Emerging HNWI Trends Arising From The COVID-19 Pandemic

August 1, 2021

As we approach the two-year mark of the ongoing pandemic, it is clear that there has been a marked shift in the strategies of wealthy families. Spurred by changing priorities and socio-economic landscapes, families are even more motivated to ensure security and freedom of movement for their generation and the next.

This article will discuss several learning points from the pandemic and the wealth planning trends which have arisen as a response.

Importance of security and freedom of movement

The global closing of borders has high-lighted several priorities with wealth planning, two of the most important being security and freedom of movement.

The concept of security is multi-dimensional (e.g., health security, political security and tax security). Highlighting the need for health security, we have seen the pandemic-causing overburdened healthcare systems in some countries and in more unfortunate circumstances, the need for extended self-isolation to protect families from mass outbreaks in the population. Political and tax security have also been tested as some countries struggle with economic and social-political crises made worse by pandemic.

Even outside of the pandemic, the risk of expropriation and political events (such as Brexit which brought the UK out of numerous bilateral tax agreements) make tax security a prominent factor for consideration. Ultimately, security is the goalpost for many successful families.

Freedom of movement is also a factor which has been become a fast priority in light of the COVID-19. The pre-pandemic ideal of travelling to and from different places of residency was challenged as many countries sought to restrict travelers coming from. As a result, alternative residency and even permanent relocation has become the next clear answer for many of our clients who want to focus on establishing their families’ security.

Need to anticipate risks

Alongside reprioritization, families need to anticipate and plan for cushions against risks. The lack of a rule book for the pandemic and a post-pandemic future creates a lot of uncertainty as to how governments and the economy will respond.

In particular, the pandemic has financially strained governments across the world. In turn, there is a pressure to raise revenue and fiscal responses are expected.

As examples, Indonesia has disbursed approximately 3.8% of its GDP as part of its national economic recovery program (PEN), and had expanded its budget to 699.4 trillion rupiah for 2021*. The United States of America, in turn, has implemented the CARES Act (11% of its GDP) and the American Rescue Plan (8.8% of its GDP) as parts of its policy response to the pandemic**.

To adapt to the current climate, families should look towards ensuring that they have adequate cushion should such risks arise. With investments, it is the standard for prudent investors to diversify across different regions and asset classes.

The same principle of spreading risk should apply to personal planning. Access to different jurisdictions further allows families to spread their assets. In addition, it expands the opportunities available and lowers exposure to country-specific risks such as weak health infrastructure, higher tax burdens or un-expected policy changes.

*Policy Responses to COVID-19, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 **Ibid.

Rise of mid-shore jurisdictions

Parallel to potential policy responses, there has been a global movement away from offshore structures of the Cayman Islands or Bermuda.

The Organization for Economic Co-operation and Development (OEDC) has mandated the Common Reporting Standard (CRS) which facilitates the voluntary exchange of financial information with other jurisdictions has been signed by 105 countries, including traditional offshore centers*. This movement limits the effectiveness of parking mobile investments in low tax jurisdictions.

Instead, focus is increasing on mid-shore jurisdictions such as Singapore and Hong Kong. Mid-shore companies benefit from more favorable tax rates, and having the flexibility to reside and open bank accounts anywhere in the world. Mid-shore jurisdictions also provide the advantage of having sophisticated banking, financial and legal infrastructure to support businesses.

According to a report by Vistra which surveyed 620 corporate serves executives, Singapore is placed first in global jurisdiction rankings, before the United Kingdom and United States tied at second**. This is owing to its political and economic stability, and active efforts by the Singapore government to increase its attractiveness for fund management and wealth planning activities.

*Common Reporting Standards (CRS) – Organization for Economic Co-operation and Development, https://www.oecd.org/tax/automatic-exchange/common-reporting-standard/
**Is Singapore nudging ahead of Hong Kong as Asia’s preferred financial hub?, https://www.vistra.com/insights/singapore-nudging-ahead-hong-kong-asias-preferred-financial-hub

Importance of planning

Where it comes to investing in lower-risk or mid-shore jurisdiction, either through alternative residency or citizenship, planning is critical. Time is a large factor that can hinder the transition. Naturalization in a country requires a significant time investment – countries like Singapore, Switzerland or the United States minimally require 2 years of permanent residency before citizenship becomes an option. On the extreme end of examples, individuals can apply for UAE citizenship only if they have resided in the Emirates for 30 years. Such time investment disallows business-owning individuals from frequently travelling back to their home countries where their business necessitates it.

An option that some countries provide is investment-linked permanent residency programmes. Such programmes enable wealthy families a fast-track route to relocate and gain the right to live, work study and receive healthcare in their new country of residence. For Singapore, the Singapore Global Investor Programme (GIP) enables ultra-high net worth families and successful entrepreneurs to obtain permanent residency in Singapore through various investment options.

Planning is still important where it comes to investment-linked permanent residency programmes and families should seek professional advice to plan ahead. The GIP process is a highly selective programme and takes an average of 9 months from the date of formal submission of an application to obtaining permanent residency status.

Seek professional advice

Proactivity is important with seeking the right advisors with your wealth planning in addition to early planning. Professionals can help advise you, and keep you abreast of recent developments and trends. With tax, engaging a tax advisor can help with diversification of your assets across jurisdictions and help you mitigate exposure. An immigration service provider can provide you with a roadmap towards obtaining alternative residency and navigate the many unwritten rules which the unadvised may fall foul of. Getting proper advice from such professionals ensures that you avoid unexpected surprises and take the most effective route towards your goals.

Conclusion

At Sim Mong Teck & Partners, we have a suite of bespoke services catered to you and your family’s needs and goals. As the experienced immigration lawyers for many successful entrepreneurs and ultra-high net worth families’ individuals, we understand the local landscape in Singapore and can help you towards achieving residency in the city. We also work in close partnership with established tax advisers, and collaborate with our partners to evaluate the big picture and take action.

Should you or your clients be interested a consultation with us, please feel free to contact our Business Development Team to schedule a meeting with us. We look forward to talking to you.