This news service was in Singapore to talk to a senior figure in the world of independent wealth managers in the Asian city-state and surrounding market. We discussed regulatory changes to single-family offices, strategy, the challenges for EAMs, and more.

Singapore is a major centre for family offices and external asset managers. Famously, Eduardo Saverin, the Brazilian angel investor who is one of the co-founders of Facebook, runs his investment business, B Capital, from Singapore, for example. Nadathur, the family office of Nadathur S Raghavan, co-founder of India's Infosys, also operates in the city-state (as well as London and India.) 

The advent in 2020 of Variable Capital Companies (VCCs) in Singapore was a big draw for the wealth sector to the jurisdiction. The authorities have been cautious, however. They have tightened rules: For example, Singapore requires that SFOs must steer part of their assets into Singapore in order to retain certain tax breaks.

While there has been tremendous growth, such expansion can cause indigestion, and regulators know that attracting large inflows can also cause problems.

Compliance for anti-money laundering for example, is a hot topic in Singapore, as is the high cost of owning/renting real estate. These pressures require the financial industry to be nimble and vigilant. 

This publication took the opportunity to interview SingAlliance Pte co-founder Jolene Tan, and president of the Association of Independent Wealth Managers Singapore. (We interviewed Tan two years ago.) In this conversation, we ranged across a number of topics. 

WBA: In April 2022, MAS raised the minimum criteria for single-family offices by increasing hiring requirements and introducing a new requirement for family offices to invest at least 10 per cent or S$10 million ($7.45 million) of their assets (whichever is lower) in local investments. In your view, how has the industry adapted? Has this changed it for the better?
Tan: These changes have indeed narrowed the pool of eligible families, ensuring that only those with substantial assets can establish an SFO. This aligns with the original intent of an SFO, which was reserved for families with larger asset sizes. Additionally, by tightening the criteria, Singapore addresses the misperception that the SFO scheme could be used as a tool purely for global citizenship, thereby focusing on families with a genuine commitment to building and managing their family office here.

From a broader perspective, these changes are positive for the industry in Singapore for upholding the integrity of the ecosystem and enhancing its quality. The new rules reduce the risk of bad actors misusing the SFO scheme and ensure that the growth of the SFO sector is sustainable and built on a solid foundation. This ultimately creates a more robust and trustworthy industry to strengthen Singapore's reputation as a trusted and well-regulated financial hub. 

WBA: In your view, what other regulatory changes from MAS and the government would you like to see and why? 
Tan: There is room for more emphasis on enhancing transparency in the fee structures of EAMs. Ensuring that the industry fee structures are truly client-centric is crucial. I believe that it is important for clients to better understand what they are paying for and how it aligns with the service and value they receive. This is paramount in fostering greater trust between clients and EAMs, and ultimately in promoting a more sustainable industry. 

WBA: Where is the Monetary Authority of Singapore placed with a second version of the VCC structure? What are the key issues at stake in an updated VCC structure? 
Tan: MAS is still navigating the development of VCC 2.0 and it remains to be seen. While we are awaiting specific details to emerge, key considerations include enhancing the flexibility for existing funds to convert to VCCs and broadening the eligibility criteria to encompass a wider range of market participants.  

WBA: DBS and a number of other firms have launched offerings to cater to the SFO space. Do you think banks are now serving family offices well? 
Tan: It is encouraging to see banks catering to the SFO space but it may still be too early to determine their effectiveness in meeting SFOs’ needs. Banks must navigate the interests of various stakeholders, often prioritising revenue generation, which can lead to sales pressure and potential conflicts of interest. 

In that same regard, families require a diverse array of services to address their unique and complex needs. Banks, constrained by their internal product offerings, may lack the flexibility to provide the most suitable solutions compared with EAMs/MFOs.

However, one area where banks may hold an advantage is their extensive global reach, which enables them to provide comprehensive jurisdictional services. This can be particularly valuable for families with global interests, offering a level of service that EAMs or MFOs operating in only one or two jurisdictions may not be able to. 

WBA: You have mentioned the cost of doing business in Singapore as an issue, such as finding the necessary talent. How significant is this, and what if anything can be done? Are you seeing a lot of outsourcing/offshoring of certain functions?
Tan: There is a shortage of talent in individuals who possess both an entrepreneurial mindset and the ability to empathise from the client's perspective. This is exacerbated by intense competition, as SFOs, private banks, MFOs, and EAMs all vie for the same pool of talent. The situation is further intensified by new EAMs entering the market with remuneration models that diverge from standard practices, adding another layer of complexity.

Additionally, factors such as inflation, rising compliance cost and stringent regulatory scrutiny – especially concerning AML measures and IT security risks – escalate operational costs. This necessitates greater investments in manpower and technology which has prompted more firms to outsource, particularly in compliance functions. However, it is crucial to maintain vigilant management oversight to ensure accountability and adherence to regulatory standards. These escalating costs and regulatory demands also lead to consolidation within the industry, as smaller setups find it increasingly unsustainable to operate. 

WBA: In February 2023, the Singapore government granted donors with family offices in the city-state 100 per cent tax deductions for overseas donations. This seems designed to propel the philanthropic side of the sector. Have you seen any examples of how this is playing out? 
Tan: Although it is still early to observe widespread examples of this policy being implemented, the initiative has been positively received and is anticipated to significantly boost Singapore’s philanthropic landscape. Nonetheless, it is important to note that meeting the stringent requirements of this tax incentive would likely necessitate the involvement of a well-established and substantial SFO capable of committing to high standards. 

WBA: While exact figures aren’t easy to pin down, do you have a rough idea of how many EAMs now operate in Singapore? In the past five years, has the number risen/fallen?
Tan: As of end 2023, MAS has reported approximately 138 EAMs. Over the past five years, this number has indeed risen, reflecting an increase in the presence of EAMs with diverse business models entering the market.

WBA: Has the maturation of a new generation of HNW individuals in the region been, on balance, a net benefit for EAMs and their presumed independence?
Tan: The new generation of HNWIs often have more sophisticated needs with a strong preference for personalised wealth management solutions. This demand aligns with the independent nature of EAMs who can craft bespoke solutions under an open architecture framework. 

Moreover, we observe that the younger generation value independence and autonomy more, seeking advisors who can provide unbiased advice. There is also a notable shift towards digitalisation in wealth management, prompting EAMs to innovate and provide advanced digital solutions. 

This trend has provided EAMs with the opportunity to demonstrate their independence and flexibility, thereby strengthening our unique value proposition in the wealth management landscape. 

WBA: Are you seeing more people seeking EAMs to support wealth management and diversifying where they bank, for example in the light of problems at banks (Credit Suisse, etc) in the past year?
Tan: Yes, we observe a trend where more are turning to EAMs for wealth management, particularly as they seek to diversify their banking relationships. The challenges faced by banks in recent times have underscored the importance of diversification for clients. EAMs offer a distinct advantage in this regard as they maintain relationships with multiple banks, providing clients with inherent diversification benefits. This flexibility allows EAMs to tailor financial strategies across a range of institutions, ensuring that clients have access to a broader array of investment opportunities and risk management options.

WBA: What are the main trends you see in the EAM sector today (specialisation, focus on a niche area, joint ventures in certain countries, links with particular client groups, other)?
Tan: We observe consolidation within the EAM sector, driven by cost pressures and regulatory demands. The adoption of the VCC structure is also on the rise due to its operational efficiencies and flexibility. Digital transformation is another key focus, with EAMs investing in digital portfolio management systems and platforms to meet the growing digital preferences of clients. Additionally, geographical expansion is becoming more prominent, with EAMs strategically establishing operations closer to their target markets. Furthermore, initiatives like the VCC and SFO tax incentive schemes in Singapore have spurred a notable shift towards setting up MFOs. 

WBA: To sum up, how would you characterise the family office/EAM sector today?
Tan: Due to the great wealth transfer, there is an increasing acceptance of the independent model. This shift presents the family office and EAM sector with significant potential for growth, marked by rising interest and vigour. The industry is in a critical phase of establishing a more solid foundation, which involves refining best practices and structures to ensure sustainable development. I am optimistic about the dynamism of our industry as it navigates this period, positioning itself well for substantial future expansion and success.