Asia’s rich wary of global banks managing money: Portcullis TrustNet

(Reuters) – Wealthy Asians are increasingly wary of letting banks look after their money and would rather use smaller asset managers instead, according to one of the region’s leading lawyers to the ultra rich.

David Chong, chairman of Asia’s largest independent trust company, Portcullis TrustNet, said huge fines imposed on banks for helping clients evade taxes, along with scepticism over the objectivity of bank advice is prompting affluent Asians to look elsewhere.

“Increasingly, wealthy families do not trust the big global banks,” Chong said at the Reuters Global Wealth Management Summit.

“They certainly don’t look to the global banks to go and manage their wealth, so obviously they are looking at the boutique asset managers.”

Independent firms currently make up a tiny part of the Asian wealth management industry, which is dominated by large banks such as UBS AG (UBSN.VX) and Citigroup Inc (C.N). But the number has been growing recently, with an estimated 25 independents setting up in the past four years in Singapore alone.

The rise has been partially attributed to the objectivity afforded by firms charging set fees, in contrast to the traditional practice at banks where private bankers earn commission by selling certain products.

Independents’ popularity has also been boosted by a series of tax investigations into Swiss banks. Last month, for instance, Credit Suisse Group AG CSGN.VS agreed to pay $2.6 billion to U.S. authorities for helping U.S. clients evade taxes.

The investigations have made many wealthy people who were relying on banking secrecy realize they need to engage in proper tax planning, Chong said.

DIVERSIFICATION

Portcullis TrustNet serves thousands of wealthy Asian clients by establishing trusts and companies through which to manage their money, and Chong said the region’s rich are making sure they keep their money in several different countries.

“It’s not an issue of evasion of taxes, it’s diversification of risk,” he said at the summit, held at the Reuters office in Singapore.

“What they are trying to do is diversify risk so if any government tries to confiscate their wealth – not because they have done wrong but because they (the government) need to replenish public coffers – at least they are much more diversified.”

Last year, many Russians who had accounts at offshore banks in Cyprus lost money when the government seized money from big savers as a condition to secure a 10 billion euro ($13.62 billion) bailout from the European Union.

“There are extremely wealthy people who are extremely worried about confiscation of wealth,” said Chong.

LEAKS

Portcullis TrustNet made headlines last year when a cache of data about thousands of its clients’ financial arrangements was published by the International Consortium of Investigative Journalists (ICIJ).

The ICIJ highlighted from its “Offshore Leaks” dossier how a string of wealthy, politically connected clients of the firm, including relatives of Chinese President Xi Jinping, were using offshore financial centers to manage their money.

The ICIJ said their findings showed how financial secrecy allowed the rich to dodge taxes.

Chong said the data was stolen and that it showed he and his clients had done nothing illegal.

“If I deal with stolen property, they would call that money laundering. If journalists deal with stolen property, they call that freedom of speech,” said Chong.

He said he has since spent an unspecified “small fortune” putting in new computer systems and had a consultancy firm review the firm’s cyber security.

“Clients have been hopping mad, but they haven’t blamed us thankfully.”

The spotlight on the use of offshore centers to manage money has spurred a change though. Rather than use trusts or companies in jurisdictions typically associated with tax avoidance schemes such as British Virgin Islands or Cayman Islands, Chong said wealthy Asians are now using similar structures in Asian financial centers.

“Demand for Singapore companies has shot up, demand for Hong Kong companies has shot up, demand for offshore companies has gone down,” he said.

“The Singapore brand name is much better than an offshore company, although tax wise there’s frankly no difference,” Chong said, adding that staying in the region also suits his clients’ business needs better.

Globally, the wealth industry faces growing regulatory burden such as increased client due diligence as well as increased transparency, but this does not worry Chong from a business perspective.

“I always welcome more regulation, regulation is good for our business,” he said.

“In the past people relied on banking secrecy and obviously clients don’t need people like me if all they do is rely on secrecy – they just hide their money. Now they need to plan properly.”