This article is written by Ramanuj Mukherjee, CEO, and Kashish Khattar, Team LawSikho.
Globalisation and economic growth has led to a rapid rise in the number of millionaires and billionaires in India as has happened in all major economies. Further, creating wealth is one thing but keeping it together is said to be even harder.
When we talk about wealth in this article, it would mean the combination of property, cash, equities and business interests for a family business or an individual.
Private wealth management as an area of law practice is still at a nascent stage in India. With the rising number of HNIs and UHNIs in the country, the management of their wealth is fast becoming an important and large business opportunity.
Inheritance, partition of family business, investing the wealth, fending off claims from family members – all of it leads to legal work. HNIs have their families and other dependents who are to be taken care of. There are other concerns that come up when it comes to wealth management, such as the various compliances and taxes that need to be taken care of.
Also, working with HNIs has it’s parks. If your law firm does all their private work, is it so hard to become the go to lawyer for their business?
Needless to say, private wealth law is a lucrative and high priority business for law firms.
Who are HNIs and UHNIs?
In the USA, High Net Worth Individuals or HNIs is a classification used to define people who have a net worth of USD 30 Mn or more. When it comes to India, Karvy Private Wealth defines HNIs as people who have more than Rs 5 crore in investible surplus. Further, those with more than Rs 25 crores are known as Ultra HNIs.
According to Business Standard, India had around 6000 people who were HNIs in 2019. India is expected to have nearly a million dollar millionaires by 2027. According to estimates, the top 1% of the Indian population holds 52% of the wealth. Further, the top 10% hold around 77%.
The number of HNIs increases every year in India. Even the urban affluent are increasing year by year and they need investment and private wealth management services. A strong demand for legal services will arise from this urban affluent class, and they can keep hundreds of mid size law firms busy! The practice is expected to grow at a rapid pace in the coming times.
What are family offices?
Family offices are private wealth advisory firms which are instituted to professionally manage and invest the wealth of UHNIs. They are wealth management advisory firms who are different from traditional wealth management shops. A family office offers exclusive and a total solution kind of a service to a client in helping them manage their financial and investment portfolios.
Such HNIs often hire top investment professionals to run their family offices and manage their wealth effectively.
This concept was introduced by JD Rockefeller in the 1800s to manage his own wealth. Now we can see a very substantial number of family offices existing to manage the wealth of Indian promoters. Family offices are expected to exponentially grow in the next 5 to 10 years provided India grows at a healthy rate every year.
Family office services can range from budgeting, insurance, charity, family-owned businesses, wealth transfer and tax services. A family office can be a single-family office or a multi-family office. Single-family offices only service one ultra-wealthy family while the multi-family office runs like an exclusive wealth management company for its clientele.
According to a 2018 report, there are only 75 family offices in India. High Net Worth Families set up Single Family Offices (“SFOs”) or Multi-family offices (“MFOs”) to manage their wealth. These offices have been set up by some pretty recognisable names in India:
- Premjiinvest (managed for the Premji family);
- Aaron Capital (the co-owned family office of Manipal Education and Medical Group);
- Burman Family Holdings (private investment office of Dabur India);
- Catamaran Ventures (the family office of Mr Narayan Murthy);
- Artha India Ventures (the private family office of the K Damani Group);
- RNT Associates (the personal family office of Mr Ratan Tata);
- Mahindra Partners (PE fund of the Mahindra & Mahindra group);
- Three Sisters (founded by Mr Rana Kapoor from YES Bank); and
- Ajay Piramal SFO (privately managed office of the Piramal Group and the Shriram Group).
Private Banking
Private banking is a type of banking service which is exclusively designed to cater to the needs of HNIs and UHNIs. These are basically, various banks who offer private services to their high-end clients in the form of private banking services. Every client gets a private wealth manager who caters to their specific needs.
Private banking offers privacy and makes it easy to keep deals and agreements anonymous. Private banking helps in account management, investment planning, tax planning, cash flow and bill management, risk management solutions, estate planning, custom credit strategies etc. Apart from various products and solutions, private banking offers clientele with preferential pricing, higher interest rates, prime interest rates on mortgages and loans, custom financial services to hedge funds and equity partnerships.
The main difference between private banking and a family office is the attention to clientele. Private banking would be serving clients in hundreds and the family office has a clientele which is a total of 100 HNIs.
Banks who do offer private banking services in India include HDFC, Barclays, ICICI, Deutsche, Citigold etc.
Increasingly, private banking is leading to a lot of legal work.
On one hand, banks have their private banking department which employs lawyers to give various kinds of advice to big clients related to tax, investments, loans, securities, agreements and legal liabilities.
However, given the level of exposure, clients frequently take advice from lawyers and not rely on advice of bankers alone who undoubtedly have a conflict of interest.
Who does private wealth practice in India?
Chambers and Partners lists out AZB, Cyril Amarchand Mangaldas, Khaitan & Co and Nishith Desai Associates as top law firms that practice private wealth law in India.
The partners who mainly work in this area and are well known as go-to experts are:
- Bijal Ajinkya from Khaitan & Co.
- Cyril Shroff from Cyril Amarchand Mangaldas
- Nishith Desai from Nishith Desai Associates
- Rishabh Shroff from Cyril Amarchand Mangaldas
- Shreya Rao from AZB & Partners
What kind of legal work does private wealth law practice entail?
Estate planning
Someone who worked hard to earn a huge wealth wouldn’t want to see it fall into ruins after they pass away.
Estate planning is the process of arranging and managing your succession and financial affairs.
This kind of planning ensures that your estate is managed well beyond your lifetime and legacy as per your wishes.
Simply, it is the act of preparing for the transfer of a person’s wealth and property after his death.
This kind of planning is important because an estate plan protects beneficiaries and ensures business continuity.
Partition of the family business
Partition of a family business is always a concern in India. The issue gains prominence when most of the big business in this land is controlled by promoters or the family members of a deceased founder. This is where the concept of a HUF and Karta comes into play.
A coparcener can file for a total or a partial partition. This is where a private wealth lawyer would come into the picture, managing wealth with the help of the Indian Succession Act, 1925.
Then a lawyer would be expected to make watertight agreements and deeds of partition which states out all the important rights of the parties involved. Sometimes they draft deeds of relinquishment when a family member gives up claim over an estate or a certain property. These deeds will then have to be registered under the Registration Act, 1908.
Inheritance disputes
Inheritance disputes are quite common when it comes to private wealth in India. Case in point could be the Reliance dispute as Dhirubhai Ambani died in 2002 without a will, Mukesh Ambani was made the chairman of Reliance while Anil Ambani was made the vice-chairman. Their mother in 2005 brokered a demerger of the group in between the two brothers. As we can see that inheritance disputes can become bigger than the family when a considerable amount of wealth is concerned. A well thought out split can do wonders for all the parties involved.
The kind of work required to be done by lawyers could be to plan as to what kind of assets will be split between the members of the family, how to avoid future disputes through written agreements and how the inheritance can be made tax efficient for everyone involved in such a dispute.
However, inheritance disputes can go on for decades and many civil litigators have made their careers working on such disputes.
Wills
Drafting of wills of the family members is another sophisticated service provided by the private client practice of a law firm. It is not easy to draft a will in a way that avoids any future disputes, or put to rest any allegations against the same. However, this is critical and inputs of lawyers who are good with this are highly sought after.
Management of trusts
A public trust is made to benefit the public, or such classes of the public as specified in a trust deed. A private trust is a vehicle through which property can be transferred from one person to the benefit of another and search trusts exist to benefit named beneficiaries. The person who forms a trust determines the trustee, beneficiaries, the property that will be governed and the rules who would govern the rights and duties of the trustee (also known as the settlor or the author of the trust). Private trusts are often created for securing the future of pets and dependent children and relatives who cannot take care of themselves.
The living will and euthanasia
A landmark decision by the Supreme Court in 2018 legalised the stand of living wills in the country. Setting up a living will is quite a complicated process and requires expert legal help.
Drafting investment and loan agreements
Family offices are investing and lending big sums of money all the time. This requires experts to draft agreements, conduct due diligence, negotiate deals and conduct compliances too.
This is a growing niche and very interesting area of work for private wealth lawyers. Skills around these areas will be a great asset for those who want to work in private wealth practice.
Tax optimization
income tax and international tax experts are highly sought after in this area of practice. In the last few years, tens of thousands of HNIs have moved out of India and taken their wealth out of the country as well. There is a lot of complex advisory and transactional work that lawyers do that makes such moves possible.
Sometimes the HNIs also want to bring their money back into the country or repatriate profits from foreign investments. This also leads to additional legal work.
What will private wealth law practice be doing in the post COVID world?
The HNIs have also been affected by the economic implications of the pandemic, as reported, they are trying to get their money back in the country. Many of the wealthy who had kept their money in tax havens outside India in places like Luxembourg are keen on getting them back in the country as the future remains uncertain and they may need to put capital into businesses or even invest in good assets like highly promising startups.
Promoters are also stashing their assets into family trusts as they are aware that the lenders can come after their personal assets if their companies default. Furthermore, the HNIs are keen on getting their money back even from tax friendly jurisdictions and restructuring their investments has become huge for this practice right now. Many HNIs who now have business opportunities or interests in India are now tweaking their constitutions of their family trusts to include certain policies which are a direct result of the COVID-19 pandemic.
The family offices and trusts would most typically be looking out for distressed asset buys to help diversify their portfolios. Further, COVID-19 has made sure that these trusts and offices are concentrating on wealth preservation and asset preservation rather than growth right now.
Want to work in private wealth law practice?
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