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Jersey investment trends & tax structuring

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By Dara Lutes-Guest – In financial markets that are still unpredictable, the aim for wealth management institutions remains identifying safe forms of growth for clients.

Influenced by shifting global political landscapes, tax regulation has only become more complicated and, with it, investors increasingly cautious. More than ever, Jersey’s financial institutions need to consider how to position their offerings and find effective ways of delivering investments to customers.

In 2012, offshore wealth – also referred to as assets booked in a country where investors have no legal residence or tax domicile – rose by 6.1% to USD8.5trn. Despite the increase, stronger growth in onshore wealth resulted in offshore wealth’s share of global private wealth slightly declining to 6.3% (from 6.4% in 2011). Offshore wealth is anticipated to rise moderately by the end of 2017 to USD11.2 trn.

However, due to the mounting pressure that tax authorities are applying on offshore centres, there is a concern that wealth could increasingly move onshore.  

With this in mind, there are a few key trends that have an influence on offshore wealth management strategies:

Benefiting from the move towards tax transparency

In Jersey, the government has been pursuing a policy of signing tax agreements for quite some time, while, in the last month, the political mood has shifted to mirror the global move towards tax transparency with the formal signing of a FATCA-style agreement with the UK. This was reflected globally during the recent G8, and also in terms of commentary coming out of the G20. Commenting on G20 outcomes, Geoff Cook, CEO of Jersey Finance, says, “The major development is the commitment of the G20 to automatic information exchange, which effectively sounds the death knell for on-request.”

Andrew Robins, Senior Private Banker at Nedbank Private Wealth, describes some of the changes emerging from this new financial era: “We are all acutely aware of the impact of the 2008 financial crisis, the financial world has changed dramatically since then with on-going market volatility and an increased focus on tax transparency triggered by falling government revenues.

“International finance centres have been under the spotlight once again as sovereign states scramble to find perceived revenue streams from other sources.  The ‘new normal’ of low interest rates, central bank intervention and stuttering growth in the East – which had previously been held up as the saviour of global markets – is likely to persist in the near term meaning that the spotlight is likely to continue shining on international finance centres. 

“However, well regulated, mature international finance centres such as the UK Crown Dependencies continue to play an important part in the flow of global trade with a recent report by Capital Economic independently confirming the important role that Jersey plays for the UK economy.”

Institutions in Jersey now need to consider how they can use this new regulatory environment to their advantage. As Jersey increasingly works to actively position itself as the highest quality offshore centre in the world, its finance industry is realising that it needs to embrace this inevitable movement despite the significant data administration burden it has created. As a recent Boston Consulting Group report states: “Offshore centres must position themselves not only as possessing skills and expertise that cannot easily be found onshore, but also as embracing full transparency and integrity.”

A new era of client relationships

Transforming the client experience now has to be the key focus of the private bank and wealth management industry. In order to achieve segregated and economically sustainable business performance, it will be vital to understand how current trends are affecting overall client experience.

Andrew Robins briefly touches on the importance of building strong client relationships, noting: “Despite the changing landscape, the fundamental premise of wealth management remains unchanged and strong businesses who put client service at the core of their proposition will continue to thrive. Communication with clients has been key during the difficult recent past and wealth managers who have pro-actively kept their clients informed of developments, good and bad, will be rewarded through increased client loyalty.”

Between the wealth manager and the client, there need to be new ways of communicating, at every stage of the relationship. Peter Lucas, Investment Director of Rathbones Investment Management International (Jersey) reiterates: “Good relationships have never been more important, but how they operate has changed. Through active engagement and consultation with clients and their advisors we can now establish mandates, tailored for each client to support their individual requirements.”

Only through greater productivity, better teamwork and a more consistent experience for the customer, can institutions provide the required degree of excellence, while leveraging their commercial edge.

Gearing up for fast change

Another major trend affecting Jersey’s wealth management sector is the speed at which the regulatory environment and markets are changing. Clients are now looking at an organisation’s ability to handle significant transformational change, quickly.

The industry is only part way through its transformation and the level of change needed to meet operational challenges is frequently underestimated.

In light of the sheer scale and breadth of the task at hand, and the costs involved, it is perhaps understandable that transformation programmes are challenging, however, business industry players need to accomplish more across the gamut of their operating models than they are achieving at present.

Opportunities for those organisations that are able to transform their business models effectively are significant.

Ultimately, the landscape remains particularly challenging for wealth managers as they attempt to keep technology budgets steady. Whilst several might be able to modestly increase them, more important will be their ability to modify their business models, customer segmentation strategies and service propositions. Only through these means will they be able to enhance their ability to retain clients and expand relationships within the industry.

The ongoing development of the digital world is providing clients with new sources of information while increasingly lessening the outmoded ways in which relationship managers perform their roles and provide information.

The digitisation of the industry will necessitate technology playing a much more active role in business. Web-based technologies now provide a slew of innovative methods that allow them to interact with clients and deliver advice, while social media is a strong influencer when it comes to issues of transparency and trust.

In order to serve clients’ needs, fast-developing data analytics technologies are offering new ways to generate proprietary insights on huge data sets – a significant investment in IT and superior IT-delivery capabilities is required in order to leverage these trends.

It is accepted that these developing technologies will be able to support the integration of asset preservation, lifestyle management and wealth creation. Jersey, for example, has already seen increased demand amongst corporate clients for its advanced incentivising arrangements for staff, such as the provision of retirement funding.

Keith Heddle, Group Investment Director, notes how Stanley Gibbons is embracing technological advancement: “We recently acquired a US-based Internet auction business, which actually synchronises with eBay. The first online exchange of its kind, it will solely deal with collectable stamps, postcards, comic books and coins, broadening our outreach to clients looking to trade.”

For wealth managers and advisors who prefer not to deal with the cost of managing multiple systems, continual upgrades and/or employing more staff, the Cloud – where anything stored can be accessed almost anywhere, anytime – now appears to be the destination of choice.

This trend represents a significant shift. Along with the substantial cost saving of software no longer needing to reside on a user’s server or computer, overhead charges (cost of data storage, software updates, overall management of systems etc.) are also reduced.

For advisors, accessibility is one of the driving forces behind the adoption of Cloud computing, offering significant potential for cost savings and revenue growth, while, for businesses, Cloud solutions allow a broader range of capabilities without incurring the cost of implementation within their own IT department.

Overall, Jersey’s reputation is going from strength to strength, with the government and industry bodies working hard to secure its status as a highly reputable, compliant and secure offshore financial centre.

The recent letter from the Secretary General of the OECD, Angel Gurria, written to Jersey’s Chief Minister to congratulate the Island on the measures it has taken in support of international tax transparency, has reinforced the clear recognition of Jersey’s ability to meet the demands of regulatory standards.

This level of high quality endorsement, added to Jersey’s commitment to investment in technology creates some significant opportunities for the local wealth management industry.

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