Private Wealth Management
by
the Lowtax Network Editorial Team, August, 2008
Disclaimer:
The Lowtax Network has taken reasonable care in
assembling this report but accepts no liability
for any actions taken or not taken as a result.
In particular, this report does not constitute
investment advice. Anyone contemplating an investment,
or a change to a current investment, needs to
take appropriate professional advice.
There
is such a lot of money!
Despite
a presumably temporary dip in asset values as
a result of shell-shocked markets post sub-prime,
HedgeFund.net said recently that total hedge fund
assets stood at USD2.848tn at the end of March
2008.
New
allocations of USD53.02bn during Q1 couldn't overcome
performance losses of USD93.18bn, resulting in
total hedge fund assets experiencing a quarterly
decrease for the first time on record. The 1.4%
decrease in Q1 2008 compares to an increase of
11.5% in the first quarter of 2007.
According
to the 12th annual World Wealth Report, released
in June 2008 by Merrill Lynch and Capgemini, the
wealth of the world's high-net-worth individuals
(HNWIs1) increased 9.4 percent to US $40.7 trillion
in 2007. The number of HNWIs in the world increased
6 percent in 2007 to 10.1 million, the number
of ultra-high-net-worth individuals (Ultra-HNWIs2)
increased by 8.8 percent, and for the first time
in the history of the Report, the average assets
held by HNWIs exceeded US $4 million.
A
study
by consulting firm McKinsey and Company published
in January, 2007, estimated that the value of
total global financial assets, including equities,
government and corporate debt securities, and
bank deposits, expanded to $140 trillion in the
12 months to the end of 2005, an increase of $7
trillion from a year earlier. That is a growth
rate of 5.3%.
There
are no consolidated figures for the growth in
offshore assets - many jurisdictions simply don't
release figures. But for those that do, it is
clear that the rate of increase in banking, trust
and fund assets dramatically outpaces McKinsey's
global figure.
In Jersey, for instance, banking and investment
fund assets were approaching GBP500 billion at
mid-year, up 40% in the last two years. In Guernsey,
bank deposits rose 14% last year to GBP92 billion,
and fund assets rose 45% to GBP210 billion in
the year to June, 2008.
In
the Isle of Man, fund assets surpassed the $50
billion mark as at June 30, 2007, bringing the
total of assets just in the UK's near-shore islands
to more than US$2 trillion, up 30% in total over
the previous two years.
So
where does it all come from?
From
rich people, stupid!
They
are the new kids on the block, the new rulers
of our world. They are going to get richer, and
there are going to be more of them. There are
already more than 10 million dollar millionaires
in the world, and that number has seen more than
10% annual growth in the last few years.
It
is estimated that the assets of these 10 million
rich people top US$50 trillion. And beneath them
are tens of millions of 'mass affluent' people
with free, investible assets in excess of US$100,000.
And beneath them . . .
Circling
these glittering concentrations of gold, silver
and diamonds are shoals of advisers, wealth management
consultants, hedgies and, especially, private
bankers. The purpose of this Investors Offshore
special feature is to analyze in particular the
role played by bankers in wealth management, and
to offer some basic principles for choosing between
the many investment options available to the affluent.
Private
Banking
As
a phrase, the term 'private banking' is becoming
so over-used that it is close to losing the cachet
that once attached to the intensely secret dealings
between a banker in his Zurich parlour and his
wealthy visitors.
Almost
every bank with any pretensions to being international
offers special rates of interest to wealthier
private depositors under the heading of private
banking. Minimums have fallen to as low as US$10,000
in many cases, although some firms still maintain
more traditional entry levels of US$100,000 or
higher before offering special treatment to their
clients.
The
truth is that there are vast numbers of banks
competing ferociously to capture the admittedly
even vaster numbers of clients with money to invest.
The customer with $20,000 dollars of spare cash
today is worth the time of a 'relationship manager'
in the hope that he will have $200,000 or $2m
of spare cash tomorrow. It's a marketing exercise.
Private
banks, once the traditional first port of call
for a rich person seeking to safeguard wealth,
tended to lose out to alternative forms of wealth
management during the last 20 years of the 20th
century. Bankers came to be seen as old-fashioned.
The very rich began to use 'family offices' to
manage their money, in effect directly employing
skilled advisers. And the bankers were slow to
recognize the attractions of investment funds
in general and hedge funds in particular. The
liberalization of capital markets and improved
telecommunications focused the attention of the
media on investment as a major preoccupation of
readers or viewers, and it became fashionable
for moderately wealthy people to self-invest.
But
the banks have fought back, gaining expertise
in the new types of investment and broadening
their horizons. In the last few years they have
reclaimed a leading position in private wealth
management, and have enthusiastically expanded
out of their traditional bastions such as Switzerland
and Liechtenstein into newer 'offshore' jurisdictions.
Almost every week sees the announcement of another
private banking merger or expansion plan. Here
is a recent sample:
- Gulf
Merchant Group Limited, a new investment banking
and asset management firm to the region, was
licensed by the Dubai Financial Services Authority
(DFSA) to operate as an authorised firm within
the Dubai International Financial Centre (DIFC).
The DIFC said that the group will provide international
standard investment banking services that target
family-held business groups and High Net Worth
Individuals (HNWIs) within the MENA region.
Gulf Merchant Group Limited is a subsidiary
of Gulf Merchant Group LLP, which is regulated
by the UK’s Financial Services Authority (FSA).
- Swiss
Life Holding has announced that it will acquire
the entire share capital of Liechtenstein-domiciled
CapitalLeben, giving the company a leading position
in structured life insurance products for high
net worth individuals. Swiss
Life said that it will merge the company with
its subsidiary Swiss Life (Liechtenstein) AG.
The companies have a comparable business model,
similar products and complementary areas of
geographical focus. The insurance law introduced
in 1996, and compatible with applicable European
Union directives, has made Liechtenstein an
attractive location for business with structured
life insurance products. Policies concluded
under Liechtenstein law enable wealthy customers
to invest their assets in life insurance, and
therefore benefit from attractive tax conditions
and from the advantages of wealth management
and estate planning. Premium income totalling
around CHF6 billion (EUR5 billion) is expected
for this market for 2008.
-
International hedge fund management and brokerage
services company Gottex plans an IPO in Switzerland,
the company said. Gottex Fund Management says
it has US$13.3bn assets under management. The
company has operations in Switzerland, Germany,
United Kingdom, United States, Hong-Kong and
Australia, but the fund management company is
registered in the British Virgin Islands, while
the holding company which is apparently going
to stage the IPO is based in Guernsey.
- EFG
International, a global private banking group
headquartered in Zurich offering private banking
and asset management services, has announced
that it has reached an agreement to acquire
major US wealth manager PRS Group from its main
founder. PRS Group currently manages approximately
US2.5 billion in high net worth client assets,
which are primarily invested in proprietary
funds and proprietary funds of hedge funds.
PRS Group was founded in 1981 to provide specialized
investment services to a global high-net worth
and institutional investor base. In addition,
it offers a broad range of family office-type
private banking services, as well as discretionary
asset management services. PRS currently employs
46 professionals, 5 of whom are Client Relationship
Officers. For PRS, the association with EFG
International will provide access to a wider
range of private banking services including
access to a global custody and administration
network.
- Ruling
Prince of Liechtenstein, Hans-Adam II, visited
the Dubai International Financial Centre (DIFC)
to discuss the strengthening of investment links
between the DIFC and Liechtenstein, particularly
with respect to LGT, the wealth management experts
of the Princely House of Liechtenstein. Nasser
Alshaali, Chief Executive Officer of the DIFC
Authority, stated that: “We welcome His Serene
Highness Hans-Adam II and his delegation to
the DIFC and we look forward to a prosperous
relationship between the DIFC and both the Principality
of Liechtenstein and LGT. There are extensive
business opportunities for these two major financial
centres and we are keen to discuss these in
further depth for the benefit of both Liechtenstein
and Dubai."
The
expression 'private banking' is nowadays more
to be seen as a gateway into investment management
in the broader sense than as offering a confidential,
almost family relationship with a man to whom
you entrust your money. Those relationships still
exist in the traditional places, but they apply
more to extremely rich people than to moderately
wealthy or well-off people who want more personalised
treatment than they can get from their high street
branch, or their regional 'personal banker'.
Here,
'private banking' is taken to mean investment
management offered on a personalised basis by
bank to an individual (or indeed his company)
with disposable wealth of more than $100,000.
'Private banking' is obviously not synonymous
with 'offshore', but the costs of a personalised
relationship begin to be worthwhile at the $100,000
level in the light of the superior gains to be
realised from offshore investment.
Choosing
A Private Banker
Some
care is needed when approaching a 'private banker'
or a bank offering customised relationship management
(there are lots of expressions all amounting to
the same thing). What matters is the structure
of the bank. This is not to say that one kind
of bank is necessarily more reliable than another,
just to understand why the bank is offering personal
attention, and what it hopes to gain from it.
Some
banks are little more than front ends for investment
funds. They may be safe enough, but are they objective?
Perhaps it is best to look for a bank that is
trying to make money out of private banking as
an activity in itself, rather than just using
it as a scoop for customers for its financial
products. If you just want a bank that will give
you a good rate of interest without deduction
of withholding tax, then the choice is simpler.
Private
banking doesn't just mean investment: banks like
to lend money, and especially to richer people.
This raises the question of how a private banker
is going to get rewarded. Depositing money with
a bank is reward enough, of course, whether into
the bank or into one of its financial products,
but private banking when it has an advisory nature
and is not accompanied by lending or borrowing
may be fee-based. Provided the sum involved is
large enough to justify the fee costs, an advisory
private banking relationship is probably a good
way to go. The bank will get the benefit from
time to time of being able to offer bridging finance,
or of holding large amounts in transit etc. It
can hope for more substantial involvement with
you in future. But the immediate relationship
is between financial adviser and client.
Given
the snowstorm of advertisements and mail-shots
which surrounds richer people, the problem might
seem to be more one of avoiding private bankers
than finding them. But most of the offers are
from banks wanting to sell their own services.
As explained above, a 'private banker' is probably
best approached as an objective financial adviser
rather than as an investment-provider, and may
also not be the most effective choice for a reasonably
sophisticated investor who wants to play an active
role in the management of his investments.
Many
people may have contacts or advisers who will
be able to recommend a particular bank, but assuming
a blank sheet of paper, then the first step is
to decide between an onshore or offshore bank.
This will depend on an individual's residential
situation, but if you either already have residence
in a low tax area, or plan to have it in future,
or want to explore trusts and other 'distancing'
techniques which can legitimately reduce your
exposure in high-tax areas, then you are probably
going to choose an offshore bank.
An
Introduction To Offshore Banking
There
is a huge spectrum of different offshore banking
services available to expats, international
investors, globetrotters, international consultants
and corporations, offering varying degrees of
return, protection, and privacy. Before we look
into the different sorts of offshore bank account
available, however, a brief rundown of the background
of this ever-growing industry is necessary,
in order to understand the present situation.
As
more and more financial institutions became
keen to establish themselves on an international
level, regulators perceived a need for greater
banking regulation, and introduced a set of
minimum standards and safeguards, known as the
Basle Accord (introduced 1988). The Accord outlined
the requirements necessary for banks to obtain
licenses, which included two minimum types of
bank capitalisation- core capital and supplementary
capital. Core (Tier 1) capital is basically
a mixture of shareholder equity and disclosed
reserves, and supplementary capital is a mixture
of debt and equity instruments.
The
Basle Accord set the minimum capital adequacy
level for each type of bank capital at 4%, meaning
that many banks operating in countries under
this accord were forced to increase their capital
reserves and to invest in 'safer' investments.
Recently introduced modifications to the original
Basle Accord (originally enough, called Basle
2, and running to 541 pages) seek to align capital
requirements with the underlying risks of loans
made, and will further affect the amount of
capital which each bank is required to hold.
This may mean that banks in countries which
are operating under the Basle Accord are forced
to be more cautious about the instruments in
which they invest, resulting in potentially
less attractive returns. However, in non-Accord
countries (which includes many offshore jurisdictions),
regulation of this kind is usually down to the
regulatory authorities of the jurisdiction,
and the required capital adequacy levels can
vary.
Other
legislative issues have also had an effect on
the offshore banking world. Initiatives by the
OECD/FATF/G7 countries to combat money laundering
have, in the process, severely damaged the banking
secrecy laws of many offshore jurisdictions.
'Know your Customer' legislation has meant that
privacy in high tax and certain low tax jurisdictions
has been jettisoned in return for international
acceptance. In addition, US rules have introduced
'Qualified Intermediary' status which also imposes
more stringent controls on any institution wanting
to avoid having to tax US-source income regardless
of the nationality or tax status of the recipient.
For all these reasons, opening an offshore account
can now often require a small rainforest's worth
of paperwork.
The
OECD's first shot across the bows of banking
secrecy was fired in earnest with the release
of a report in 2000 into improving access to
bank information for tax purposes, endorsed
by all 29 members of the organisation. Although
the report was more a statement of intent rather
than a detailed plan, it set the template upon
which national tax authorities could obtain
information about specific individuals or companies
whom they have reason to suppose are engaged
in tax evasion or criminal activity.
Although
many offshore jurisdictions have responded to
the pressure brought about as a result of their
blacklisting by the OECD and the FATF by strengthening
legislation against money-laundering and introducing
better controls over financial institutions,
the high tax countries have failed to really
galvanise a move towards any comprehensive dilution
of banking secrecy, and the international framework
of mutual assistance treaties remains largely
as it was.
Indeed,
the high-tax countries themselves are gradually
being forced by peer pressure and international
regulations to tighten up their own regimes.
In
January, 2007, for instance the UK took the
latest in a series of EU-inspired measures when
Economic Secretary to the UK Treasury, Ed Balls,
published draft money laundering regulations
for consultation. They were passed by Parliament
in July, and came into force on 15th December.
The
regulations are designed to implement the EU's
Third Money Laundering Directive, and have already
caused controversy.
The
proposed regulations include:
- Extended
supervision so that all businesses in the
regulated sector comply with money laundering
requirements, including estate agents, trust
and company service providers and unsecured
lenders;
- Strict
tests to ensure people running money services
businesses and those who help set up trusts
and companies are fit and proper;
- Extra
checks on customers that firms identify
as posing a high risk of money laundering;
- A
requirement to establish the source of wealth
for those in high risk situations, for example
those involving deals with high ranking
public officials overseas; and
- A
strengthened and risk-based regime in casinos,
in line with, but stricter than, international
standards.
Mr
Balls announced that: 'These Regulations will
strengthen further the UK's defences against
money laundering and terrorist finance. By taking
tough and targeted new measures where the risks
are greatest we will crackdown further on illegal
activity and help force criminals and would-be
terrorists out of the shadows. At the same time
our Regulations will ensure that businesses
and consumers in low risk situations face fewer
burdens than previously.'
The
Directive includes criminal penalties for advisers
ranging from stockbrokers to lawyers and estate
agents to bankers if they do not carry out multiple
checks.
However,
the UK's Law Society warned that the new money
laundering regulations could put solicitors
at risk of inadvertently committing criminal
offences because they are "impossible to interpret"
in practice. It also warned that the new rules
will increase the cost to clients of solicitor’s
work in dealing with trusts.
According
to the Law Society, a number of the terms in
the new EU Directive are unclear, and unless
the Government clarifies them, solicitors will
have to make extensive enquiries – at clients’
expense – in order to avoid inadvertently committing
a criminal offence.
Offshore
banks, or the offshore branches of banks based
in 'high-tax' countries, may apply some residence
tests when you approach them. The situation
is odd: there are hardly any countries which
make it illegal for their citizens to have offshore
accounts (there used to be plenty, but the abolition
of exchange controls has changed all that).
The illegality comes if you don't declare the
account (in some cases) or if you don't declare
the income from it (other cases). But the offshore
bank may well not be allowed to offer you the
account in the first place if it is not regulated
and licensed in your home country. The publicity
of such banks normally puts the onus on you
to abide by the regulations of the country you
are in; their practise is variable when it comes
to accepting your business.
The
Internet has of course sharpened the banks'
dilemma. If a bank is not licensed in a territory,
it clearly can't mail leaflets into it, or advertise
on television locally. But the Internet jumps
these barriers, to the extent that a bank cannot
(and of course doesn't in fact want to) prevent
a prospect in a regulated country from seeing
its publicity. If the prospect then approaches
the bank of his own accord, is the bank to turn
him away because he found their publicity on
the Internet? The answer to this question probably
depends on the regulatory regime applying to
the offshore bank in question.
See
Regulation of Alternative
Investment for more details of the regulatory
regime in different countries. The licensing
regime for offshore banks is explored in www.lowtax.net
under Law of Offshore for a number of jurisdictions.
The
choice of an offshore bank is in itself a difficult,
and to some extent a circular task. You will not
find it easy to distinguish between the merits
of different offshore jurisdictions, or the banks
they offer, until you have got to know them quite
well. This is the point at which you might think
that an onshore adviser in your own home country
can help you - and it may be so, but remember
that only a very skilled, knowledgeable and above
all, objective, adviser is going to be useful.
Such a person is hard to find.
www.lowtax.net
is designed to help people who do not have access
to the perfect adviser we just described. www.lowtax.net
is not an investment adviser, and is no substitute
for professional advice, which is an absolute
necessity for anyone planning a move offshore.
But the www.lowtax.net
site does contain a wealth of information
about 35 offshore jurisdictions, which is designed
to help you to make a preliminary choice of one
or a few offshore jurisdictions suited to your
circumstances, which you can then explore in depth.
Assuming
that you have been able to choose a particular
offshore jurisdiction in which to establish your
investment base, you now face the problem that
people in that jurisdiction are quite likely to
be anything but objective when it comes to planning
international investment structures. It is therefore
likely that the best choice will be a bank which
has an international network, with a well-established
branch in the jurisdiction you have chosen. It
may even be that the head office of such a bank
can have assisted you in the choice of jurisdiction.
But beware: if a Zurich bank has just one branch,
in the Cayman Islands, which jurisdiction do you
think they will recommend?
Purely
as a factual guide, here is a list (in aphabetical
order!) of those offshore jurisdictions offering
a reasonably wide choice of banks:
Bahamas
Cayman Islands (500 banks)
Dubai
Isle of Man
Jersey
Hong Kong
Monaco
Panama
Switzerland
Once
you have chosen a jurisdiction, it is quite easy
to find the names of the banks which operate there.
A number of banks will be available in the Private
Banking Providers Plaza; and our section Gateways
To Offshore Information Providers will lead
you to further sources of such information.
See
the investorsoffshore.com
DIY investment selector for investment guidance
based on specific residential and investor profiles.
Offshore
Versus Onshore in 2008
It
is unlikely that the relative advantages of
offshore will be undermined in the short term
at least. The OECD's rather uneventful Global
Forum on Taxation in Berlin in June 2004 encouraged
participants to continue to strive towards effective
exchange of information and transparency by
2006, although it was also recognised that flexibility
is required since many participants have not
yet initiated negotiations towards the required
signing of bilateral agreements.
The
OECD claims however that substantial progress
has been made. A report from the Global Forum
secretariat in 2006 stated that countries continue
to improve their international cooperation to
combat tax abuse by putting in place mechanisms
which enhance transparency and exchange of information
for tax purposes. Many of the economies reviewed
have enhanced transparency by introducing rules
on customer due diligence, information gathering
powers and the immobilisation of bearer shares.
Most have entered into double taxation conventions
and/or tax information exchange agreements,
and many are engaged in negotiations for such
agreements.
The
OECD also noted that none of its member countries,
and very few non-members, now make domestic
tax interests a condition for responding to
a treaty partner’s request for information on
a specific taxpayer. However,
the Organisation argues that more progress can
be made to improve global tax transparency,
and stated that some countries still place constraints
on international co-operation to counter criminal
tax matters and a number continue to impose
strict limits on access to bank information
in civil tax matters.
"The
direction of change is clear," Paolo Ciocca,
Chair of the OECD’s Committee of Fiscal Affairs
and Co-Chair of the Global Forum stated. "Onshore
and offshore financial centres are prepared
to work towards the implementation of mutually
agreed standards. I look forward to the day
when the centres that have met these standards
are joined by other jurisdictions that have
not yet achieved them," he added.
Leasi
P. T. Scanlan, Governor of the Central Bank
of Samoa and also a Co-Chair of the Global Forum,
said the report demonstrated the ability of
OECD and non-OECD countries to co-operate in
order to prevent their financial centres being
misused for illegal tax avoidance and evasion.
"This
has been a huge undertaking but we now have
a clear idea of where we stand. It is an important
step in helping countries to work towards a
level playing field so that these abuses do
not simply shift from one financial centre to
another," he observed.
In
October, 2007, the OECD published two new reports
outlining the progress made so far in its campaign
against tax evasion.
'Improving
Access to Bank Information for Tax Purposes
– the 2007 Progress Report' describes developments
in OECD countries and six others (Argentina,
Chile, China, India, the Russian Federation
and South Africa) with respect to access for
tax authorities to bank information.
Meanwhile,
'Tax Co-operation: Towards a Level Playing Field
– 2007 Assessment by the Global Forum on Taxation'
compares the legal frameworks for international
tax co-operation of 82 OECD and non-OECD economies.
It is the second in a series of factual reports
by the OECD’s Global Forum on Taxation.
The
OECD says that significant restrictions on access
to bank information for tax purposes remain
in three OECD countries (Austria, Luxembourg
and Switzerland) and in a number of offshore
financial centres (e.g Cyprus, Liechtenstein,
Panama and Singapore). It further argued that
a number of offshore financial centres that
committed to implement standards on transparency
and the effective exchange of information standards
developed by the OECD’s Global Forum on Taxation
have "failed to do so".
“No
one country or even a small group of countries
can address the issue of harmful tax practices
on their own,” commented Paolo Ciocca, chair
of the OECD’s Committee on Fiscal Affairs and
co-chair of the Global Forum. “This is a global
challenge which requires a global response.
In co-operation with partner financial centres,
that is what OECD is seeking to achieve.”
However,
Mr Ciocca went on to announce that in the view
of the OECD, progress has recently been made
in the following areas:
- Nearly
100 more exchange of information arrangements
are now in place, compared with one year
ago, including tax information exchange
agreements between the United States and
Guernsey, the Isle of Man and Jersey which
entered into force in 2006.
- The
scope of some existing arrangements has
been extended. For example, Switzerland
has signed a number of protocols to its
bilateral tax conventions to allow it to
exchange information, including bank information,
in cases of tax fraud and the like. Some
of these protocols also allow for exchange
of information in both civil and criminal
tax matters in the case of holding companies.
- Access
to bank information for tax purposes has
been greatly improved in economies such
as Belgium, which in November signed its
first tax treaty providing for exchange
of bank information for all tax purposes.
- Increasingly,
legislation requires financial and other
service providers to have available details
of the beneficial as well as the legal owners
of corporate vehicles. For example, in Macao,
China; new anti-money laundering legislation
requires financial institutions to verify
the identity of customers and their beneficial
owners. In San Marino, new legislation requires
that from 2008 meetings of joint stock corporations
must be held in the presence of a notary
public who is required to identify holders
of bearer shares.
- Some
jurisdictions, such as Guernsey and Jersey,
have brought into force legislation empowering
them to fully implement the provisions of
their bilateral exchange of information
arrangements.
“The
vast majority of OECD countries already meet
or exceed the standards set in 2000 regarding
access to bank information for tax purposes,
and the direction of change is clear,” Mr Ciocca
stated, but warned that jurisdictions which
have not yet implemented the standards for transparency
and exchange of information developed by the
Global Forum must now do so.
He
concluded:
“We
will continue to press for further progress
and explore within the Committee how such progress
could be achieved.”
The
offshore jurisdictions themselves have become
highly active in attracting wealth management
business, often creating marketing departments
for the purpose. Isle of Man Finance, the Manx
government's finance industry promotional arm,
for example, recently hosted a ‘Family Wealth
Management Seminar’ in Geneva, which sought
to showcase the strength of the Island’s attractions
for high net worth individuals. Leading
the delegation and speaking on behalf of Isle
of Man Finance, Deputy Head, Steven Beevers
commented:
"The
Island now has a strong message for private
client business, therefore Geneva, as the centre
for wealth management and the gateway to high
net worth individuals, was the most appropriate
venue to leverage support and interest. This
high calibre event provided us with the opportunity
to showcase our attractive tax package and expertise,
to an audience of top level advisers with a
global client base. The inclusion of industry
and government spokespeople helped to convey
how well we work hand in hand to promote the
common goal of the Island’s finance sector."
He concluded: “The Isle of Man is continuously
looking at ways to increase our services and
attractions to this niche but high value market.
Therefore, it was pleasing to see that the broad
range of Isle of Man business offerings including
the super yacht register and shortly to be introduced
aircraft register also met with considerable
enthusiasm by the wealth management professionals.”
Research
published in October, 2007, by Barclays Wealth
revealed a trend amongst wealthy investors of
an increasing appetite for financial products
that help reduce volatility such as derivatives,
private equity and hedge funds, particularly
in the Middle East and Asia. “Intuitively,
absolute returns make a lot of sense and we
see that more wealthy individuals are thinking
in those terms,” said a spokesperson.
The
findings also indicated that wealthy families
are encouraging children to gain a university
education and have their own careers, as they
aim to ensure their children strive to achieve
their own success. More than a third (34%) of
those questioned think it is a bad idea to leave
large sums of money to their children.
Interestingly,
those who have inherited their own wealth are
even less likely to pass on large sums of money
to their children than those who have earned
their wealth. Some 41% of respondents whose
wealth was given agree it is a bad idea to leave
large sums of money to children, compared with
33% of respondents whose wealth was earned.
Barclays
Wealth surveyed 790 wealthy individuals, in
partnership with the Economist Intelligence
Unit (EIU).
Due Diligence Before Opening an Offshore Account
First
and foremost, you should enlist the services
of a finance professional. They should be
aware of the risks and ongoing issues in the
jurisdiction in which you choose to locate,
and should also be aware of any suspect institutions.
However, initially, it is worth doing a little
research for yourself, and there are several
things that you can do:
-
First of all, look at the established institutions
in your jurisdiction of choice. In this way,
you can gauge the standards of the industry
there, and in so doing, give yourself a frame
of reference.
-
Although longevity is an important plus point
for an offshore bank in due diligence terms,
it is not the only factor to be considered.
Keep an eye out for any negative publicity
in the media (this is where the internet comes
in especially handy!)
-
Don't do business with a 'brass plate' bank.
Although there has been a drive towards eradicating
this type of institution, you need to make
sure that the bank that you intend to entrust
your hard earned cash to is the real deal
(i.e. has an office, staff, a license, money,
etc. Little things like that!) If you have
come across the institution via its website,
make sure that it is possible to make contact
by other means than e-mail. Although the presence
of a physical mailing address, and telephone
and fax details do not in themselves indicate
that a bank is legitimate, their absence may
be a red flag.
-
Be wary of banks or providers offering interest
rates that seem unusually high. Although there
is certainly scope for good returns in the
offshore arena, things that seem too good
to be true usually are. When dealing with
your future happiness and financial well being,
it is a good idea to leave your faith in human
nature at home!
Due
diligence is not just a one way process, and
the amount that banks are required to conduct
on potential customers increased greatly with
the advent of 'Know your Customer' legislation
in the last few years. If you are applying to
open a bank account through an intermediary,
or with an institution that has agreed to implement
KYC, you will need to provide at least the following:
It
is difficult to discern whether 'Know Your Customer'
legislation came about as a result of the efforts
of the FATF (Financial Action Task Force), as
a result of the efforts of the IRS, or as a
combination of the two. In some people's minds,
however, it is inextricably linked with the
latter, and with the introduction of 'Qualified
Intermediaries' and 'Qualified Jurisdictions'
in 2001. Qualified intermediaries are primarily
concerned with US citizens, and those with US
source income, and are required by the IRS to
implement KYC in return for simplified reporting,
and withholding tax procedures.
However, it all gets a bit complicated from
here on in, because it is possible to find a
qualified institution in a qualified jurisdiction,
a non-qualified institution in a qualified jurisdiction,
and sometimes a qualified institution in a non-qualified
jurisdiction (although this is only permitted
if the institution is a branch of a company
resident in a qualified country). Got all that?
All that this really means is that unfortunately
US citizens have got the short end of the stick
again, in that some banks may choose not to
take them on as a result of the extra reporting
requirements. However, once again this is a
complicated matter, and best discussed with
a qualified professional.
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