The author of this guest article examines what are the drivers of private client business in an IFC such as Jersey and what sort of pressures continue to operate.

As the world of international financial centres continues to face a variety of pressures – and opportunities as people seek political and economic stability – one such place that seeks to stay very much out front is Jersey. Brexit and other European developments means that this jurisdiction has a lot on its plate. In this article, Mike Powell, client director for private clients at Hawksford considers the future for private wealth structuring in Jersey. 

The editors of this news service are pleased to share these views with readers and invite responses. They can email tom.burroughes@wealthbriefing.com

Few practitioners will dispute that life in the private wealth industry has changed significantly over recent years. Jersey’s private wealth book was historically very reliant on UK resident and non-domiciled individuals. Tightening fiscal provisions impacting on this client base mean that this market is now too small to justify reliance on it, although opportunities still exist for the well-disciplined trust service providers willing to create “protected settlements” before the 5 April 2018.

Those with longer memories will recall the reaction to the Taxation of Chargeable Gains Act 1992 when the “attack” on non-resident trusts began in earnest. The trust industry has survived, adapted and proved remarkably resilient. Whilst in no way diminishing the challenges faced today, the industry should continue to evolve and prosper as emphasis shifts to asset protection, estate planning and succession.
Much has been written about the “Paradise Papers” and no doubt there will be more “revelations” in the future. For now, the papers have demonstrated that people are entitled to structure their affairs as they wish and that offshore is neither illegal nor does it equate to a failure to report.  

This article discusses perceived trends and observations as to how we might tackle some of the issues facing the private wealth world as it evolves to make Jersey what it should be; the pre-eminent jurisdiction for private wealth management.

What does private wealth look like? 
To some extent this depends on the jurisdictions in which our organisations are operating. In Asia for example Hawksford’s clients generally represent either or both inherited or entrepreneurial wealth. Closer to home new clients tend to be younger but also entrepreneurial in nature.

Clients are increasingly considering where to base structures for their charitable and philanthropic giving with successful young entrepreneurs increasingly wanting to give back during their lifetime. They bring the same rigour and control to this part of their lives as they do to their commercial interests. Jersey, whose charitable regulation has been the subject of a recent major overhaul (the Charities Law 2014) and the recent appointment of a Charity Commissioner, provides an ideal environment from which to operate a philanthropic structure with sound corporate governance, contemporary legislation and an embedded charitable ethos all of which provides a solid bedrock from which to operate flexible structures for these purposes.

There will almost certainly be fewer clients looking for a broad range of private wealth services, but they will be higher value, paying superior fees for a top quality, increasingly bespoke service.  Arguably, few if any other jurisdictions will be able to compete with the breadth of services on offer in the Island.

Where does the private client come from?
Reliance on the UK market has long gone. Save in respect of either sanctioned countries or individuals, the private wealth potential in theory knows no boundaries. In reality, of course, a combination of regulatory, fiscal, local legal and cultural issues may well reduce the ease with which certain countries may be accessed or accessible to Jersey. Taking the regulatory position first, most enlightened regulators state that, so long as practitioners have a comprehensive understanding of the countries in which they operate, recognise the risks and know how to mitigate them, relatively few countries will be precluded. 
The key will be risk appetite and in determining this will be the informed knowledge where no-one knowingly put themselves, their organisations, their industry and the reputation of their jurisdiction at risk. Clients will increasingly come from jurisdictions where asset protection and estate planning are forefront to the advisor’s and client’s minds.  Political instability and global uncertainty is increasing and the number of countries affected includes some closer to home; we should position ourselves to take advantage of this trend.

What are today’s private clients looking for? 
Preliminary discussions with prospective clients almost invariably focus on retention of control. A successful entrepreneur will understandably struggle with the concept of handing over legal control. In spite of certain statutory protections afforded by the like of Trusts Jersey Law 1984 (as amended), clients will generally be advised as to the potential risks of retaining too much control in for example the context of matrimonial or insolvency law. 

Experience suggests that because building new client relationships generally takes much longer than it did, enhanced due diligence, the level of trust between prospective client and service provider often builds to an extent that a pragmatic and practical balance, using one or more of the many controlling mechanisms available (e.g. PTCs, Reserved Power Trusts, Investment Committees, Protectors), can often be achieved which suits both parties. 

For many clients there also appears to be a trend towards bringing family affairs under one trusted roof. This is probably being driven by a number of factors primarily and perhaps ironically relating to the international drive for transparency. With CRS, clients are concerned to ensure that they can monitor what and by whom information is being provided under the reporting requirements.

Average client wealth is increasing exponentially and the clients’ expectations with it. A commonly used expression is “adding value”: to survive we will have to consistently add value to our services and we have the capability to do so. The fact we fill in multiple forms each day, to ensure compliance with policies and procedures, whilst an essential part of our daily lives is not as far as our clients are concerned justifying the fees. 

The primary focus for almost every new structure is either asset protection and/or estate planning. Tax planning features but rarely is it in the top three objectives with neutrality required more than fiscal advantage. 

Overcoming challenges
Jersey is with justification known as one of the pre-eminent private client jurisdictions. It was by way of example interesting to recently attend STEP Asia where advisors of prospective clients from Asian countries with historic British connections in particular, valued the joint input of their local advisors/administrators but also that of the long experience represented by colleagues in Jersey. It is perhaps not surprising that a pan jurisdiction collaborative approach makes these clients feel comfortable. 

Reserved Power Trusts are becoming increasingly common in the context of settlors wishing to retain control. A challenge for practitioners will be stepping back sufficiently from their standard fiduciary responsibilities so that best intentions do not inadvertently endanger themselves or jeopardise the basis on which a relationship is established. There is nevertheless a dynamic technical tension at the outset of such a relationship which has to be addressed where we are agreeing to abrogate some of the traditional fiduciary responsibilities.

The local regulatory position combined with the impact of external regulation and legislation such as CCO is intended to breed fear among the industry and clients. That we want to be known as a regulatory safe jurisdiction from where clients can safely operate is a given. Achieving a proper balance between ensuring that we do not fall short of our regulatory responsibilities and can still safely operate is a challenge the industry faces and will overcome. 

Whilst this article has focused on Jersey and what it can offer, and how we sell the product which is Jersey, thinking internationally will be a perquisite both in connection with the families we act for and their advisors.  

We will always have to objectively consider which is the most appropriate jurisdiction from which to establish and administer structures, accepting that multiple jurisdictions might be utilised for structuring the affairs of only one family.

The future is challenging certainly, but bright.