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Private Wealth – back to the future – part 2

28 October 2020

Adapting to the modern world: why change is coming for private wealth in the Crown Dependencies and British Overseas Territories

As Brian Carey, Director of Private Wealth at Intertrust Group in Jersey, continues his ‘Back to the Future’ series he turns his attention to the Crown Dependencies and the British Overseas Territories (CDBOT). These jurisdictions have long been hotbeds of successful private wealth activity – which have, in turn, allowed corporate, real estate and funds activities to flourish. But with the business landscape radically changing, and competition hotting up overseas – might this story start to change?

The scene is set; we know how the modern IFCs came to be and the reasons behind their continued success. In Jersey, the picture’s certainly rosy at the moment: Jersey Finance last month hosted its ‘Global Jersey’ webinar series and We Are Guernsey is celebrating a successful online edition of its ‘Guernsey Private Wealth Forum’. But can we – and indeed should we – bank on this success continuing into the future? And is everything as positive as it seems? If we take a step back, we see there may be a shift on the horizon for the CDBOT jurisdictions.

There’s no doubt that history is on our side; success breeds success and the CDBOT jurisdictions have enjoyed some of the very best of it in recent years. However it’s possible that complacency is setting in for these jurisdictions – and they may not be as innovative as they once were. This issue takes on even greater importance against a backdrop of increased global competition not just from other offshore IFCs, but from the midshore and onshore ones too.

Are the positives still positive?

One of things that breeds complacency is assumption. We assume that the CDBOTs’ geographic locations are a positive thing as that has historically been the case. London is only 40 minutes away by plane from the Channel Islands and the Isle of Man; Bermuda and Cayman have proximity to New York; and other IFC jurisdictions are also close to major cities around the world.

However, we need to stop and ask ourselves if decision makers and their advisors are now looking outside of the usual CDBOT jurisdictions for their clients’ solutions. In today’s changing world, with IFC regulation and technology advancing every day, the need for a physical presence in those major jurisdictions is no longer so great. Of course the caveat here is that economic substance and other legislation requires some physical meetings and presence in the CDBOTs – but if entities and structures are relocated in their entirety to other IFCs that don’t have similar legislation, then the geographic positioning of the CDBOTs is irrelevant.

With more capital centred in Asia, and the United States once again amassing the greatest total wealth gain among UHNWs, Europe must review whether it retains its centrality among fiduciary and financial service providers. Will the time zone differentials catch up with Europe and its practitioners, for whom irregular working hours may become too much of a burden? Couple this with seemingly overwhelming regulatory requirements of these fiduciaries and their clients, and the picture distinctly changes.

Should we look further afield?

Furthermore, our innate faith in our own global centrality means that the CDBOTs are missing opportunities in the Pacific Rim, the Americas, China and the Middle East. Is this a new opportunity that the midshore and onshore jurisdictions can embrace? The opportunity for the fiduciary provider to be nimble or to focus on particular markets is coming to the fore, as too is the emergence of midshore and onshore solutions.

As an example: increasing regulation is being marketed as the icing on the Channel Islands’ delicious wealth management cake. In recent years the islands have introduced significant economic substance legislation and have pledged to enact their very own registers of beneficial ownership. All of this plays well with the OECD and EU, but we may risk reaching a point of diminishing regulatory returns. Being open is the new norm, but at what point do the regulatory requirements imposed by the CDBOT jurisdictions – admittedly in response to the OECD and others – start to function as a barrier to new business?

Regulation’s obviously not inherently bad; in fact, it keeps our opportunities real, it’s an accepted part of the global financial ecosystem and it’s certainly best practice. But we should absolutely interrogate what’s necessary in order to do our jobs and serve our clients.

Is bigger better?

If the CDBOT jurisdictions do start to lose a bit of ground on newer IFCs, or if they are too slow to react to shifting global patterns and demand, then who’s best placed to survive?

Larger firms have the advantage of global footprints that mean they are nimble, and work can easily be apportioned to the right location. Client service can always be localised and targeted, while still benefiting from global expertise.

Boutique firms would of course struggle if the landscape changes beyond what we’re familiar with today, and inevitably will focus on specific jurisdictions or product solutions for their clients. They simply won’t have the scale to adapt to new circumstances.

Of course the larger and more successful CDBOTs will remain in an excellent position for the moment. But the world is changing and external forces far greater than ourselves could dictate our future.

No matter what the future holds, though, fiduciary practitioners, offshore service providers and the industry as a whole could do a lot worse than starting to consider some of the questions I’ve outlined and addressing some of the significant changes that have occurred within the offshore sector in the last five years.

Join me for part three when we look into the crystal ball to ask what some of these forces might be, and the impact they could have.

The Credit Suisse Global Wealth Report, 2019, https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html 

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