Every region across the world is currently facing the great wealth transfer.
The biggest scale of wealth is being passed down through the generations – and with high value assets at stake – advice is vital.
But unfortunately, not every region is ready for the transfer.
According to global wealth manager Lombard Odier, 87% of high net worth individuals in the Middle East believe their family business is structured to allow for an “efficient intergenerational wealth transfer”, however, just 24% have actually set out an estate plan for when the younger generation takes over.
International Adviser spoke with several UAE-based advice and wealth firms to discuss whether the region is ill-prepared for the wealth transfer.
Wealth transfer brushed aside
Investors need to make sure they are ready for the wealth transfer and succession planning.
So, why are HNWs not looking towards succession plans despite the vast sums of wealth at stake?
Hannah Greenwood, managing director of Finsbury Associates, said: “This is a significant growth area and I believe that a lot more HNW individuals now recognise the importance of this as they understand the implications that inadequate succession planning can cause. Cross-border estates with different international laws and tax implications require specialise advice and it is vital that this is done correctly in order to maximise the transfer of wealth across generations.
of knowledge or trust in the quality of advice is a big contributor. Many also believe that rules and regulations do not apply or that it will be someone else’s problem.
“Families with assets in multiple jurisdictions fail to appreciate that they could be exposed to taxes and the impact it would have in the event of their demise, not only on their family but the businesses they head. Also, with the foreseeable amount of wealth transfer in the region set to run into the trillions, it is the responsibility of families to plan, otherwise it will be lost within a couple of generations.”
But all is not lost.
In August 2022, the Dubai International Financial Centre (DIFC) launched a global family business and private wealth centre to help individuals and families in the region and worldwide.
Mochar said that the private wealth centre is “a very positive move by the DIFC”.
“Private wealth is growing and being able to offer individuals and family offices a dedicated platform is a step in the right direction,” he added. “DIFC is ideally located between the traditional financial centres of Asia and Europe, and with its legal structure, compliance, and regulatory framework present an excellent alternative.”
Greenwood added: “This is a great advancement for both the UAE and for the DIFC. The UAE is becoming the residence of choice for many HNW individuals and families, especially with the introduction of long-term residence visas such as the golden visa, so this is a key milestone for the DIFC and will help anchor Dubai as the global hub for leading financial institutions and businesses.”
Sean Kelleher, chief executive of Mondial Dubai, said: “Time will be the witness on whether a private wealth centre is successful or not. However, the Lombard Odier survey should not be a surprise. Shariah Law is Sharia Law and if families are intent on complying, they don’t need too much advice. Why pay for something which is already enshrined in law and which you accept?
“Therefore, where advice may be needed and valuable is for families who have preferences outside of what Shariah Law asserts. Clearly, as the golden visa and other residency initiatives grab root the number of expatriates and mixed religion families will grow in number and demand for options will increase. This might build a wind behind the private wealth centre sails.”
Demand for succession planning
As Dubai and the UAE opens its doors to more expats, the private wealth landscape needs to change. People who move to the UAE will need more access to services to help with wills, inheritance and assets elsewhere.
The DIFC centre could be the key to this.
Finsbury Associates’ Greenwood added: “Succession planning is so important, particularly for high net worth individuals.
“This launch will hopefully help raise awareness of its importance and help individuals and families navigate the challenges associated with succession planning, ensuring a smooth transition of assets and businesses throughout families.”
The succession planning process is vast and complex. There are many matters to take care of for investors.
But what are the biggest issues facing HNW clients in the UAE?
Globaleye’s Mochar said: “Firstly, being aware or understanding what they want to achieve is important. Once they know, the execution of those plans is next. There is a dearth of knowledge and expertise not only with clients but in the advisory community as a whole.
“Effective estate planning requires that legal, fiduciary, banking, insurance, trustee and realty professions are around the table in collaboration. To date, clients are treated in silos, so there is little in the way of a condensed strategy to deliver the correct outcome.
“Also, working with a firm(s) that has experience in this planning area is critical. The landscape is continually changing, and what worked historically might not work in the future; therefore, a dynamic advisory function must prevail.”