Private Wealth
ISSUE One 2014
Forecasting
The changing offshore landscape Infographics
The end of bank secrecy
Country focus
South Africa: meeting the offshore demand
Global issues
Offshore under siege
Interview
Adapting to a new world order
introduction | Issue One 2014
Welcome to issue one of Private Wealth Insight – our magazine for professionals in the private wealth management sector Each edition will highlight Datamonitor’s latest research into the essential issues affecting your industry. We’ll bring you a selection of topical feature articles written by members of our expert analyst team, based on our recently published research. This issue focuses on the changing role of the offshore centers in the post-financial crisis world and looks at how wealth managers can adapt to the evolving regulatory environment. I hope you enjoy and find value in these insights. We’d love to hear your feedback and any suggestions you have for future issues of Private Wealth Insight. In the meantime, please continue to access your Datamonitor Financial service for the latest research and analysis. If you do not have a subscription, get in touch to request a free demo, or visit our website:datamonitorfinancial.com. Thank you for reading, and enjoy.
Matia Grossi Principal Analyst, Private Wealth Management
We actively encourage feedback from our readers, so if you have any comments or questions, please contact us at enquiries@datamonitorfinancial.com.
2
Private Wealth Insight
Issue One 2014 | contents
April 2011 Julius Baer client data sold to German authorities in 2009, bank settles paying $72m.
April 2012 Swiss government permits banks under investigation by US to comply with information requests.
Infographic
Forecasting
The end of bank secrecy
The changing offshore landscape
March 2012
US indicts Wegelin for helping clients evade tax, fine of $58m levied.
August 2012
Julius Baer has client data stolen and sold to German authorities.
page 4
September 2012 Credit Suisse settles with German government for EUR150m to end investigation into tax evasion.
November 2012 UK HMRC receives 4,388 leaked HSBC accounts in Jersey with totalling GBP700m.
page 6
September 2012 IRS awards whistleblower $104m for disclosing UBS data; a move that kicked off a tax crackdown in the US.
May 2013 The IRS, ATO and HMRC cooperate to analyze data on use of trusts and companies holding assets of their residents in certain offshore centers.
June 2013 UBS under investigation for helping French citizens set up secret accounts offshore.
July 2013 Liechtenstein Landesbank avoids US prosecution after agreeing to pay $23.8m and admitting it helped clients evade taxes.
Country focus
Global issues
South Africa: meeting the offshore demand
Offshore under siege page 16
page 12
Interview
Offshore wealth management: Adapting to a new world order
EDITORIAL Editor Matia Grossi Art Editor Sean Lynch CONTRIBUTING WRITERS Heike van den Hoevel, Carolyn Draper, Andrew Haslip and Matia Grossi. ABOUT Datamonitor Financial At Datamonitor Financial, we deliver intelligence-led insight and data on financial services markets, competitors and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Cards & Payments, General Insurance, Private Wealth Management, and Retail Banking. Our research on private wealth management will help you identify new market opportunities, track competitor activity and develop tailored propositions for the HNW individual. Get in touch To find out more about Datamonitor Financial get in touch at: e: enquiries@datamonitorfinancial.com t: EU: +44 20 7551 9201 | US: +1 212 652 5353 | AP: +61 2 8705 6900 w: www.datamonitorfinancial.com tw: @DatamonitorFS
page 18
DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor LTD, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor’s current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.
Private Wealth Insight
3
INFOGRAPHIC | The end of bank secrecy
Infographic
The end of bank secrecy Matia Grossi Principal Analyst, Private Wealth Management
The current levels of bank secrecy in Switzerland, and other offshore centers, have been put under huge pressure by the likes of FATCA, massive data leaks, and political pressure in the cash-hungry eurozone and US government. The underlying dilemma facing the authorities of these centers, however, is what they can do to differentiate themselves once bank secrecy is off the table. This is a particularly important point for Switzerland, especially if it has to offer full disclosure to other European countries and the US.
T
he recent declaration from Luxembourg officials that the country will abandon bank secrecy from 2015 was a consequence of the new political anti-offshore climate and a recent decision by Europe’s five largest economies to co-operate more closely on tax evasion. The impact on Luxembourg will be limited, as its clear strength is that it is a large, retailfriendly base for much of the mutual funds industry in Europe. Any outflows would most likely be from Belgian HNW funds. Indeed, Datamonitor’s 2012 Global Wealth Managers Survey shows that Luxembourg is the largest destination for Belgian HNW offshore holdings, and those same HNW individuals identify banking secrecy as the predominant driver for taking their liquid assets outside Belgium.
4
Private Wealth Insight
Bank Secrecy Bank secrecy, on the other hand, is part of the Swiss constitution, both emblematic of and the source of its financial power and the strength of its banking system. If Switzerland was to abandon it completely its USP would disappear, and it would be usurped by younger, cheaper, more “discreet” financial centers such as Singapore and Hong Kong. Switzerland cannot afford to be cut out of Europe, which still accounts for the vast majority of its deposits, so it will have to eventually find a compromise with EU authorities. How much it will be forced to disclose and to what degree will determine its future as a financial center.
The end of bank secrecy | INFOGRAPHIC
April 2011 Julius Baer client data sold to German authorities in 2009, bank settles paying $72m.
March 2012 US indicts Wegelin for helping clients evade tax, fine of $58m levied.
April 2012 Swiss government permits banks under investigation by US to comply with information requests.
August 2012 Julius Baer has client data stolen and sold to German authorities.
September 2012 Credit Suisse settles with German government for EUR150m to end investigation into tax evasion.
September 2012 IRS awards whistleblower $104m for disclosing UBS data a move that kicked off a tax crackdown in the US.
November 2012 UK HMRC receives 4,388 leaked HSBC accounts in Jersey totalling GBP700m.
May 2013 The IRS, ATO and HMRC cooperate to analyze data on use of trusts and companies holding assets of their residents in certain offshore centers.
June 2013 UBS under investigation for helping French citizens set up secret accounts offshore.
July 2013 Liechtenstein Landesbank avoids US prosecution after agreeing to pay $23.8m and admitting it helped clients evade taxes.
Access the tracker through your Knowledge Center: Updated weekly, the Global Wealth Management Competitor Tracker provides visual and interactive analysis of the activity of 100 wealth managers. It provides summaries of stories and analysis from Datamonitor’s Private Wealth Management analysts.
Access the trackers through your Knowledge Center
Request a free demo
enquiries@datamonitorfinancial.com quoting INSIGHTq1.
Private Wealth Insight
5
Forecasting | The changing offshore landscape
Forecasting
The changing offshore landscape: a threat for some, an opportunity for others Heike van den Hoevel Analyst, Private Wealth Management
6
Offshore jurisdictions are facing more challenges than ever. The pressure to stem offshore tax avoidance has been increasing worldwide in recent years, and has dampened overall growth of the global offshore market. However, not all offshore centers have been struggling to bring in new business. Analyst Heike van den Hoevel highlights how a threat for some has been an opportunity for others.
Private Wealth Insight
The changing offshore landscape | forecasting
R
the US stand out. With corporate tax rates of 23% and 40% respectively, neither country is known as a tax haven – a description often used synonymously with the term “offshore center”. So what are the differences between these centers and how are they performing?
etail non-resident holdings in 12 of the largest offshore centers were worth about $8.5tn in 2012. Even when considering that this does not include bonds, equities, and illiquid assets, it is evident that we are looking at a sizable pool of money. However, growth has been volatile in recent years, as governments around the world have cracked down on offshore jurisdictions in an attempt to increase tax revenue.
There are different flavors of offshore center Broadly speaking there are different flavors of jurisdiction: traditional offshore centers (such as Switzerland); the new socalled mid-shore centers, which combine both onshore and offshore traits (such as Singapore); the safe havens (such as the US); and the fund centers (such as Ireland and Luxembourg). The latter are a very different offshore proposition, and largely focus on offering low cost environments for mutual funds, especially in the case of Ireland.
Not all offshore centers are tropical palm-fringed islands With the UK, the US, and Switzerland at the very top in terms of offshore ranking, the stereotype of offshore financial centers being remote palm-fringed islands with little besides finance and tourism is not necessarily true. In particular, the UK and
Growth of retail non-resident holdings has been erratic in recent years Source: Datamonitor’s Global Offshore Investments Analytics
Retail non-resident mutual funds and deposits ($bn)
YoY growth (%)
18.6%
8.2%
8.3% 4.3% 1.9%
-13.8% 6,667
7,907
6,816
7,111
7,699
7,844
8,486
2006
2007
2008
2009
2010
2011
2012
Private Wealth Insight
7
Forecasting | The changing offshore landscape
Traditional offshore centers: the pressure is on
Retail non-resident holdings in 12 of the largest offshore centers were worth about $8.5tn in 2012.
The traditional offshore centers are the jurisdictions typically associated with offshore banking and include familiar names such as the Bahamas, the Cayman Islands, Guernsey, the Isle of Man, Jersey, and Switzerland. While there are notable differences between these centers and their propositions, strikingly it is these traditional names that have struggled in recent years. International pressure – in particular from Germany, the UK, and the US – to increase transparency and revise tax laws has left USPs such as banking secrecy in tatters, which prompting non-resident holdings to decline over the last few years.
The performance of these centers has varied enormously in recent years, with only a few jurisdictions showing consistent year-on-year growth rates. For example, the two Asian tigers Singapore and Hong Kong have been able to grow their retail non-resident deposit holdings steadily. On the flipside, destinations in the Caribbean as well as the ones scattered around the British coast saw their retail holdings diminish.
The top offshore destinations are not palm-fringed islands but OECD countries
Private Wealth Insight
ga
po
re
20.3
M an le
of
as Is
ha m Ba
se y G
ue
rn
rs e
42.8
191.1
Si n
290.4
y
363.9
Je
Ko
ng
681.7
on g H
m
an
Ire
Is la
la n
nd s
762.2
d
815.5
Ca y
g ur bo m xe
Lu
Sw itz
8
862.5
d la n
S
953.6
er
U
1,045.8
U
2,194.5
K
Non-resident retail deposits and mutual funds ($bn)
Source: Datamonitor’s Global Offshore Investments Analytics
The changing offshore landscape | forecasting
U S
OFC
20
rg bo u m xe Lu
er la nd
7.4%
itz
8.5%
11.5%
Sw
3.5%
on g
po ng a Si K
6.3%
U ey rs
Je
of Is
le
se y rn
ue
M an
nd s Is la m ay
G
0
C
ha
m
an
as
5
Ba
CAGR 2009 - 2012
10
H
re
Ko
ng
15
Ir el an d
19.3%
-2.0% -4.2%
-5
-5.2%
-6.4%
-10
-11.5%
-15 -17.6% -20
Having become the object of special scrutiny, some of the centers examined have evolved more than others in terms of their approach to the new world order. Most prominently, the Bahamas’ easy-going attitude toward tax regimes and compliance distinguishes the center from the British Crown
Dependencies, which as a result of international pressure have increased their compliance standards. For example, the Cayman Islands, Guernsey, the Isle of Man, and Jersey have agreed to sign up to the Multilateral Convention on Mutual Assistance in Tax Matters.
International pressure to increase transparency and revise tax laws has left USPs such as banking secrecy in tatters, which prompting non-resident holdings to decline over the last few years.
Bahamas: adaption is key In the Bahamas, nonresident retail deposits and mutual funds have declined year-on-year since 2007. As tax compliance has received more political attention, the island has come under increasing international
Private Wealth Insight
9
Forecasting | The changing offshore landscape
Singapore has been able to attract wealth from both highly developed safe havens and Asia’s growing giants
China
In d
ia
$19.1
$24.9
$25.8 Switzerland
pressure, and as a result has been forced to amend its privacy laws. This has hit the island hard, not least because it was overly dependent on US deposits, and closer cooperation with the IRS has prompted many US HNW investors to withdraw their funds. For the Bahamas to remain competitive, the island state will not only have to comply with new legislation but create a new USP other than that of privacy and low taxation.
The mid-shores: a winning strategy $32.75 UK
$756.3 US
One of the most striking trends in recent years has been the rise of the so-called mid-shores. These are typically newer offshore destinations, such as Singapore and Hong Kong, which have sought to position themselves as jurisdictions that combine offshore traits such as a competitive tax environment and onshore elements such as legal certainty and a large, highly skilled workforce. These centers have benefited from the fact that they are not traditionally associated with offshore banking, particularly for American and European HNW individuals, and as such have come under less scrutiny than the traditional centers. However, this is changing. As the traditional centers have fallen prey to increased observation, HNW individuals have sought new homes for their offshore assets. This has resulted in increased inflows for Hong Kong and Singapore, but it also brings with it increased interest from Western governments.
One of the most striking trends in recent years has been the rise of the so-called mid-shores.
10 Private Wealth Insight
The changing offshore landscape | forecasting
As governments globally are pushing to increase transparency, offshore centers have to rethink their positioning. Singapore is ticking all the boxes Singapore is particularly popular among HNW investors as an offshore destination. Sophisticated investment options and local expertise on the formation of trusts have seen significant sums of HNW wealth flow into the country. As Datamonitor’s 2012 Global Wealth Managers Survey shows, Singapore has been able to attract wealth from both highly developed safe havens and Asia’s growing giants. Located in the heart of Asia Pacific, the city state’s well developed financial services sector allows it to attract highly skilled talent. It has also signed multiple double taxation agreements and has a strong legal system to reassure investors. At the same time, Singapore provides investors with the benefits traditionally associated with offshore centers. With a top corporate tax rate of 17%, the country is not a traditional offshore center per se. However, the government does not levy capital gains tax, and the corporate tax rate for fund management activities varies between 5% and 10%. Singapore is now also in the process of adding exchange of information elements to its double taxation agreements, which will dent its usual bank secrecy. However, investors have not been using it solely for that purpose anyway.
The US: a non-traditional but successful offshore destination
While not the largest safe haven, the US stands out in terms of its recent growth. Retail investors have eagerly shifted their funds from traditional offshore centers into the US to avoid being tainted by association. At the same time, the US experienced significant growth as global economic uncertainties prompted investors to seek the safety of the US’s stable financial system. As opposed to the majority of other offshore destinations, the largest proportion of retail funds is kept in bonds ($6,454bn), highlighting another US strength – that of well-developed financial markets across all asset classes. As governments globally are pushing to increase transparency, offshore centers have to rethink their positioning. A reputation as a top secrecy jurisdiction with low tax rates is no longer an option. Those offshore centers that have been sitting on the fence hoping that their peers would also turn a blind eye to international pressure have seen their retail non-resident holdings diminish, while those that have evolved, shifting their focus and finding a USP other than that of client anonymity and low taxes, have recorded strong growth.
For further information, read the report: Global Offshore Investments Analytics HNW Offshore Investment: Key Trends and Motivations
Safe havens: global economic uncertainties have seen fund inflows grow rapidly Safe havens such as the US and the UK have experienced notable increases in retail non-resident assets. Mainly driven by global economic uncertainties, non-resident retail mutual fund and deposit holdings recorded exceptional growth rates in recent years. Access the reports through your Knowledge Center
Order online from the Datamonitor Research Store
Private Wealth Insight
11
Country focus | South Africa: meeting the offshore demand
Country focus
South Africa: meeting the offshore demand Carolyn Draper Analyst, Private Wealth Management
12
Offshore investing has long been prolific among the affluent in South Africa. Here analyst Carolyn Draper looks at the drivers behind this trend and what can be learnt from how country wealth managers have targeted this opportunity.
Private Wealth Insight
South Africa: meeting the offshore demand | Country focus
S
outh Africa is a unique wealth market in many ways, with one notable characteristic being the strong tendency of local HNW individuals to hold assets offshore. As such the market presents numerous best practice examples for wealth managers looking to manage their clients’ international investment preferences.
The Offshore Exchange Scheme: the legalizing of a practice that has always been the norm Taking money out of South Africa has always been prolific among the affluent South African minority, even before it was legalized in 1997. The Offshore Exchange Scheme began in that year and aimed to legalize the practice of holding money offshore, with certain limits on the amount that can be taken out each year. Currently the offshore allowance is ZAR4m ($400,000) per tax year, and local HNW individuals are certainly making use of it. According to Datamonitor’s Global Wealth Managers Survey 2012, South African HNW individuals were second only to those in the UAE in terms of the percentage of their portfolio they held offshore in 2012.
A common perception of offshore investing is that it is by and large driven by tax avoidance. While this is certainly true in some countries, it is less of a driver for South African HNW individuals, even though local income tax rates are relatively high, with an upper progressive tax rate of 40%. To some extent this is because the tax benefits for South Africans to invest offshore are limited, as the country’s government demands that all individuals declare and pay tax on worldwide income, including that from investments. However, the average affluent South African is not driven to hold wealth offshore because of any perceived tax benefits, and places much greater importance on the availability of better investment products offshore and the ability to protect wealth against instability within South Africa.
The offshore exchange scheme allows for $400,000 to be invested offshore each tax year.
HNW offshore allocation of total assets (2012) Source: Datamonitor’s Global Wealth Managers Survey 2012
45%
UAE
32%
South Africa
28%
Chile
27%
Australia
US
24%
Private Wealth Insight
13
Country Focus | South Africa: meeting the offshore demand
HMW offshore allocation of total assets (2012) Source: Datamonitor’s Global Wealth Managers Survey 2012
Country
Criteria
South Africa
Offshore centers offer better investment options
As percentage of total HMW offshore investments
78%
Concerns about political stability onshore
Diversification
16%
6%
Access to advanced financial products tempts South Africans to look abroad While South Africa is the most developed financial center in Africa, it still does not have the same clout as the traditional global financial centers, which are able to offer more diverse products. This is the main reason for HNW clients deciding to invest offshore, with local wealth managers citing better investment options as the primary reason for offshore investment in 78% of cases (Datamonitor’s Global Wealth Managers Survey 2012).
Political and economic instability also act as push factors
Local wealth managers cite better investment options as the primary reason for offshore investment.
Negative motivators such as political and economic instability are also important drivers as to why South African HNW individuals invest offshore. Miners’ strikes have been particularly problematic for the country, and occurred frequently in 2012 and 2013. Indicative of wider social tensions caused by prolific social and economic inequality in South Africa, the strikes also affected GDP growth in 2012 as the disruption severely limited production. 2013 has been tough for the rand, which has significantly weakened against the US dollar, particularly in June 2013, when the exchange rate dropped to just $0.0992 for ZAR1 (in June 2012 it was $0.1223). This along with continued political instability mean GDP outlook has been revised downward
14
Private Wealth Insight
from 2.7% to 2.4%. Bearing in mind that South Africa is still classified as an emerging economy, these stumbling blocks to a developed market should be expected. However, South Africa remains a highly unequal society, and without significant social change it is likely that political and social instability will lead to continued economic uncertainties in the country.
South Africa’s wealth managers have embraced the need to invest offshore South Africa’s wealth managers have responded to these realities by developing their propositions to accommodate demand from their clients for offshore assets. As such they provide an interesting case study for wealth managers operating in other markets where demand for offshore wealth management is high or growing. When South Africans invest offshore it tends to be in products they believe will offer stability to their overall portfolio. Given this, South African wealth managers typically advise that clients hold a certain proportion of their portfolio in South
South Africa: meeting the offshore demand | Country Focus
Africa, where assets can achieve high yields but are often regarded as more risky. Offshore asset allocations are then used to balance onshore risk; for the most part these tend not to be denominated in rand to avoid currency risk. Pegasus Wealth Management openly advises that 30% of a client’s portfolio should be held offshore for this purpose, and many other wealth managers proffer similar advice.
Investec not losing out in terms of assets under management. One example is “The World Axis: Cautious Fund” denominated in US dollars, which is managed offshore but can be accessed through Investec local wealth managers. Notably, South Africa’s wealth managers have sought to develop their international networks in locations that are of the most importance to their clients. Datamonitor’s Global Wealth Managers Survey 2012 shows that the UK is the most important booking center for South African HNW individuals, accounting for 37% of South African offshore wealth. Therefore, it’s probably no coincidence that many South African competitors such as Investec, Old Mutual, and Sanlam also have a presence in the UK. Ultimately, the drivers for offshore investment by South African HNW individuals and the precise responses from local wealth managers are unique to the South African market, but wealth managers from around the world should learn from how South African competitors have sought to understand their clients’ needs and motivations, and adapted their propositions accordingly.
Wealth managers advise that 30% of a client portfolio should be held offshore. Structured products and property are popular offshore investment options The most common types of investments offshore are structured products and direct investment in international property. The larger wealth managers in South Africa tailor their wealth proposition by accommodating overseas property purchases through the provision of international mortgages, property advice, and legal planning. Absa Private Bank, for example, offers access to international mortgages denominated in several currencies to allow for HNW clients to leverage credit when purchasing offshore property. In terms of investment funds, Investec, one of the largest wealth managers in South Africa, provides its South African affluent clients with access to global funds through its international offices. This international network allows its South African clients to offshore money in a convenient manner, with
For further information, read the report: HNW Offshore Investment: Key Trends and Motivations Wealth in South Africa: Sizing the Market Opportunity Access the reports through your Knowledge Center
Order online from the Datamonitor Research Store
Private Wealth Insight 15
Global Issues | Offshore under siege
Global issues
Offshore under siege The high pace of regulatory change has altered the rules for offshore wealth beyond all recognition.
Andrew Haslip Lead Analyst, Private Wealth Management
16
Private Wealth Insight
Offshore under siege | Global Issues
W
ith the tax revenues of many OECD countries hit by the global financial crisis, pressure on the offshore sector for increased transparency has been building. The recent G8 Summit that took place in June 2013, with its calls for stronger action on international tax evasion and a commitment to share more information, caps a round of furious activity by governments. Here Lead Analyst Andrew Haslip looks at the biggest regulatory developments currently shaping the offshore wealth industry. Recent regulatory developments can be grouped into those that aim to raise capital for cash-strapped governments, and those designed to increase transparency.
FATCA The Foreign Account Tax Compliance Act (FATCA), with its penalties for non-compliance, has changed the reporting regime for any financial institution with exposure to the US. Various countries have scrambled to sign intergovernmental agreements to ensure that their banks are not disadvantaged by the legislation. FATCA was designed to combat offshore tax evasion by wealthy US citizens but will increase the exchange of financial information across borders for all.
Tax amnesties A rare carrot in many governments’ quest for revenue has been the offer to regularize undeclared offshore assets subject to tax, fines, and interest. The number of tax amnesties announced recently has skyrocketed, with some countries even offering more than one scheme. Amnesties have been of varying success but have put pressure on offshore assets under management, a trend that is set to endure.
Tax prosecutions The US government, along with a number of European countries, has enthusiastically pursued banks operating in the offshore sector. These prosecutions, thefts, settlements, and court rulings have overturned the traditional secrecy of offshore banking, exposing it to considerable litigation risk. With the banking sector being a convenient scapegoat, further “enforcement” actions can be expected to target prominent offshore wealth managers.
International co-operation A hallmark of the offshore wealth market has been closer coordination in matters of tax and offshore finance. Tax treaties have been announced or updated, often with a move towards automatic exchange of information provisions rather than information being given “upon request.” Shifting to automatic exchanges will continue. Offshore finance will still be able to offer privacy, but true bank secrecy will soon be beyond it. For further information, read the report: Global Offshore Investments Analytics HNW Offshore Investment: Key Trends and Motivations
Access the reports through your Knowledge Center
Order online from the Datamonitor Research Store
Amnesties have been of varying success but have put pressure on offshore assets under management, a trend that is set to endure
Private Wealth Insight
17
interview | Geoff Cook, CEO of Jersey Finance
Interview
Offshore wealth management: Adapting to a new world order Matia Grossi Principal Analyst, Private Wealth Management
18
Principal Analyst Matia Grossi recently spoke with Geoff Cook, CEO of Jersey Finance, to discuss Jersey’s place in the world of offshore wealth management and the challenges currently facing the international banking industry.
Private Wealth Insight
interview | Geoff Cook, CEO of Jersey Finance
Can you tell us about the typical wealth management clients and companies that Jersey attracts? Geoff Cook: Jersey over the past few years has become predominantly a HNW/UHNW and institutional booking center, so the profile has moved towards the higher end of the spectrum. If you have a HNW private banking client, particularly for trusts, you are looking at values involving typically £2m. There are also institutional investors, which mainly constitute pension funds, university endowments, and so on. In its entirety, the value booked here is about £1.3tn. About half of that value belongs to individuals, family offices, and family foundations. The other half is institutional.
the fund administration platform. The growth has been due to the traditional skills we have developed in banking and private banking, trust administration, and then transferred to fund administration. Those skills are transferrable and we have applied them to the alternative investment space. As that asset class has grown in favor with asset managers, we have grown with it.
What are Jersey’s differentiating features compared to other nearby offshore centers, such as Guernsey and the Isle of Man?
Why has Jersey focused on alternative investments?
Geoff Cook: There are a few differentiating features. Of the 16 British centers, doing what we do, three are direct Crown dependencies, the others are overseas territories. We are the largest by quite a big margin, in terms of workforce capabilities and size, with around 12,500 people working in financial services. So, we differentiate in size and with that comes different capabilities. We have a greater number of service providers – all of the major offshore law firms and 42 banks – and the assets booked through us are much larger. We also concentrate our core offering around private banking and wealth management, and institutional services. I would say Jersey is a fuller service center, while Guernsey tends to concentrate on two specific areas, namely insurance – it is the biggest European captive insurance center – and private equity. The Isle of Man tends to focus on corporate.
Geoff Cook: We don’t focus on a per se basis in Jersey; the focus is more on asset managers who would typically be in New York, London, or Hong Kong. What we provide here is
What has Jersey done to maintain this differentiation in recent years?
How has this client split evolved in recent years? Geoff Cook: It has changed progressively and the institutional part of it has grown quite significantly, partly as a result of the trend of a greater proportion of assets allocated into alternative investments. Jersey’s fund industry is largely an alternative investment platform, specifically for real estate, commodities, private equity, and hedge funds. Hence we are attracting those HNW individuals typically looking at portfolio diversification in more complex products and potentially higher returns.
We differentiate in size and with that comes different capabilities. We have a greater number of service providers and the assets booked through us are much larger
Geoff Cook: We have invested quite heavily. Our government has increased the investment in the financial service platforms and in Jersey Finance alone to around £4m per annum. We are expanding into growth markets: we have opened offices in Beijing, Hong Kong, India, and the Middle East. We are now entering into Africa and Russia/CIS countries, and have done some very early work with Brazil. But
Private Wealth Insight
19
interview | Geoff Cook, CEO of Jersey Finance
we still see Europe as hugely important to us, especially City of London, where traditionally we have sourced most of our business. However, as of late that’s been on a much flatter trend and there is no real indication that it’s going to change in the foreseeable future.
What are your views on the rise of the Asian centers such as Singapore and the role they play in offshore wealth management? Geoff Cook: We don’t see them as a threat and we haven’t seen a big flow of business from here to Singapore. I think the threat to the European business is generally overestimated. However, they make it harder for us to break into those geographies in that you are probably not going to pick up what I call the “domestic” business. With domestic I mean an Asian business wanting to create a vehicle to help the business trade through Asia, which is basically what we do, helping people through cross-border activities. Then domestic Asian clients will see Hong Kong and Singapore as more attractive centers because of the familiarity, time zone, geographical proximity, and probably cost. So I think that for inter-regional business it’s a tough market for us to break into. But where we do have traction is when those companies or those individuals want to invest further afield, outside of Asia and in other parts of the world, such as Africa or Europe. There they know we have greater knowledge, experience, and connectivity, especially if they want to do it on a co-investment basis with other international investors. Our trust offering is also transferrable globally, because the Jersey trust is globally recognized as the leading trust.
Europe and the US, we tend to get more and closer attention than other offshore centers. It seems that we take part in those initiatives more rapidly than the Asian centers, for example. Transparency as such is not an issue for us, as we have never built our proposition on secrecy. We have never had bank secrecy; we have always only had data protection legislation. We have never had significant barriers to information sharing. It’s the cost associated with that which constitutes a problem for us. If we adopt that kind
The danger of costs rising at a faster pace than those of our competitors. Because of our close proximity to Europe and the US, we tend to get more and closer attention than other offshore centers
What do you see as the key strategic challenges currently facing Jersey? Geoff Cook: The danger of costs rising at a faster pace than those of our competitors. Because of our close proximity to
20 Private Wealth Insight
of information exchange, then there is a significant cost associated with that in terms of information gathering, validation, transferring, and so on. If that does not become a global standard we end up with a cost differential, and that eventually translates into pricing.
What impact has the new legislation had so far on Jersey, especially in terms of the relationship with the UK? Geoff Cook: We haven’t marketed for UK domestic business pretty much for over 30 years. Back then you could use planning for UK nationals, but there is very limited planning opportunity for them now. Where we can help is for expats who need cross-border servicing. As I mentioned, we haven’t built our business around secrecy. To give you an example we report around 150
interview | Geoff Cook, CEO of Jersey Finance
suspicious transactions a month and 30% of those are for tax frauds, so we have a robust system to try and tackle those people trying to use tax evasion schemes. I don’t think we have a problem with “grey” or undisclosed money at all.
needed is very significant. Beyond geographies or type, I think a lot is related to size and I think that the very small centers will struggle. We have already seen this with Liechtenstein: it has a very targeted offering, built around banking secrecy. It is a small center, not very diversified and it is now in considerable difficulties.
Has FATCA cost you any business? Geoff Cook: We have never marketed for American business, so we don’t have many US-national clients. The American institutions we have here tend to target European and Middle Eastern individuals for private banking services and also provide expat-focused private banking. A number of them also have their trust platforms here. I think it actually had a positive effect. Initially we were concerned about it, because if we adhered to FATCA legislation and others didn’t, we would be absorbing lots of overhead costs. But I think as people and organizations get their heads around it, there is actually nothing to worry about. The US has the muscle to force FATCA as a global standard; the OECD is also adapting to that and seems to be running around with the automated information exchange “baton.”
For further information, read the report: Global Offshore Investments Analytics HNW Offshore Investment: Key Trends and Motivations
This report will be available soon on your Financial Services Knowledge Center and the Datamonitor Research Store
Get in touch with us to find out more at: enquiries@datamonitorfinancial.com
Looking ahead, what future changes do you anticipate for offshore wealth management and for Jersey in particular? Geoff Cook: I think the cost of doing business, the level of compliance, and the level of complexity will increase. There are likely to be fewer offshore centers. I would not be surprised if their number didn’t actually halve within the next 10 years. But I think that the ones that remain will be bigger and stronger. We think Jersey will be one of the survivors and we are investing heavily to make sure we are in a position to take advantage of the future growth in the market.
Which types of center do you think will disappear? Geoff Cook: Those that don’t keep in step with the international standards, that don’t adopt and keep up with the progression on transparency, regulation, legal frameworks, on fighting financial crime. I think that the smaller centers will find that if they want to keep up, the amount of investment
Private Wealth Insight
21
introduction | From the editor
Want to understand the size of the HNW market? Or track the latest competitive developments in wealth management?
We can help. To appeal to the discerning high net worth (HNW) individual, you need trusted insight on the growth prospects of different markets, competitive developments, and mass affluent and HNW consumer needs. Our reliable data and actionable insight delivers the answers you need to achieve growth.
Get a FREE demo
Subscribe to Datamonitor Financial to: Invest wisely
Track your competitors
Onshore liquid wealth market data and product make up for 64 markets.
Weekly analysis on the strategic moves of over 100 global competitors.
Know your target
Stay ahead of the game
Country-specific HNW customer intelligence and in-depth market insights.
Definitive guides to strategic industry issues from regulation to new technology and customer targeting.
Request your free demo today We can help you identify new market opportunities, track competitor activity and develop tailored propositions for the HNW individual. See how by requesting your free demo at:
datamonitorfinancial.com/demo
22 Private Wealth Insight
All the articles in this magazine are based on Datamonitor’s latest research into Private Wealth Management. For more information about any of these features, or the Datamonitor Financial proposition, please get in touch. www.datamonitorfinancial.com enquiries@datamonitorfinancial.com EU: +44 20 7551 9201 US: +1 212 652 5353 AP: +61 2 8705 6900