Why Singapore is the fastest growing private wealth management hub

Recent years have seen Singapore become the fastest growing private wealth management hub in the world, with that trend expected to continue.

A significant driver of the private wealth management growth in Singapore has been directly tied to the scandals that have overtaken financial managers in Switzerland itself.

Money laundering and criminal enterprises operating in Switzerland have led to significant penalties being incurred by some of the largest Swiss wealth managers like UBS and Credit Suisse. This and other pressures have also resulted in the Swiss financial system providing a great deal more cooperation with overseas regulators, scaring some investors who ultimately moved their funds to Singapore.

The relative maturity of the Singaporean regulatory system make it an attractive destination for overseas investors who want their accumulated wealth to be safe and well managed. The Monetary authority of Singapore has also taken a tough stance on criminal enterprises holding money in Singapore, making it a criminal offense for banks themselves to hold money laundered overseas.  

 

A Local Hub

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While there is a significant influx of funds from Europe and North America much of the growth in Singapore’s private wealth management sector originates fare more locally.  

Surrounding countries like Indonesia, Thailand, and the Philippines are the source for a great deal of the sector growth in Singapore, as funds coming from these countries are far less scrutinized than that coming from Western countries. These countries also lack the sophisticated markets and regulatory environments that make investors feel secure that their funds will be well taken care of.

Lack of scrutiny on transferred funds and relative safety of investments prove to be an attractive draw to high net worth individuals in these countries seeking to protect their nest eggs. Additionally, with the regulatory environments in those countries being relatively unsophisticated there is little oversight by their local tax authorities over funds held in Singapore.

 

Transparency and Information Sharing

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A key consideration with placing funds in Singapore is that the country does not share banking information with outside regulators. Information sharing, namely with US tax authorities but also with others, ultimately resulted in a great deal of the fund outflow from Switzerland that has occurred in recent years.

This can appear somewhat contrary because the internal Singaporean financial market is heavily regulated and increasingly transparent. Private wealth held in Singapore will be taxed locally on income generated in a portfolio and the participation of Singaporean based accountants is a requirement. This means that internally the information sharing and transparency is extensive, but externally there is little transparency or information sharing.

As Singaporean banks and financial institutions face little of the same pressures faces by the Swiss based ones there is less likelihood that this approach will change in coming years. As a result, investors, local and from Western countries, look to Singapore as a long term option to protect their accumulated private wealth and ensure they can maintain privacy in their dealings.

 

Ease of registration and taxation regime

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To facilitate growth in the general business operations and tax base in Singapore regulators there have made it relatively easy for legitimate business interests to operate from Singapore.  

This benefits the private wealth management sector also as it facilitates the establishment of holding companies as investment vehicles. In addition to this, the taxation regime in Singapore has a far lower effective tax rate for these investment vehicles than that seen in Western countries, though taxes do still exist unlike zero-tax payable havens that do exist.

 

Regulatory Changes in Europe and North America

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A key driver for private wealth management in Singapore has also been the exit from the sector by European and U.S. banks.  This may seem counterintuitive, as banks exiting from the Singaporean market and Asia in general would seem to imply that the business there is shrinking.  However, the business represented by these firms and their divestiture of assets has been snapped up by local banks and businesses.  

The reason for these firms exiting from their Asian operations has largely been driven by increased regulator involvement in their home countries that would apply to their Asian operations as well.  This would make their costs higher, when competing with domestic Singaporean institutions, and also mean they would have to provide a great deal of information on clients with regulators and tax authorities.  As this would put them at a systemic disadvantage when competing with local banks and financial institutions many decided to sell their operations or pull out all together.

The net impact is that the Singaporean based banks and financial institutions grew as there were fewer service providers to service a growing client base.  This further boosted the trend of Singapore growing as a global wealth management hub.

 

(By Jeffrey Glen)

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