INDUSTRY PROFILE:

A New World of Possibilities

Growth and expansion continue to be the hallmarks of the investment migration industry, triggering a drive towards higher standards and a concerted effort to future-proof the industry.

The rapid expansion of the investment migration industry shows no sign of slowing down. Across the entire industry spectrum, every nook and cranny has been experiencing growth. New programmes have come online and even more in the offing, raising questions among industry commentators on their sustainability. Despite the question marks, the appeal to clients appears to continue unabated, along with the number of new entrants seeking to service the growing appetite for visa-free travel by the globally mobile. The exponential growth that the industry is enjoying has not gone unnoticed by major international institutions and standard-setting organisations such as the EU, the IMF and the OECD that are all expanding their interest and flexing their powers over the industry.

Redoubling Efforts

International organisations, policy-makers and the media continue to view the industry with a critical eye, though there has been a notable softening in their stance. However, the decision of the European Parliament to shutter golden visa and passport programmes sent a clear message to the industry that the concerns of policy-makers and wider society cannot be ignored. With no shortage of opposing voices to the investment migration industry, it is clear that there needs to be a redoubling of advocacy efforts to ensure that programmes are not sanctioned, or worse still, closed altogether. However, many believe the current scrutiny is necessary to drive transformational change and lead the investment migration industry into a new era. Today, almost everyone in the industry agrees that regulation and common standards need to be the next steps. Despite the headwinds that the industry is facing, many governments are seeing and witnessing the benefits that investment migration programmes can bring to their countries, whether it be attracting the best and the brightest talent via their entrepreneur and start-up schemes or the key role these programmes have played in bolstering infrastructure capacity and providing a steadying hand in times of economic uncertainty.

Three Decades of Growth

The investment migration industry has grown in leaps and bounds since St. Kitts and Nevis broke new ground with the launch of the first citizen-ship-by-investment programme in 1984. Now 35 years on, the industry marks this major mile-stone with a renewed confidence, as the sector moves beyond a niche attraction for the few and goes ever more mainstream. The business model has evolved over the years and was developed further with the introduction of the golden visa concept by Portugal. A relatively new phenomenon is the emergence of start-up and entrepreneur visa programmes, with which governments seek to entice a whole new generation of global innovators. Today over 100 citizenship and visa programmes are in existence, generating billions in investments that are being mobilised to create jobs and economic activity. Investment migration has never been far from controversy and often maligned by policy-makers, influencers and the media alike. The concept of citizenship by investment in particular still stokes resentment that programmes do little but allow the rich to buy privileged access to their countries. Though their sentiments may be genuine, many of them may be surprised to learn that five of the G-7 members and seven of the G-20 countries have been employing some form of investment migration programme to bolster inward investment. The visa, over citizenship, programmes have long been the more acceptable face of the industry and have been used by countries such as the US, Canada and the UK to attract people, capital and know-how. A major milestone and turning point in the acceptance of citizenship and visa programmes was the decision by two EU countries, Malta and Cyprus, to introduce citizenship-by-investment programmes. Globalisation has been a good travel companion for the investment migration industry. The global citizen who wants access to the world for business and leisure has become a reality that is driving demand for in-vestment migration products, which are becoming ever more refined and diverse.

Big Impact

It is estimated that investment migration ac-counts for $2 billion annually, industry, but it brings in tens of billions in investment. In terms of economic impact, programmes represent any-thing between 2% and as high as 30% of GDP in some countries, and can be a defining factor between an economic surplus and a deficit. Across the world investment migration programmes have been the catalyst for major infrastructural improvements, including resorts, harbours, airports, hospitals, office buildings and luxury residential developments, which in turn have had a massive multiplier effect on the respective economies. These programmes are not only influential in delivering cutting-edge infrastructure, investments into companies, start-ups and R&D programmes; they are also having the effect of generating whole new economic sectors that did not exist before their introduction. Governments increasingly like the idea of raising non-debt bearing capital to diversify their economies at a relatively low cost. But while these programmes present a golden opportunity for many countries, governments equally need to be stringent in ensuring the windfall they are en-joying today is directed exclusively towards productive investments that will pay dividends in the future and not be tempted to finance day-to-day expenses, which could expose their economies to unintended risks.

Two Tiers

As investment migration programmes evolve and develop further, the distinguishing factors between programmes will be about service, professionalism and the impact of the investment. Some 60 countries are actively promoting their programmes, with 30 of them being the most relevant and attracting the largest share of applicants. Countries such as the US, Canada, Australia, and the UK have cemented their position as preferred destinations for people with a desire to relocate, attracting wealthy migrants from all corners of the world. However, the expectation is that access to these tier-1 countries will become more ex-clusive. Programmes are widely expected to go up in price, which is reflective of their premium status. Beyond the most desirable places in the world to live in, more and more programmes are coming online to compete and attract global citizens. Turkey, Jordan, Moldova and soon Montenegro are the latest entrants to the market and will follow a long list of rivals, which include Caribbean and European countries. With an estimated 5,000 applicants for citizenship-by-invest-ment programmes and further tens of thousands acquiring golden visas globally, the question on everyone’s mind is if there is too much product for the market or if the emergence of new players will fuel further demand. On this question the jury is still out.

The Big China Question

China remains the dominant market for the entire industry. While China is a great source market, accounting for roughly 80% of applications to any residence programme, from a business and industry-risk point of view, there is very much an over-reliance on one market. To ensure the sustainability of the business model, both programmes and agents are waking up to this problem, and a most notable trend in more recent years has been the increase in business coming from new markets such as India, Vietnam, Russia and South Africa. The recent price drop some programmes have experienced also means acquiring a second passport has become increasingly affordable for people of more modest means. This development might further widen the already existing divide between top tier and second tier programmes. While the strategy of the tier-1 programmes will increasingly revolve around ultra-high-net-worth individuals with at least $30 million, the lower cost and more accessible programmes might appeal to high-net-worth and mass affluent clients with $1 million to $10 million of invest-able wealth. The major task for the industry and programmes going forward will be to find the balance between the needs of the country and meeting the expectations of the applicants. Up to now property investments of one kind or another have featured prominently in all programme offerings; however, agents report that to a large degree acquiring property is the least preferred route for client investment. Property investment will always hold an appeal, but it will be on a more equal footing with other asset classes and investment options. There are already alter-natives in the market that are resonating with wealthy clients, including investing in a property fund as opposed to purchasing property, and loan provision as opposed to equity investment.

A New Approach

Governments have to go beyond their current vanilla-type offering and ensure investments are being directed to where they can be most productive for the country, its citizens and, ultimately, the client. Countries should look at allowing citizenship or residence applicants to invest on a portfolio basis, whereby part of their investment can be in equities, bonds, property, loan funds, philanthropic causes, listed entities, private en-terprises, start-ups and angel investment funds, which combined can provide more impact and encourage a wider array of economic activity. This also opens agents to the opportunity of offering a whole host of value-added services to their clients.The industry will also need to have millennials in its sights. With 23% of the world’s millionaires being millennials, this clientele has its own expectations of what they want and how they want to be serviced. Millennials in particular are showing a greater interest in impact investing and what positive effect their contribution is having on their host countries. The industry not only has an important role to play in distributing capital where it can be best utilised for society’s good, it can also help countries gain an outsized influence. Investment migration offers a significant opportunity for countries to expand the concepts of residence and citizenship, and novel proposals for what could be best described as ‘nation as a service’ have already surfaced. While some say this is ‘utopian thinking’, Estonia, with its e-residency programme, is providing a first glance at what the future might look like. This concept could actually see countries develop into service and product platforms for fee-paying ‘citizens’, who can subscribe or un-subscribe to their offering.

More Competition

The industry landscape remains very fragment-ed and ripe for consolidation. Outside of the odd whale in China, a few major players have emerged, including Henley & Partners, Arton Capital, CS Global, Kylin Prime, Apex and legal firm Fragomen, which are followed by a large number of smaller firms. Increasing competition and a need to scale up may well see the first wave of mergers and acquisitions occurring sooner rather than later. Conversely, the industry could be open to expansion and see more players coming into the space, beyond the boutique advisory firms that have been in place for many years. In the same way as investment migration consultancies are starting to offer complementary services, such as private banking, wealth and asset management, to their clients, traditional advisory firms could add investment migration as a product.

Global Standards

The decision by the European Parliament to strongly recommend the phasing out of visa and passport programmes sent a crystal clear message that the investment migration model will have to evolve materially to avoid a broad political and social backlash. Fears of a potential in-crease in security threats and low consumer protection standards reverberate across the entire industry. Questions on transparency and adherence to international standards on anti-money laundering and compliance regulations brought the sector into the sharp focus of other countries and international organisations such as the EU, the IMF and the OECD which have demanded tighter controls across the industry and tighter background checks on applicants. This means setting common standards for golden visas and citizenship programmes is now a must. The industry more than ever needs to recognise the need to either self-regulate or accept that rules will be imposed on it. The regulation of agents and the development of effective consumer protection measures are being viewed as important steps towards improving the sector’s reputation. The investment migration industry currently remains largely unregulated, with only a handful of countries having established an independent regulator to oversee the operation of their programmes. Huge regulatory pressures emanating from the EU and G20-initiatives on anti-money laundering and anti-terror legislation are requiring the industry to embark on a major overhaul of its customer due diligence to comply with new global standards.

Educating an Industry

With the introduction of certification by the Investment Migration Council, 2019 will also go down as the year in which professional educational programmes geared towards the investment migration industry have been launched. This will help demonstrate that both programmes and agents are a step closer to reaching the much-needed high standards demanded by governments, policy-makers and the general public. As the industry becomes increasingly sophisticated in its approach, it is now recasting itself in a new light. This is being seen positively by the EU, which has long kept the industry on the fringes of policy discussions. The current dialogue between the industry and EU policy- and decision-makers is a very welcome development and seen as an opportunity to be more proactive in shaping and positively contributing to the debate at EU level.

Shanghai to Timbuktu

Countries offering investment migration programmes are acutely aware that they risk having their programmes suspended or forced to close if they were to grant residence or citizenship to individuals without thorough background checks. Because of the importance of the sector to many economies, programmes have implemented KYC and due diligence standards that now go far beyond those of the banking and the financial services industries. Employing the services of former intelligence officers, the industry has moved beyond desk research and database searches in its quest to really ‘know the customer’. It is becoming increasingly common practice of programmes, service providers and agents to engage specialist agencies who intensively scrutinise clients coming through the pipeline. From the gleaming towers of Shanghai to the dusty roads of Timbuktu, these firms are employing experts on the ground to verify every aspect of an applicant’s life and source of wealth. KYC and due diligence procedures are particular areas where the industry has attracted unfair criticism.

A Better Future

The industry has enjoyed some very positive momentum over the past number of years, with record numbers of affluent citizens seeking out investment migration programmes. A major plus for the industry has been the ability to attract entirely new customer groups to the concept of acquiring a second residence or citizenship, which has helped expand the pool of potential clients and, in turn, widened the choice of programmes available. But it hasn’t all been smooth sailing. Pricing pressures not only impacted the bottom line but also the image of the industry. Although today both policy-makers and the general public are better informed about the industry’s process-es and safeguards, this doesn’t mean they are necessarily in favour of it. The industry has no choice but to reinvent its business as one that is more socially and economically attuned to today’s societies. The reward could be a better, more sustain-able and more accepted industry.