Concerns that massive amounts of money will leave offshore wealth managers on the back of regulations are overblown, according to the market head, South Asia at Union Bancaire Privée.
A recent Oliver Wyman report has found that Asia Pacific’s repatriation outflows, driven by tax amnesties and the Automatic Exchange of Information rules, will hit $520 billion by the end of 2018. Indonesia recently carried out a nine-month tax amnesty programme for taxpayers holding undeclared assets offshore.
‘Outflows stories are exaggerated. When you look at the [Indonesian] tax amnesty, it was an extremely well thought-out and well-executed amnesty. I did not see any big outflows. The clients have stayed,’ Ranjit Khanna told Citywire Asia.
Nonetheless, the tax amnesty has been the biggest concern for clients from Indonesia in recent months, added Febby Avianto, market head for Southeast Asia.
The tax amnesty bill, which concluded in March, has offered Indonesians a chance to declare and repatriate assets for concessionary tax rates. It also waived administrative and tax criminal sanctions.
Singapore was the largest source of repatriation funds to Indonesia, as many Indonesian high net worth (HNW) individuals count the city-state as a second home. It accounted for IDR 84.25 trillion ($6.2 billion) or 58% of total repatriated capital to Indonesia.
There have been two big changes in wealth structuring attitudes post-amnesty, according to Khanna.
In a wealth market dominated by business interests, especially manufacturing and property, Indonesians are now questioning the efficacy of segregating their assets. ‘Many are looking at monetisation or “dollarization” of their IDR assets, because it’s all declared,’ he said.
‘Tax amnesty is still on top of mind for clients. They are in the process of restructuring till end of this year, because the next reporting is in March 2018. This is very crucial for clients, especially those with businesses,’ said Avianto, adding that it is creating demand for wealth planning services.
Clients are also looking at mutual funds because the returns are easier to calculate than securities, making it easier to report their tax obligation for offshore assets. Most of the wealth in Indonesia is unmanaged, with a strong demand for advisory from those who approach wealth management firms.
‘Historically, clients have used advisory services for FX and fixed income, but they are increasingly going into discretionary as well because it will help them structure their wealth,’ said Khanna. The combined proportion of advisory and discretionary mandates is at 30% at UBP.
The Swiss private bank, which currently manages CHF 12 billion ($12.3 billion) in Asia, has identified Indonesia as a key growth market following the acquisition of Coutts’ private banking business in Asia in 2015. It has made a number of senior hires to build out its Indonesia team, which now stands at 13 members, including 8 relationship managers with local knowledge.
UBP is banking on this local expertise to grow its offshore business in the Southeast Asian nation. While other wealth managers are focusing on greater Jakarta and other major cities, the bank is also targeting HNW and UHNW entrepreneurs and C-suite executives in tier-2 and tier-3 cities, such as Surabaya, which are seeing rapid growth in wealth as businesses expand. The minimum entry point for clients is $2 million.
There are no plans to go onshore for now, but UBP is on the lookout for local partners. Khanna hopes that the Indonesia will soon lead the pack for their South Asia business, which includes Singapore and Malaysia.
‘You can’t have a comprehensive South Asia strategy if you don’t have a well-structured Indonesia plan,’ he said.