed to provide a consistent 4–6% yield over the longer term to make up for the large losses and outperformance experienced by capital-market instruments that include equities.
In our view, a healthy portfolio mix could include the following: Equities (30%) – for higher capital appreciation opportunities; High Yield and Investment Grade Bonds with Maturity above Singapore Savings Bonds (10%) – for income generation with low volatility risks; Reits and REIT-Like Instruments (5%) – for income needs; Gold, Commodity and Low Volatility Instruments (10%) – as they generally have negative correlation with equities and traditional bonds, and can also provide capital appreciation over the longer-term.
In general, higher risk opportunities are usually expected to provide higher yield. In an age of low global returns on safe deposits, you are forced to contend with assuming greater risk to seek higher returns. Thus, when allocating your portfolio, consider those investments that can potentially offer significant returns at manageable risk levels, rather than large amounts of funds at very low returns.
The age-old adage: “Do not put all your eggs in one basket” still holds true today. This is the foundation for diversification across various baskets to reduce your overall risk. However, over-diversification can also cause non-material losses, such that your basket of eggs becomes a basket of pebbles with no reward to be had. The key then is to identify the smart baskets and the insignificant ones for your investment needs.
Investment Planning and Risk Management
You need to carefully consider how much post-retirement risk you are willing to take. Look at how time frames are structured to ensure flexibility and appropriate responses around your spending needs. Are you really comfortable potentially taking a pay cut each time markets dislocate? For many, life events will mean that some losses will be inevitable, but you should still focus on minimizing such occurrences. Whether you are a pre-retiree or a retiree, the immediate and long-term financial implications are important. Understanding how much risk you are really willing to take is the first step to building a comprehensive income plan that can withstand varying market conditions. Even retirees with financial portfolios most likely have a desire to leave a legacy for a surviving spouse, children, friends, or favorite charitable organizations. Our plan will explore leaving a legacy, the most effective ways to structure it, and what some of the associated risks are when participating in foreign estate planning. Make a comprehensive plan for your family today. Understand what risks you are potentially taking.
Risk is always the starting point in a financial plan. Our challenge is to manage and assume precisely the right amount of risk in order to achieve a given set of goals. These include purchasing a house, financing our education, and having enough money to retire. What we must do as financial advisors is ascertain the highest degree of security that we can provide in relation to the specific benefits required by the individual, at the lowest possible cost. We are following existing best practices in moving towards multi-asset class investing. This ensures better diversification and mitigation of risk through proper asset allocation – a core principle in investment planning that will ultimately reduce overall portfolio volatility.
Tax Planning and Wealth Preservation
The recent update of the Singapore estate duty tax laws has, in general, positive effects on the attractiveness of Singapore as a wealth protection and succession jurisdiction. Whether tax treaties are entered into by Singapore with other countries is unlikely to be materially affected or altered for the purpose of wealth planning in any meaningful manner. The main concerns in such structuring are potential exchange of information through the Common Reporting Standard (C.R.S.) and substance requirement in order to demonstrate the genuineness of the domicile in Singapore, murmurs Dan. We believe that the change of laws, especially pertaining to wealth preservation and succession, affects some local and foreign ultra-high net worth clients, and high-net worth Club members somewhat but in general U.H.N.W. clients view estate planning and business succession more as a traditional, seamless exercise as the purpose of every well-structured family business.
The effect of taxes on one’s wealth can never be underestimated. Recent changes to tax law in Singapore have made it more tax-efficient to pass on assets to the next generation. Earlier, the amount of estate duty collected in Singapore was so insignificant that it was eventually abolished in legislation passed in 2008. Today, more than a decade later, the Singapore Budget 2015 has again updated the inheritance tax laws, with the stated aim of increasing Singapore’s attractiveness as a trust jurisdiction and a wealth management hub. We asked our panel of experts for their views on the changes and the impact of these recent changes on tax treaties and structures for the U.H.N.W. clients.
Estate Planning and Succession
Graduating from the renowned University of Hertfordshire, Balasubramaniam Wee started his career in the UK by taking up various finance and risk-related roles in a bank. On returning to his native Singapore in 2007, he worked for a private bank before joining a financial advisory firm in 2011. While working there, Balasubramaniam Wee realized the potential of independently overseeing and managing client portfolios without having to sell products. This inspired him to start his own financial firm, Prosperity Partners, in 2015. The firm provides a comprehensive range of financial services, including investment, retirement, estate and legacy planning, and tax and succession planning, and has helped parents, such as the examples shared below, plan and provide for their children’s impending wealth.
If you are self-employed or own your own business, without proper planning, a significant portion of your estate could end up in the wrong hands. This is where wealth management and inheritance planning comes in, to ensure that your investments, properties or businesses get passed on to the right people after you are gone. Without a will or an endorsement from a guardian or trustee, your child will receive your share of approved or recognized investments as an individual who is under 21 years of age. As with a CPF account, these investments must be ‘vested’ (transferred) to your child’s legal guardians by the Public Trustee Office until your child reaches the age of 21. If a child who is an orphan or if both parents are disabled suddenly inherits millions of dollars at age 21, it can be many things, including emotional and psychological problems, protection against unforeseen creditors and especially from gold diggers, successful education planning and execution, preservation of assets for the next generation, and tax implications on the distribution of wealth and assets.
