2019 - let's make it a good one.

2019, is the year to win new business, and we want to do what we can to help you.

 

Here is an extract from my book, ‘Uncovering secrets; How to win business from Private Clients’ about how to go about it.

 

‘Traditionally, there are only two routes to market to win new business; making more out of what you have got…and networking.

 

All UHNW individuals need an adviser to help them manage their wealth. All UHNWs will need to put in a tax return and must have a bank for the safe custody of their wealth. By definition, all UHNW individuals in the world can be contacted - once removed - through their advisers.

 

Furthermore, if the adviser wants to build a trusted relationship with his or her clients, they use their extensive knowledge about them to find ways to assist. ….., this means recommending the services of those in their network to their clients. … in this manner … they get a qualified lead, pre-screened by your network and you are on the way to building a trusted relationship with your client.

 

Liz is an estate agent. She knows that Juan is coming from Argentina and she has been looking to buy a house for him and his family. She already knows a lot of valuable information about him, which she can use to help Juan and build trust, but also strengthen the ties with her network. She’s worked with Juan for several months and has got to know him quite well. If she focuses merely on her expertise she will be missing out on a valuable opportunity to use the information she has gleaned about Juan to win her new business.

 

As it begins to look as if a purchase is going to proceed, she will ask Juan who he’ll use to do the legal work for his purchase. If he does not have a lawyer, this is her first opportunity to make a recommendation.’ Liz introduces him to Shaun.

 

…. A month after the sale, Liz phones Juan to find out how he is getting on. He tells her that Shaun did a great job for him, introduced him to Jason who helped him with schools for his daughters, and is now working on a succession plan. He also tells her that he’s bought some new art which looks stunning in the flat and is starting a collection.

 

This is another opportunity for Liz. She asks him where he bought the art and whether he has proper insurance for it. She can now recommend Juan to an insurance broker and of course let the insurance broker know that she has done so.’

 

Having a good network is not about quantity, but quality.

 

‘If a contact, has neither the clients she is looking for or has services her clients could use, or are not the professionals she would like to refer business they need to be axed: they will not refer work to her and she will not be referring work to them.’…

 

Every professional should actively manage their network. ‘You need to record what work your network does, how often you have referred business to them, how many times you have gone out with them for coffee or tea, …’

 

‘Having an active network should be a two-way street. …’

 

‘The reason why advisers do not reciprocate business is either because they do not care for their clients or do not know what you do well enough to recommend you. ..’

 

In 2019, I will be working with BConnectClub and its UHNW members and single-family offices. BConnectClub is where UHNW individuals find deals they may not have come across, luxury products they may not know about and advisers they may need.

 

My role in working with the BConnectClub is to find out whether our UHNW members have structures which need reviewing, assets which need auditing and portfolios which need pruning. I will be actively involved through GFOS in working with them and in building trust by introducing them to the services they need from the BConnectClub directory. For this I need to build an unparalleled network of luxury product providers and best of breed advisers to which we can introduce our members.

 

To assist me, BConnectClub will be hosting four B2B events in 2019. The purpose of the event is not to educate, or to socialize, but to win business. This is done in two ways, first to introduce each of our advisers to a carefully selected group depending on who their clients are and what they want – which we call ‘matched networking’. Second, we want our subscribers to be visible to our UHNW members and single-family offices by creating a profile on our advisers’ directory. We can then direct our UHNW members to our advisers which they can then check out online.

 

Each event will have a limited opportunity for a sponsor to promote him or herself by presenting a case study. This case study will be sent to all our UHNW members, promoted online to all our subscribers and presented personally to our 100 hand-picked best of breed attendees.

 

If you would like to find out more about sponsoring one or more of our events – or attending an event and having a profile on our directory, please contact Barbara Brudenell Bruce on 020 484 5168 or 0970 00020 or if you would like to buy a book ‘Uncovering Secrets: how to win business from Private Clients’ or ‘When you are Super Rich who can you Trust?’ you can order direct from www.garnhamfos.com or from Amazon, or contact me at caroline@garnhamfos.com

 

Wishing you all a very happy Christmas and a prosperous new year and a big thank you to all who bought a book for a Christmas gift.

The French - should the rich pay more?

The super-rich may not have misgivings about a mortgage or where the next meal is coming from, but they do have their worries. This community is valuable to the country in which they live. In Great Britain, the top 1% pay 30% of our income tax, they spend in our shops and oil the wheels of our economy – and yet in general they are poorly served and often despised – look at the attitude of 70% of the French who want the government to reinstate the wealth tax.

 

Already concern has been expressed that if the French tax the rich more they will simply leave – as they did before.

 

Very few advisers are given any training in how to build trust with their clients, so they adopt ‘tribal’ learning. They watch to see how their colleagues treat their clients and simply copy them. Most never stop to think whether what they are doing is building trust or destroying it. But first we need to understand what it feels like to be Super Rich.

 

George a PR agent, who acts for one of the wealthiest people in the Sunday Times Rich List, arranged to meet his client in a country golf club. George arrived at the agreed time, but still hovering above him was his client’s helicopter and it wasn’t making an approach to land. George phoned to find out why.

 

The client refused to land due to a charge of £95. George offered to pay – he hadn’t spent two hours travelling to a far-flung golf club only to have the meeting cancelled. The client - in a rage – refused to let him pay. This was a matter of principle. So, George had to plead with the golf club to waive its fee which it eventually did, and George’s client finally landed.

 

Surely the golf club should be encouraging their members to arrive by helicopter and governments should encourage the rich to live in their country, as it adds cachet to the club. By charging a fee, the club was in severe danger of losing one of their most prestigious members, purely through greed. Their thinking was if you can afford a helicopter you afford a landing fee. As in France – if you are wealthy you can pay a wealth tax. It’s like saying if you drive to the club in a Bentley you pay a parking fee, but if you arrive in a Toyota you don’t.

 

UHNW individuals are being fingered for money ALL THE TIME. It is hardly surprising therefore that they fly off the handle and appear difficult when they are being fleeced for yet more cash. Being pestered for money is a way of life for them, and most of them hate it, which is why they want to preserve their privacy and live in countries which appreciate their contribution.

 

We may watch their antics with surprise, but most of us do not know what it is like to be wealthy. However, as advisers, we need to understand them.

 

UHNW individuals are looking for people they can trust. But trustworthy people cannot be bought with money, because their precious quality is an attitude rather than a product. UHNWs want advisers who care for them, who see them as people rather than money mountains. Unfortunately, there are many organisations which stifle any attempt on well-meaning advisers to provide a personal service for their clients.

 

Most advisers are not encouraged to spend time with their clients; to find out what are their concerns, hobbies, interests and worries, beyond their immediate area of expertise. A banker or professional trustee, may have an annual meeting with the client or send a letter telling him or her how much the annual fees are going to increase or to cross sell other services from their organisation, without first finding out whether these services are valued, needed or required.

 

Lawyers, are encouraged to ‘start the clock’ the moment a client comes to a meeting. An engagement letter is sent out without any prior discussion, and by the time the client is billed, the amount on the invoice comes as a complete surprise. Is it hardly surprising that most lawyers have on average 183 ‘lock up’ days – this is the amount of days between delivering the bill and getting it paid.

 

If a lawyer does not get a bill paid on time and in full, he needs to ask the client why. However so little time is spent explaining what is to be done, what it is to cost and why – ahead of the work actually being done. If a client does not recognize they have a problem or that the advice given provides them with a resolution to that problem, they will not value your work and will resist paying your fees.

 

Put another way, do you care for your clients or are they only an afterthought to the work you are doing for them?

 

In a survey of ninety advisers of private client legal services, a staggering 100% said they should keep their clients updated more regularly. Three months later, not one had done anything about it!!!

 

In my book, which I researched and wrote during a break from legal work, ‘Uncovering secrets; How to win business from Private Clients’ I challenge the existing way most people treat their clients and do business.  Over 8 chapters, I explore, setting goals, planning, time management, getting there, getting more, delivery, retain and maintain and – the holy grail – trust.

 

Next week I will dip my toe into how to win business from private clients.

 

If you would like to buy Caroline’s book ‘Uncovering secrets; How to win business from Private Clients’ or her other book ‘When you are Super Rich who can you Trust?’ simply e mail caroline@garnhamfos.com or phone on 020 3740 7422, or buy direct from Amazon or www.garnhamfos.com

Family Offices: come of age?

At the Marcus Evans’ Real Estate Investors Summit at the Chelsea Harbour Hotel recently I spent some time talking to Mark (not his real name). He is the son of a wealthy family tasked with investing in real estate for his family office. Mark expressed frustration ‘I struggle to find Family Offices to be co-owners for big investment deals; they are just so chaotic and disorganized’.

 

I asked why he thought this was, ‘Most family offices are owned by passive trustees offshore which do not give the family office any direction! They talk a lot about co-investing, but would prefer not to take any risk – so they do nothing!’

 

This does not come as a surprise.

 

As I mentioned last week in my blog ‘When the music stops’ most offshore structures were set up years ago and unless they are reviewed, are unlikely to survive an investigation from the world’s tax authorities. The Trust and Corporate Service providers which are currently holding the assets in trust, will get caught in the cross fire. Most however have recognised the danger and are reviewing the structures of clients most at risk to mitigate this threat.

 

High on their to do list, is to review the ‘non-interference’ and ‘total indemnity’ clauses.

 

Tax authorities are looking to undermine trust structures using information under the Automatic Exchange of Information introduced this year, so that they can tax the underlying assets as if they were still owned by the settlor. Last week, I referred to the case of Bartlett v Barclays Bank. Professional trustees have a high duty of care to monitor the investments they own – so they prefer to avoid this with extensive ‘non-interference’ and ‘indemnity’ clauses.

 

However, these trusts are now facing a risk of a different kind.

 

Tax authorities will use the presence of these clauses –  to argue that the ‘trust’ arrangement was nothing more than a sham, or nominee arrangement. Clearly, with negligible risk adopted by the trustee, was there the necessary intention to form a trust.

 

In a structure, I put in place some months ago, I set up a ‘Special Purpose Trustee’ (SPT) managed and controlled (from a zero-tax jurisdiction) by the family and its advisers, to which we transferred the family trusts. The existing Trust and Company Service provider continued to administer the trustees, but under contract.  In the documentation, I inserted a positive obligation on the Trustee, which was by now the SPT, to carry out regular asset audits and in particular in relation to the family office which managed the family trusts’ investments.

 

I was made a non-executive officer of the SPT, and appointed an experienced corporate finance professional, James, to review the performance of the family office and report back to the executive board of the SPT. The report made interesting reading. The return on investment of running the Family Office was negative.

 

The family were shocked. After a meeting held in Guernsey, I asked James, to devise an investment strategy in line with the family’s binding Family Constitution, and to put in place some goals and targets. James came back with a clear strategy, a list of investments which needed to be sold, and where further investment was required.

 

The CIO of their family office was then given a year to make the changes and to achieve the modest targets set by James, which if achieved, would more than compensate for the cost of James, the revised structure, and the report.

 

Excited by this success, the board then looked at the other asset classes held by the trust, including the art collection held in store, the property portfolio and the wine cellar. I was again tasked with appointing a professional to carry out an asset audit and to report back on what strategy to follow, where to take profits and where to reinvest. We are awaiting the outcomes of these reports.

 

In today’s digital age, with costs of compliance rising exponentially and the threat of litigation around the corner, many private banks and wealth managers are looking at ways to cut corners, rather than innovative ways to cut costs – which I will address next week.

 

In my opinion, we need to go back to basics to find solutions.

 

The Trust and Corporate Service providers (‘T&CSps’) with whom I am working are carrying out a thorough review of all structures most vulnerable to attack, and to impose a positive obligation to carry out an asset audit to make sure that suitable benefits are being derived from the costs incurred. This covers the two main areas in which the T&CSps are at most risk.

 

Offshore trusts and their assets are in the firing line, but now is not the time to throw in the towel. It is an opportunity to give the world’s wealthiest a world class service to make their assets work for them, rather than leaving them in danger of an investigation or worse.

 

If you would like to find out more, you can buy my book ‘When you are Super Rich who can you Trust?’ or ‘Uncovering Secrets; How to win Business from Private Clients’ from Amazon on www.garnhamfos.com or call me on 020 3740 7422 or on my mobile 0799 188 288.

When the music stops

There is little doubt that all the major Trust and Company Service providers are now aware that they are the next to be squeezed by tax authorities keen to raise more revenue. The question is will their indemnity clauses hold up, or will they get caught in the cross fire and what can they do to protect themselves?

 

The case of Bartlett vs Barclays Bank [1980] makes it clear that a professional trustee has a high duty of care. Sir Herbert Bartlett set up a trust in which the main asset was 99.8% of the issued shares in the family company. On the board were two surveyors, an accountant and a solicitor. Barclays did not appoint a director on the board even though it had the power to do so.

 

The board decided to expand its business beyond managing property to developing property and embarked on speculative developments including the Old Bailey project which failed to get planning permission. As a consequence, the trust suffered a significant loss.

 

Judge Brightman J held that the bank as trustee had not discharged its duty as trustee, in failing to supervise the new ventures of the company. He held that, given the size of the shareholding, the bank should have obtained the fullest information and not rely on the supply of information it received in the ordinary course as a shareholder.

 

Its defence was that it honestly and reasonably believed the board of directors to be competent and capable of running the business. This was rejected.

 

The Judge upheld former decisions that the duty of trustees is ‘to conduct the business of the trust with the same care as an ordinary prudent man of business would extend to his own affairs’. With this then in mind is it right for a professional trustee to take on business and then indemnify itself from all liability, other than gross negligence or fraud, and for non-interference.

 

In Waterman’s Will Trusts [1952] the Judge said ‘A trust corporation holds itself out in its advertising literature as being above ordinary mortals. With a specialist staff of trained trust officers and managers, with ready access to financial information and professional advice, dealing with and solving trust problems day after day, the trust corporation holds itself out, and rightly as capable of providing an expertise which it would be unrealistic to expect and unjust to demand from the ordinary prudent man or woman who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burdens of a trusteeship.’

 

It is inevitable that tax authorities keen to undermine a trust relationship, so that they can tax the underlying assets on the settlor, will jump on these tightly worded indemnity and non-interference clauses to argue that this is not a trust relationship, but a mere nominee arrangement.

 

The conundrum is that to do the job of a professional trustee properly takes time and money, which needs to be paid for through a proper fee. In many cases, however, the family can find a professional trustee who will charge up to ten times less, than it would cost a professional trustee to do a thorough job. To take an analogy, is it better to take out insurance which pays out on a claim or one which is ten times less expensive which does not?

 

Should the professional trustee, aware of this higher duty of care take on business for which it is being remunerated to do nothing other than collect fees and keep records. It will not be the first time that judges have looked at the level of fees to evaluate the level of advice and service being given!

 

But it cuts both ways. Like the case of Barclays v Bartlett, the family does not want to lose money either, and neither does the professional trustee want to get sued. The easiest way to solve this conundrum is to carry out asset audits.

 

Increasingly, when asked, I insist that trustees should only be given full indemnity protection if they carry out asset audits on a regular basis, and in particular where the main asset is the family holding company.

 

Once I started to suggest this as a solution it became so much in demand by beneficiaries eager to see; their single family offices, property portfolios, wine cellars, store of antiques, gallery of paintings, horde of jewellery, produce better returns that GFOS decided to offer asset audits across all asset classes including passion investments; yachts, wine, aircraft, jewellery, and alternative asset classes such as real estate, antiques and art.

 

If you would like to find out more please contact me on caroline@garnhamfos.com or call 020 3740 7422.

Name and Shame

Tim Cochrane of Bain & Company, Financial Consultants has said that ‘Panama Papers’ created a ‘cloud’ over the Trust and Corporate service providers industry.

 

If Cochrane thinks the Panama Papers is a cloud, the Automatic Exchange of Information (AEoI) is a hurricane!

 

On April 3rd, 2016, 11.5 million documents of the personal identities and financial transactions of 214,488 offshore entities managed by Mossack Fonesca were leaked to the press. The disclosure blew the whistle on politicians, such as David Cameron and the Icelandic Prime Minister, as well as many sports stars and celebrities who had accounts with the Panamanian firm.

 

According to French economist Pickerty there are $9.6 trillion (4 times the GDP of UK) in trusts offshore and the OECD governments are united in wanting to bring this private wealth into the charge to tax.

 

It is now well understood that tax authorities around the world are looking to use the information received under the AEoI specifically to investigate trusts of a significant size, in which the settlor is still alive, and of which there is person of significant influence.

 

With this information tax authorities can raise a tax claim using the extended doctrine of sham and the powers provided under the exchange to track down tax evaders – even though the tax payer had good and robust professional opinions to say that they have nothing to fear – or hide.

 

Let’s take an example in the public domain. Bernie Ecclestone is known to have a network of trusts and offshore companies which were set up by his non-domiciled former wife Slavika. It is also well documented that his Swiss adviser, Luc Argand who worked for his ‘Bambino’ trusts worked closely with Bernie for many years and even on occasions worked in his office in the UK. It later came out that to ‘forestall an investigation by the Inland Revenue he had transferred $44 million into the German’s bank account in Austria.

 

Clearly HMRC could raise a tax claim on the basis that the trusts had their mind and management in the UK. But it could not do so because, it needs more detailed information.

 

But, with the introduction of AEoI, HMRC and all many other countries around the globe, will have sufficient financial information to raise a claim. With Bernie Ecclestone, it has all the other information it needs to raise a claim, but for others all that is needed is the identity and address of a person of significant influence. This is enough. Tax authorities will have enough to say that they have prima facie evidence of a lack of intention to create a trust using the extended doctrine of sham, or bare trust arguments to put in a tax claim which must then be countered by disclosing files and confidential papers to prove this not to be the case. This could take years of investigation at great cost.

 

But it will not be mean just paying the tax, governments want to stamp out the use of offshore trusts and intend inflicting massive penalties. The UK for example has introduced a whopping 200% penalty on top of the tax. If this were to be used against someone such as Bernie Ecclestone – despite his billions, he would be wiped out!

 

But the bad news does not stop with Bernie Ecclestone – tax inspectors have been told to ‘name and shame’ this means they have been ordered to caste around to bring into account everyone involved; advisers, bankers, Trust & Corporate Service providers, lawyers and anyone else.

 

So, what are the Trust & Corporate Service providers doing about? They do not want to get caught in the cross fire of litigation and damaged reputation.

 

Professional trustees are resigning in favour of family managed trustees; they want to de-risk their business. They would prefer to be the trust administrator operating under contract without the fiduciary duties of being a trustee rather than get caught in the cross fire.

 

It is an easy sell. The family gets control over the trust, its assets and the family dynamics, a win/win situation.

 

For now the restructuring is happening at the top end, but it will only be a matter of time before the change will gain in momentum to all trusts holding significant assets as the practical impact of the Automatic Exchange of Information starts to bite. In five years, I predict trusts with a person of significant influence will not exist.

 

Next week, we will look at what UHNW families are doing once in control of their own special purpose trustee.

 

If you would like to find out more on how to restructure your offshore trust, contact Caroline Garnham on caroline@garnhamfos.com or call on 020 3740 7422.

 

Or if want to read more order Caroline’s book ‘When you are Super Rich who can you Trust?’ and “Uncovering secrets; How to win Business from Private Clients’