Quilter Cheviot’s decision to pull out of the market for Tier 1 investor visas has thrown a spotlight on the service and the wealth firms who increasingly use so-called ‘pre-accounts’ as a way to lure clients in.
The firm told Wealth Manager last week it has closed its Tier 1 service to new clients after becoming uncomfortable with the number of competitors offering to open an investment account for wealthy foreign investors before their due diligence checks have been completed.
Currently, wealthy foreigners can come to the UK for around three years if they have £2 million or more to invest in UK bonds, shares or loans to active and trading UK registered companies. A number of wealth managers and private banks offer the service, though that number is dwindling.
James Perrott, senior counsel and immigration specialist at law firm Macfarlanes, has dealt with several wealth managers regarding Tier 1 investor visas, and sees more and more shutting down their services due to the lack of money made from them.
He said: ‘Some wealth managers have stopped their Tier 1 service because the way you have to invest the funds is very specific. And it’s actually really difficult for a wealth manager to offer the service, because it’s a very manual process with a lot of paperwork.
‘Also, those portfolios don’t tend to perform particularly well, so it’s difficult to make any money out of it.’
Wealth management firm Dolfin is one company that still has a Tier 1 investor visa service, but it does not offer ‘pre-accounts’.
Jay Williams, head of Dolfin’s China desk, did highlight a number of challenges companies might face when taking on Tier 1 investors.
‘Home Office statistics suggest that almost 50% of applicants under the Tier 1 Investor Visa scheme are from China and Russia. The high country risk has always been the biggest obstacle during the onboarding process.
‘Many clients – even ultra-high net worth individuals – struggle to open accounts with retail or private banks. The main concerns are around money laundering and sensitive political issues.’
He added that since the latest regulation changes in 2015, introducing the £2 million threshold, it has been more difficult for Chinese investors.
‘At Dolfin, we have the competitive advantage of a dedicated China desk. That’s a team of Chinese-speaking members with different roles, including relationship managers, sales support, marketing and even a compliance specialist,’ he said.
‘This helps us overcome many of the challenges outlined above. Our team has an in-depth understanding of Chinese source of wealth documentation and handles the translation themselves.’
Buy and hold strategy
Typically clients who use the service have more to invest than the £2 million required for the visa programme. So for firms who still offer it, it’s all about getting a client in and building a relationship so they can get them to put their other investable wealth into more profitable parts of the business.
Perrott added: ‘There are some wealth managers who focus on this as an area and are able to adapt their business models.
‘They adopt a buy and hold strategy. It doesn’t make them much money, but at least it doesn’t cost much and it lowers their risk exposure.
‘It’s usually part of a broader relationship. These clients have other wealth which can be invested elsewhere [within the company].’
That broader relationship is seemingly the reason why Quilter Cheviot’s competitors have increasingly started offering ‘pre-accounts’, which the firm said is becoming a ‘prerequisite to attracting new business’.
An expert in the field, who has worked for a number of larger wealth managers and wanted to remain anonymous, believes companies opening up accounts before due diligence is completed has been an ongoing issue. But for some the risk/reward ratio is not worth the time and effort.
They said: ‘It’s definitely been an issue for a while now, for a lot of the big [wealth managers]. The trouble is, while most of those accounts will be clean money, good people and there won’t be any issues, until you’ve done the proper checks you just don’t know. It’s just not worth the risk.’
But what if a client who has a ‘pre-account’ fails the checks?
Perrott said it’s unlikely a client will ever fail, mainly because to be considered in the first place will they have to have received a visa from the government already to physically enter the country.
He said: ‘I’ve never seen it happen before. To be frank, if you get a visa and come to the UK, the chance of failing [due diligence checks] from that point are practically zero.’