Saffery Champness Director Lisa Vizia discusses the merits of Guernsey fiduciaries helping family offices with complex requirements.
For more than 50 years, Guernsey family offices – both single and multi-family – and supporting providers have been solving problems, performing co-ordinated services and coming up with strategies for a diverse range of wealthy families located across the globe.
Such clients are often international and multi-jurisdictional and their requirements and structures are also. They are comfortable in terms of being transparent and compliant but not with the invasion of their privacy.
A top jurisdiction for AML compliance
The authorities in Guernsey ensure that providers fully respect the need for clients to keep their affairs confidential while also following leading international standards of tax transparency and exchange of information.
Guernsey is one of very few jurisdictions in the world to regulate trust providers and is on the Organisation for Economic Co-operation and Development's "white list". In 2016 MONEYVAL, the European Financial-Action-Task-Force-style regional body, reported the island as "compliant or largely compliant" with 48 out of 49 of the FATF's recommendations. The FATF is the world's standard-setter in the international fight against money laundering and terrorist finance. This is the highest standard reached by any jurisdiction that MONEYVAL has assessed.
Many countries have changed their laws to yield to the US Foreign Account Tax Compliance Act 2010 or FATCA, the global Common Reporting Standard (sometimes known as GATCA) and pressure from the OECD to do with beneficial ownership and reporting. Such developments require the providers of a family office or private family office to have a high level of relevant knowledge and awareness and, as fiduciaries, to give the best advice they can to the families in question, while dealing with complexities thrown up by banks, custodians and counterparties and handling the administration so that the client or family office does not have to.
The rise of the non-standard asset
Guernsey practitioners are having to cope with the fact that the working environment, along with the clients themselves, is becoming increasingly complex.
A further factor for consideration is the relative sophistication and financial literacy of the second and third generations who have come to the fore of wealthy families.
Today's family offices are, increasingly, including non-standard assets and investments including hedge funds, private equity, property and business in their portfolios. There is often an element of innovation and entrepreneurial investing, to do alongside the usual standard investments. This requires family offices to pay attention to the management of risks that have arisen from increases in regulation and the scrutiny of counterparties that have flowed from the credit crisis that came to the fore in 2008-9.
Guernsey providers have shown themselves to be very capable of reviewing, understanding and testing all the complex assets and counterparties involved in a family office, adding a great deal in the form of clarity, efficiency and cost-effectiveness.
There is a need for fiduciaries to understand the advice that they are giving in relation to investments which go beyond cash in the bank and a standard investment portfolio. If there is debt in a portfolio, it will be important for the fiduciary to state how it is structured and what it comprises and verify the facts.
HNWs do not necessarily make non-standard investments (such as art and antiquities - a specialist area with layers of advisers required) with their future monetary worth in mind. Furthermore, fiduciaries must be good at understanding and accommodating the trend towards 'impact' or ethical investing and philanthropy.
New technology has emerged which is able to deal with consolidated investments and cash management and reporting. Although fiduciaries have no option but to embrace this technology, it is also essential for them to deal with any associated risk in a safe, managed "risk culture environment."
The uses of PCCs
At Saffery Champness, we pride ourselves on our high level of service. By thinking rather than processing, we have become a trusted adviser around the family table. By way of example, we work with a substantial Middle Eastern client with a dedicated family office in London and custody and banking arrangements primarily in Guernsey and Switzerland.
All the clients' global investment assets are managed by Saffery Champness and held in trust structures, comprising commercial and residential property, hotels, hedge funds, private equity, fixed-interest investments and various businesses. We also deal with clients' luxury personal assets, including superyachts and aircraft, with the yacht crew management structured in a Guernsey protected cell company (PCC).
In this context the benefit of PCCs – structures (along with incorporated protected cell companies) pioneered in Guernsey, is that they allow for consolidated reporting. A family patriarch can receive one report that consolidates all assets and liabilities across the entire family cellular structure, while the assets and liabilities remain segregated.
In addition, Guernsey offers a range of structures that family offices can use to hold assets of all types across the globe. These include corporate entities, trusts, foundations, limited partnerships and limited liability partnerships.
As a jurisdiction, Guernsey has a readily accessible and highly skilled legal infrastructure. The Guernsey court system has a robust and independent judiciary whose deliberations rest on Common Law principles and its reputation of being at the forefront of the development of trust and company law sets it aside from other jurisdictions.
When it comes to meeting the complex requirements of wealthy families, Guernsey has a proven track record. The regulators, legislators and financial practitioners work together closely to maintain and grow this solid reputation. From my perspective as a practitioner, our clients (and their structures) undoubtedly benefit from the reputation and integrity of our jurisdiction.
This article was originally published in WealthBriefing's IFC World 2017, May 2017.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.