A woman's weakness

With so much attention on the death of the Princess of Wales over the last few weeks, my attention was drawn to the rich and successful women I have worked with and for, over the years. One particular woman came to mind – the details of her case are altered and I have her permission to write under the pseudonym of Janet.

She lived in the Midlands with her husband of twenty years whose name was Alan. He had worked all his life as head of a depot and even though they lived a simple life, they had two children they adored, many friends and considered themselves happy. Quite unexpectedly twelve years ago, Janet received a telephone call during which she was asked to confirm her maiden name and the name of her father, which she did eventually albeit reluctantly. She was then told that her father’s brother, Bernard had died in a car accident in Australia and she was now the main beneficiary of a trust set up under his Will of many hundreds of millions.

She knew little about her uncle other than he was a successful businessman in mining but had brought disgrace on the family by declaring his homosexuality at a time when it was illegal. Janet asked Mark, the caller, to write to her to set out what she could expect and what she needed to do.

I had been Bernard’s adviser for many years and was responsible for setting up the trust under which Janet was to benefit so Mark referred her to me.

We met in the café in the Royal Academy in London and she couldn't be more different than her uncle Bernard - he was flamboyant, stylish, outspoken and sometimes even brash. As we talked through the circumstances of the trust and what she is to inherit, she was of course thrilled but no one could predict how the new found wealth would influence her life.

With her first lump sum, she paid off her mortgage and put some money aside for the children. Alan gave up his job at the depot and Janet and he went on a three-month cruise around the world.

Alan supported Janet by taking it upon himself to liaise with the trustees and conveying to them their needs and interests, and all was fine for many years. Then, Alan developed prostate cancer and had to undergo surgery and chemotherapy. Janet found herself not only looking after Alan bt also dealing with the trustees which he had done fore years. Unfortunately, she discovered that significant payments had been made by the trustees into their joint account, out of which Alan had transferred substantial sums to himself. 

The relationship between Janet and Alan quickly began to break down. She felt betrayed, she felt that the unfortunate illness had taken a toll on their marriage and soon started looking for ways to become more independent. She bought an apartment in London where she was spending more and more time with her personal trainer Jason, about 25 years younger than her.

She also began building an impressive jewellery collection; she acquired some pieces from teh Elizabeth Taylor collection and had some other priceless pieces of museum quality. She was often asked to lend her pieces to exhibitions and Jason was there to travel around the world with her and help with whatever she needed. Every next time I saw her she always had something new to show me. 

About two years ago, Jean her fine jewellery adviser phoned me in a state of high agitation saying he had seen one of Janet’s pieces for sale. 'Why was I not informed?’ he shouted. We got in touch with Janet and she didn't take Jean's concerns seriously; she actually laughed and said the piece was safe at her London apartment (where she kept most of her jewellery). Jean being Jean and having had experience in dealing with cons demanded to see it for himself and when Janet showed it to him he immediately realised that what she had in her possession was a fake! Her piece was replaced with a fake and the real one was on sale with Christies! 

After a very unpleasant and very long discussion, going through CCTV in her building, aquiring from Christies on the seller of the jewel, Jason was called to explain. He was the only person, other than Janet, who had access to her jewellery. He told us how he had made copies of Janet’s favourite pieces so that Janet could wear them while they were away at museums and didn't think of informing the trustees or even Janet herself because he didn't want to trouble her as she had a lot on her plate. When he was approached by a buyer it was too easy and too tempting not to start selling of the real pieces. He quickly turned vicious, calling Janet all sorts of names and boasting at how easy it had been to rob her.

Janet was distraught; as the case against Jason progressed, she began drinking heavily. I told her that she needed to gather around her professional advisers, who she could trust and gave her my Guidance Notes on how to build an inner Ring of Confidence (which you will find attached to my book When you are Super Rich who can you Trust? due to be republished on 11th October) to work through.

When she had finished, we sat down and worked out what she wanted to do and how we could put together a Ring of Confidence – specifically selected for her. Once a strategy was in place we looked for someone who could help her with her drinking.

I found her an incredible woman who despite the many knocks was still able to simply brush it off and move on, she carried herself with dignity and never complained. Many mistook her for weak or for a fool but Janet learned quickly that the 'friends' you attract because of money can be your worst enemies. She was smart, tenacious and wanted to be surrounded by the right people.

For Janet, I am pleased to say there was a happy ending. Her Ring gave her the confidence she needed to make decisions and it did not take her long to find a new man friend; a private banker. He was perfect for her. He was not her private banker but was someone she could trust because he is able to give her advice whenever her professional advisers are suggesting things of which she is not sure.

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The father with the disappointing daughters

Last week I met a client who I will call Tom, for a coffee, I had given him some tax advice some months ago, so I thought our meeting was a follow up on the work we had done but I was wrong.

‘I wanted to meet because I have been reading your notes and wondered whether you may be able to help on a domestic issue which is getting out of hand.' Intrigued, I asked him to continue, ‘As you know I have built a successful business and have 1,245 people working for me. Each employee reports to a manager and each manager reports to my board. Every month we go through the figures of each department and the board responds accordingly. Everyone knows what they need to do and they do it, if they feel they deserve a better deal, they can ask, we always listen, but they may or may not get what they want’.

‘Over the years, I have taken profits and invested them; a fine country home, farm, beautiful furniture, a number of boutique hotels, other hospitality businesses and an investment management company. I have a really good inner Ring of Confidence – as you describe it – a good team of advisers, which meet on a regular basis and update me on all my investments. I am lucky to be still married to my childhood sweetheart, have one fine boy who works with me, but my three daughters have been a disappointment. I have always been generous with my girls; I have provided them with homes, set up an education fund for their children, and financed their husbands in business ventures, but they are envious of their brother’s success working for me, and are feckless. The more I give them, the more they want and if I tell them they cannot have what they want, they complain, cause trouble and I am worried I have made mistakes in the way I brought them up.’

‘My youngest now wants me to take her husband into the business, when I know he is not qualified, my eldest wants me to set up a gallery for her husband to run, and the middle girl and her husband keep racking up fees buying horses to event telling me each year that the next new horse will make their fortune’

I explained to Tom that all families have their problems but for wealthy ones, the problems are magnified. The UK has centuries of experience in managing family fortunes, largely because, unlike civil law, it promotes primogeniture and the preservation of wealth for future generations. This is the reason why country estates have stayed intact (until such time as they had to be sold to pay tax).

Of course, leaving the bulk of the family fortune to only one child was not always well received by the others, in the same way as Tom’s daughters envy the good fortune of their brother. Maintaining family harmony, in the past, was left to trustees. If the family fortune was held in trust, investment decisions, distribution of wealth and succession was then not the responsibility of the head of the family, in the same way that salary increases is not in the sole discretion of the CEO of any business.

I told Tom about some of the families and the trusts I have had the privilege to work with. Numerous family member requests, I have seen turned down by a board of trustees or accepted with conditions, it is not the decision of the settlor along. If a family member wishes to start a business venture for example; the trustees need to see a business case and will decide whether or not to invest according to the viability of the proposition.

‘On what basis do the trustees make their decision?’ Tom asked. ‘In most cases,’ I told him, ‘the founder makes it clear what he wishes to achieve, which I prefer to set out in a binding – but flexible memorandum. Ideally I like to discuss this with all members of the family. In this way they then know what to expect and can adjust their lives accordingly. Many founders want to incentivise their family members, with matching payments for entrepreneurial endeavour, but I have seen this lead to unfair consequences such as for mothers with young children, or for those who work hard but for non-profit organisations, sporting activities or charities. This sort of approach would merely aggravate Tom’s domestic concerns.

‘Do I need to set up my trust abroad?’ Tom asked. ‘it depends’ was my reply’, ‘on how important tax mitigation and privacy is. Now that privacy is compromised by having structures offshore many founders of family fortunes are moving their structures onshore where possible’.

Tom confessed that he had only thought of trusts as being vehicles to avoid tax, and was somewhat confused as to how a trust could be used to give him and his team of advisers not only control, but family harmony.

I peered at Tom through my ByOcular glasses which I like to wear when I am being serious. ‘Trusts have been used by wealthy families to preserve wealth and family harmony for centuries. Tax was not until recently the main reason for setting up trusts, asset protection, control and family harmony were the main drivers.  Tom was keen to explore further, so we agreed to work together to scope out his concerns to see whether a family trust could be a solution.

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Watch the ingredients

Jamie Oliver celebrity chef and father of five, has admitted to losing £90 million since 2014 by investing in friends’ projects. He is now on record as saying ‘I should not have mixed business and pleasure’.

Jamie Oliver, came up in a conversation I had last week with one of my UK dom clients who I will call Bobby, who is not dissimilar in situation and background to Jamie Oliver. Whereas, Bobby was brought up in Suffolk, not Essex, went to a Comprehensive school not a grammar school, both are UK resident and UK domiciled, both are high profile with high profile families, both have made millions in books and related businesses, both have been caught up in bad press and public disputes, and both have lost tens of millions in loss making projects with ‘friends’.

Bobby was candid about his experience and his expectations of what he thought it would be like doing business with family. I quizzed him on the subject, ‘When I started to make money, it was so exciting, I wanted to share it with everyone, I had made more than my wildest dreams, I wanted everyone to know that I was the same bloke, same standards and values; still like watching football, having a drink with my mates and giving a helping hand where I can, but the people I came across, even my old mates, treated me differently when I had a few bob – I did not want money to change the relationships with those around me but felt almost forced to.’ 

He went on, ‘I was foolish to bring my family into my business profile.’ We were such a happy family when the kids were young, I could not see how publicity could harm them’. 

Bobby has two adult kids, who I will call Jack and Lucy, and two younger ones. ‘Jack and Lucy have had to learn quickly who their real friends are, they had to deal with a lot of negativity and pressure on social media and at school. ‘They now tend to gravitate towards kids of wealthy parents, who understand what it is like to be born into a rich family, but my concern is that a lot of them lack any direction or drive.' He described to me how Lucy made a friend whose parents live in Monaco. Most weekends her father sends a private plane to pick her up to ‘come home’, and whenever Lucy has been with them, the parents are rarely there. They go out with a group of other kids in Monaco where they wear expensive clothes, go to ludicrously expensive nightclubs and get boozed or worse. Bobby says that it took a while for Lucy to find her way out of the group as she has always been an ambitious and driven kid who wants to make a difference.

I explored with Bobby what his goals were. This is a topic I go into in some detail in Chapter 1 of my book ‘When you are Super Rich who can you Trust?’ It soon became clear that Bobby wanted to give his kids a sense of purpose and responsibility.

After a meeting with Jack and Lucy, it became obvious that Jack was drawn to co-investment and project planning – which his father is poor at, and Lucy, was keen to manage a team of advisers and her father’s charitable endeavours.

We; Jack, Lucy and I, with their father’s blessing, set to work on elaborating on the goals set by their father and in selecting a team of advisers which would assist them in delivering his goals, the family’s inner Ring of Confidence. We then needed a structure into which all elements could fit including the family’s objectives, with clear rules as to what was expected of each adviser, and the structure could be adapted to new circumstances over time.  

Jack and Lucy, were excited as they had always wanted to find roles for themselves in their father's business but because he had been badly bruised when working with family and friends previously, he was cautious of bringing his children on board as well. It took him some time to recognise the potential and to recognise that the young generation can be the continuation rather than the destruction of wealth.

The first step was to produce a Report with recommendations which we put to Bobby in early June; he approved. We then agreed an action plan, on how to implement, which we is not nearly complete. Bobby is thrilled. ‘We may not have been able to put back the clock, but we have found a way to engage Jack and Lucy in consolidating and building on my work, filling in the gaps and making my wealth and legacy go further in a way I clearly cannot!’.

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Choosing the right ring

Time and time again I hear the same concerns being voiced even by those with family offices: ‘I am not sure my adviser is up to speed with all the dangers and risks – he lacks direction’ and ‘I need to protect my assets and privacy, but my adviser seems lost as to what to do’ or ‘My CIO does not seem to be plugged into direct investment opportunities, I do not want to pay fund managers more than I am making out of my own money’. 

It is impossible for any one given adviser to know it all. Here are my suggestions.

I have been spending the last two weeks re-reading the copy of my sold out book When you are Super Rich who can you Trust, first published in 2014. I am updating it, as well as its sister book – Uncovering Secrets on How to Win Business from Private Clients in preparation for our re-launch on 11th October. I was surprised at how much has changed in only three years.

We all know that wealthy families are always fingered for money but over the last three years it has gotten much worse. Their offshore financial data is due now to be exchanged automatically and their private bankers have been gagged in giving advice; banks have been fined $320 billion since 2008!

It is not rocket science to learn that UHNW families want to be in control of their wealth, if they are to enjoy it. But gone are the days when one suitable homme d’affaire was all that was needed to guide the family to opportunities and steer them away from the pitfalls.

Gone also are the days when advisers would ‘own’ their client. Keeping their clients sweet with a wall of obfuscation, impenetrable jargon, intimidation and flattery. Families are now actively looking for a new dawn and the family office, despite its meteoric rise, is not by itself the solution.  

Many have come to realise that in this complex world, and even more now than three years ago, that it is impossible for any one adviser to be able to guide their family to the best opportunities and away from the pitfalls and traps. There is now no substitute for each family having their own team or cabinet – or what I call the Ring of Confidence.

The advice I give in my book, and the one I work on with my client families (if not the founder then the second generation), is first know what you are hoping to achieve, and what you fear. Unless the family is clearly aware of their goals and traps, it will never be able to pick the best team of advisers.

You may think setting goals is obvious – make more; lose less – but, when you drill down into the detail, it is usually much more complex. Some families like to collect art, support their charity, avoid litigation, groom the next generation to take meaningful positions in the business, smooth succession and so on. Unless these goals are understood, the inner circle may not be suitably well balanced.

It is only when the goals are fully understood that tan the Ring of Confidence can be selected, reviewed and built.

Second, the structure in which they work needs to make the team work together, not in silos.

A business run by a company has a board of directors who meet. They know what the business goals are, which should be clearly set out in the business plan. They meet together, knowing that each Director has something to contribute to the proper running of the business and they need to hear what the other advisers are saying, since it may impact on their area of expertise.

When I first wrote my book When you are Super Rich Who can you Trust?  in 2014 having a Ring of Confidence run on a commercial basis, was a nice to have. In most cases their financial assets were offshore; out of sight and out of mind. This is now no longer possible. Running your Ring of Confidence on a commercial basis is no longer a nice to have, but a must have.

The time to act is NOW.

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Jack from last week

Last week, we looked at Jack, the M&A specialist who works with ABC bank in London. As I outlined already, his sister living in Dubai, paid him commission on successful deals he put in LPT Bank in Dubai. It was his ‘rainy day’ money which he had not declared to HMRC and on which he had not paid tax. This was clear tax evasion and I told him to declare it immediately.

Before I go into the detail, I would like to stress that these issues are very complex and most people approach tax as a straightforward, a black and white matter, but in actual fact it all depends on the detail; playing with ‘what ifs’ is always a dangerous game.

Jack had asked ‘what if’ his non UK domiciled status would make any difference to his tax liability –  I told him to be effective, this would need to have been claimed, and if not then it should be considered very carefully.

Jack came back to me with more questions – ‘What if his sister had put his commission in trust for the kids?

Although Jack needed no warning he was a professional, I made it clear that any thought he may have to backdate ‘legal papers’ was not worth any tax savings. Without detailed correspondence to support his case it would be unlikely to pass even the most superficial of investigations by HMRC.

He still pressed for answers.  

The first thing to consider was from whom did the monies come from when the trust was funded. Was there an agreement between Jack and his sister such that Jack expected his sister to use the commission earned to set up a trust for his children?

If this was not the case, Jack needed clear evidence in writing and clear proof that she treated his children as her own.

Without such written and clear evidence there was the presumption that Jack’s commission was in fact an indirect gift to his children.

Under the law of the presumption of advancement, only a transfer from a husband to a wife, or a gift from a father to a child is a presumption of a gift. In all other cases, without contrary evidence it is to treated as a loan, which needs to be repaid.

Note that the presumption is gender specific. Therefore, even if Jack’s sister treated his children as her own, there would still not be a presumption of advancement, just as a transfer of monies from a woman to her husband will be presumed to be a loan, even if the woman is an heiress or the main or only breadwinner. However, these factors may be taken into account to rebut the presumption.

Then, of course, HMRC would need to look into the domicile of Jack’s sister, if tax was not to be paid and which adviser set it up for her.

We looked into the case of Jack’s domicile last week and that of his sister may be assumed to be similar. However, it is likely that HMRC will also make enquiries as to who set up the trust. If it was a UK based adviser, that person would have had report the trust at the time if Jack’s sister was or could have been UK domiciled.  

Jack threw up his hands in disgust. ‘How can anyone know the relevance of this sort of detail when making a tax return. My sister has no children of her own, she often takes mine on holiday to exotic places in the Middle East, and has more than enough money of her own. If she had settled the trusts for my kids, I would never think of declaring these trusts as set up by me, and she would not have given a second thought as to the possibility of tax being paid in the UK. This is crazy’.

‘This is why,’ I said ‘you need something which I like to call “a Ring of Confidence”. It is not enough to have an ad hoc team of advisers; they need to be consulted not just when you think you need them, but regularly, in case your common sense approach is not reflected in law’.

Jack was silent – ‘I suppose this is appropriate not just for tax matters, but in all areas of concern such as direct investments. I can see how beneficial it would be to have an independent expert look over my investments once a year, to make sure I took profits at a good time and reinvest them appropriately. Maybe this would also be true of succession plans as well as tax?’

‘The world in which we live is so complex’, I said to Jack ‘Having and using good advisers is no longer a ‘nice to have’ but a must have, and not just when you think you need their advice’.

Our Protection Packages we liken to insurance – you need protection all the time – not just when you think you may need it – and in actual fact it is more competitive than insuring against the risks!

In my book ‘When you are Super Rich who do you Trust?’ I guide my wealthy readers to analyse, first their goals for their wealth, and then to do a SWOT analysis. This information can then be fed into a bespoke Protection Package to ensure they get their own bespoke ‘Ring of Confidence’.

Both books ‘When you are Super Rich Who do Trust’ and ‘Uncovering Secrets of Winning Business from Private Clients’ are being relaunched on 11th October. If you would like to get a copy please visit our Education tab or get in touch with us either by phone on 020 3740 7420 or email  svetlana@garnhamfos.com