Despite its short history, the wealth management sector in Ireland has a bright future. Predicted growth and upcoming intergenerational wealth transfer means that, for Irish firms, there is opportunity abound. However, in the face of President Biden’s proposed tax plans, it all hangs in the balance. Hannah Wright explores

In the first week of April, merely three months into his Presidency, Biden revealed his Made in America plan, which proposed the establishment of a global minimum tax rate, agreed by the largest economies across the G20 and OECD.

While such a policy may help to reduce the race to the bottom, it could have immense repercussions for companies and economies around the world. Indeed, during an interview with Irish broadcaster RTÉ, Irish finance minister Pascal Donohoe explained that such a global minimum corporate tax rate could have “very meaningful and significant effects” on corporate tax policy in Ireland.

The US Treasury Secretary, Janet Yellen, has suggested a 21% minimum rate, which, when compared to Ireland’s 12.5%, seems enormous.

Representing one of the lowest corporate tax rates in Europe, it is widely acknowledged that Ireland’s 12.5% rate has been crucial to obtaining high levels of US investment. Ireland has long been a hub for global firms looking to capitalise on the low rate, evidenced by the myriads of major corporations, such as Google, Facebook, Microsoft, and PayPal, that can be found there.

One step further along the chain, the success of the wealth management industry is largely attributed to the presence of these firms, which bring greater levels of wealth to the country.

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Speaking to PBI, Andrew Fahy, head of tax and financial planning at Brewin Dolphin, explained: “Most of Irish wealth comes from entrepreneurs, professionals (such as lawyers and accountants), and from foreign direct investment. There are other industries, like aircraft leasing, which are a major source of wealth creation.”

Despite the looming threat of potential tax changes, the wealth management sector shows great potential for growth. Data from the GlobalData Intelligence Centre reveals that in 2020, Ireland’s affluent population, that is, the number of people with assets worth at least $1m, sat at 18,510 individuals. While in 2016, this figure sat at 15,460 individuals, by 2023 this figure is expected to reach 24,800.

According to PwC, the Irish asset and wealth management industry is set to grow by up to 10.76% per year to 2025, to reach a value of €5.25trn ($6.34trn). This growth rate is faster than the global average, at 5.6% per annum.

Trish Johnston, PwC Ireland Leader for Asset & Wealth Management, believes these figures speak for themselves: “These growth projections confirm the significant opportunities for Ireland’s asset management industry.

With the correct focus, Johnston believes that the increased job potential for Ireland in asset management and related financial technology and payments sectors is more than 6,000 over the next five years.

History and heritage

The potential, Fahy speculates, comes down to the industry’s heritage, or lack of. He adds: “Compared to many other jurisdictions, Ireland’s wealth management sector is less well established. We don’t have the same history or heritage of wealth within the country.”

In the UK, he explains, there are more multi-generational wealth transfers than there are in Ireland, and that is because it is a younger country.

Ever the optimist, Fahy continues: “This presents opportunities because clients and families need assistance. In many cases, the families that created the wealth are reaching an age now where they are considering succession and looking to pass on their knowledge on investments and wealth to the next generation.”

The market has also aged. “Wealth management was previously investment driven,” Fahy says. “Now, there is a much greater emphasis on wealth planning for clients, whether that’s delivered by the wealth manager or through collaboration with private client lawyers and tax specialists. Over the last 10 to 15 years, the wealth management industry in Ireland has evolved into a more holistic service, rather than an investment or insurance led sector.”

According to Fahy, there has been a transition away from products towards a long-term service. He adds: “It’s not about the sale of products at all anymore. It can take time to find clients and onboard them because of the nature of the relationship, but that’s fine, these things take time.”

When compared to the UK, the Irish market takes a different shape. Fahy paints the picture: “In the absence of Retail Distribution Review (RDR), there are the MIFID firms (short for Markets in Financial Instruments Directive), which includes large wealth management firms such as Brewin Dolphin, life and insurance companies, a significant intermediary market, and the pillar banks.

The RDR is a Financial Conduct Authority (FCA) initiative that aims to provide greater clarity about different types of financial services available. It also seeks to improve transparency around the costs and fees associated with financial advice.

Explaining the significance of this, Fahy continues: “Because we don’t have RDR, the intermediaries tend to be tied to the insurance firms. For the MIFID firms like Brewin Dolphin, that presents an opportunity to differentiate ourselves and broaden the range of services to our clients.”

Embracing liquidity

Reinforcing the changing nature of the Irish market, Pat McCormack, head of private bank, Barclays Europe, tells PBI: “Since we established our Private Bank presence in Ireland in 2008, we have seen a lot of change with significant wealth created post the financial crisis, particularly from entrepreneurs and business exits.

“Clients have become increasingly discerning and expect to deal with knowledgeable and experienced investment professionals.”

This discerning nature among clients is demonstrated through increasing demand for diversification, Fahy believes: “Like many countries, Ireland suffered in the financial crisis in 2008. Part of the reason Ireland potentially suffered more was because there was a recession with property – real bricks and mortar property.

Fahy continues: “Across the last decade and a half, the market has really seen HNWI embrace liquid portfolios and diversification which speaks to everything we do, it’s right up our street. Clients like the idea of not being too exposed to the mistakes of the past or to Ireland Inc, they want to be more global and diversified.

On the quest for diversification, there has also been an upwards trend towards ESG, which was underway before Covid-19. Describing the universal sense of ESG requirements among private clients, Fahy says: “You would be surprised if a client didn’t have a desire to avoid the obvious things, such as tobacco.

“Additionally, as the client profile gets younger, it changes the balance – it’s particularly potent among younger clients. Tobacco, however, is becoming more and more universal, that’s the thing you see most often.

McCormack agrees: “Sustainable investing is a topic that is spiking interest across all generations. We´re seeing many Irish clients are increasingly demonstrating an appetite for opportunities that can benefit portfolios whilst positively contributing to the world.”

The clients

According to the GlobalData Intelligence Centre, the total affluent population in Ireland had assets worth $84,202m in 2020, and this figure is expected to rise to $99,444m by 2023.

Careful not to exclude individuals falling outside the affluent population, Brewin Dolphin do not operate with a hard threshold. Fahy explains: “We look at clients with around €250,000 or more to manage. The important distinction is that that could also be an individual that is still developing their wealth.

“There are people that are just starting out in their professional lives, that might not necessarily have €250,000 today but are on a path to attaining that level of wealth. Our service is long-term, it’s a journey, so we don’t want to put up barriers to those people.”

Conversely, Barclays PB, which focuses on business owners, entrepreneurs, family offices, charities, and corporate pension funds, caters to a wealthier client base.

McCormack says: “Our typical client has a net worth in excess of €20m and will have in excess of €5m of assets with Barclays.”

When asked what their clients want, both McCormack and Fahy agree that diversification, access to a range of sophisticated products and high-quality service, are all crucial components for clients.

Beyond this, consumer demands tend to be subjective, says McCormack: “It depends on what the client’s preferences and risk tolerance is.”

He continues: “Many clients want to protect the wealth they have generated over many years of work and are interested in getting support in succession planning.

“Our strong Discretionary Portfolio Management solutions have been particularly appealing, especially when complemented with advisory solutions such as private equity opportunities which we can source from our international network.”

According to Fahy, this increased awareness of wealth preservation coincides with a narrowing gender gap and improved communication among clients: “If we were having this conversation twenty years ago, you would meet the typical family unit with segregated duties. Now, that’s been washed away completely.

“Previously families didn’t talk about this kind of thing, they didn’t talk about wealth transfers or investing, which ultimately led to bad outcomes. People didn’t understand that they were custodians of their wealth and they had to look after it. Now, families are having these conversations freely.”

The positives don’t stop there. Irish GDP held up better than most European countries during the Covid-19 pandemic, and unlike the UK, Ireland will likely benefit from Brexit.

According to Conall MacCoille, Chief Economist at Davy, dealing with the aftermath of the pandemic will be made far easier by the resilience of Ireland’s public finances. Citing the numbers, MacCoillle says: “The budget deficit in 2020 looks set to be inside €20bn, or 6% of GDP, one of the smallest across Europe.”

Concerning Brexit, a recent PwC Ireland Poll highlighted that 67% of senior global asset managers plan to increase their presence or relocate key activities to Ireland in the year ahead.”

Johnston comments: “Ireland’s advantages are clear: highly talented individuals with deep industry knowledge, well established regional hubs, continued access to the EU market and a similar common law jurisdiction to the UK, with the benefits of the Common Travel Area between our two jurisdictions.”

Fahy sings a similar tune: “In the aftermath of Brexit many people have also relocated to Ireland. Those people have wealth and are also navigating across jurisdictions. All the issues, such as succession and wealth planning, become a little more complex when you have a two-jurisdiction aspect. So, it just adds to our target market.”

In order to capitalise on this opportunity, the Irish government has announced a strategy to develop the International Financial Services sector through Ireland for Finance 2025.

The vision, which positions Ireland as a top-tier location of choice for specialist IFS, hopes to put 50,000 people in direct employment in the sector by 2025, compared with the 44,000 people directly employed in the sector at the end of 2018.

Commenting on the implications of the plan for Brewin Dolphin, Fahy says: “It will likely bring in more international and high earning talent into Ireland, which represents another body of people that could require our advice.”

Brewin Dolphin see “opportunities everywhere” in the Irish market. When asked if there are any particular challenges, Fahy responds: “It’s been around two years since Brewin bought the larger Irish business, and they obviously saw potential for Ireland Inc and the growth of the economy. Without sounding naïve, we see mostly opportunity.”

Clearly, Barclays also saw the potential. McCormack explains: “We have made significant investment in Ireland and have ambitious plans to grow our European business. Unlike many other UK private banks, we can service European clients and we established our EEA platform in Dublin where we now service all our European, as well as Irish clients from.”

Echoing the positive sentiment of the two men, Johnston believes that Ireland’s fund management industry is strategically positioned to be a progressive truly cross-border industry. It it all seems to be going quite well for Ireland.

However, Johnston concludes that the Irish region must not rest on its laurels: “While the country to date has done very well as a fund administration and processing centre, building on this to attract asset managers to locate here, so funds can be managed directly from Ireland, is vital for continued growth.”