HNWI Wealth Preservation: Key aspects to consider in 2020.

Across the globe, High Net Worth Individuals (HNWIs) an Ultra High Net Worth Individuals (UHNWIs) are facing increasing challenges in preserving their wealth and avoiding opportunistic taxation. In the era of social media mobs directly influencing public policy and regulation, the risks associated with sudden punitive wealth taxation has increased dramatically.

For individuals having come into wealth relatively recently, two key considerations are portfolio diversification and wealth preservation. The need for strategic and considered risk management informs both. Within the context of greater cross-border transparency and intergovernmental collaboration, maintaining your personal and financial privacy becomes increasingly difficult.

At the heart of these developments is a steady corrosion of civil liberties. By employing a holistic approach to wealth preservation proactively, HNWIs can mitigate these risks – but with public and political sentiment fast turning against the rich, now is the time to take action.

HNWI Portfolio Diversification

As a basic investment principle, diversification reduces financial risk. Yet in 2020, the shrewd investor’s planning needs to go beyond mere asset class selection. Key areas of concern include:

  • ASSET CLASS: Given that global markets are overheated, the world’s well-heeled are increasingly looking to alternative asset classes for market-beating returns. While real estate has long been a mainstay for the wealthy, art, private jets, classic investment cars, ultra-premium wines and spirits, high-end time pieces, yachts and cryptocurrencies are all increasingly being included in HNW and UHNW investment portfolios.

 While cryptocurrencies across the board are characterised by high levels of volatility, these are being put to use, alongside gold and silver, as a hedge against fiat currencies – especially by those with privacy concerns.

  • INVESTMENT CURRENCY DIVERSIFICATION: Local currency investments can hold substantial potential yields, but especially in emerging markets, can also hold significant downside risks. Investing in more stable world currencies can help mitigate these risks, and is essential from a wealth preservation and growth point of view.

  • TAX JURISDICTION SELECTION: For those seeking to preserve their wealth and leave a lasting global legacy, choosing the right tax jurisdiction within which to hold their assets is vital. This consideration overlays with citizenship planning; HNWIs are increasingly choosing to obtain second citizenship by investment in countries with low corporate tax rates and an absence of wealth, estate and capital gains taxes.

Combined with optimised, company-based structuring, Monaco, Malta, Cyprus, Vanuatu and Portugal are perennially popular destinations, with Montenegro increasingly attracting a new class of migrant investors focused on asset preservation.

  • SECOND RESIDENCY OR CITIZENSHIP: Given global volatility and a range of emerging social, economic and political threats, having a “Plan B” has become essential for affluent investors. And it’s not just for HNWIs from the developing world; increasingly, North Americans, Singaporeans and Hong Kong nationals are obtaining second residency, citizenship or a combination of the two as a bolt-hole should the situation in their native jurisdictions deteriorate suddenly.

For investors with concerns around privacy, opportunistic taxation and other forms of government overreach, dual citizenship has become more of an essential than a luxury.

HNW Wealth Preservation & Asset Protection

The greater the wealth you’ve amassed, the more urgent the need to safeguard your assets and future-proof your position. In a world characterised by increasing cross-border regulation and greater transparency, traditional structures increasing falling in short in safeguarding HNWI’s assets.

While trusts and companies can often be effective asset holding vessels, there are instances when they are not. In European jurisdictions such as Malta, Portugal and Cyprus, for example, company based structures are utilised, rather than trusts.

In other instances, products such as Private Placement Life Insurance (PPLI) or offshore based life insurance wrapper products can be employed to create an enhanced level of privacy, while also ensuring a discrete and more tax-efficient transfer of intergenerational wealth.

Creating wealth is one thing; preserving it another. Working with an expert wealth advisor, you can identify the appropriate combination of asset class, investment currency, holding structure, tax residency jurisdiction and second citizenship that will best protect and enhance your wealth.

Contact us today for more information.