Brexit and Oyster Sauce

It is staggering that David Cameron asked the British people to determine, by ‘simply majority’, whether or not to leave the EU. There was little notice, precious little information made available, and no let-out clause as to what to do should the terms of the exit agreement be disastrous.

I have spent over 30 years working with families to protect their family assets from disputes, whether from within the family or from third parties. The secret to success has little to do with the terms of the family constitution or the quality of its professional trustees; it is simply a matter of good family governance supported by a robust structure.

I coined the term Family Governance in 2001, more than 18 years ago, to mean; ‘the facilitation of effective, entrepreneurial and prudent management of family wealth to deliver its preservation for future generations.’

Family Governance invariably includes

            An executive board,

            A non-executive board, and

            A binding family memorandum or constitution.

Within the documentation, which is bespoke for each client, needs to be terms as to when a decision is effective; how much notice is needed, the information made available and whether the vote is by simple majority (50%) or by special resolution (75%).

Anything as fundamental as leaving a trading club would need plenty of notice, significant information, meaningful discussion and a special resolution. None of this happened within Family Britain and look what a mess we are in now!

The history of the Lee Kum Kee family, is a case in point.

In 1888, Lee Kum Sheung started LKK in Guangdong, China, as an oyster bar, which moved to Macau in 1902 and finally to Hong Kong in 1932. As part of the business it developed its, now famous, oyster sauces which are known worldwide.

But growth was not always straightforward.

In 1972, Man Tat, who now runs the company, proposed the addition of products, such as soy and hoisin sauce to expand the business. His father supported him, but his uncles did not. Unable to resolve the dispute, Man Tat had no option, but to buy out the uncles; an expensive and damaging resolution to their dispute.

In 1986, Man Tat wanted to increase factory production, but his younger brother refused. Again, without good governance in place to determine how to resolve the dispute, Man Tat was obliged to buy out his younger brother, another expensive and damaging resolution to their dispute.

Man Tat, now, had sole ownership of the company and wanted to expand the management to include his five children.

In 1999, his youngest son Sammy Lee went against his father. He wanted to expand the business to include an herbal health care product division, but after years of trying, Man Tat wanted to sell it. Sammy refused.

At the turn of the millennium, Sammy decided to suggest a compromise – a five-year grace period to allow his health care unit to become profitable. His father agreed and within this period his business became successful.

Today, the LKK Group is the largest oyster sauce maker in the world, and on track to become the largest soy sauce maker with £3 billion in annual profits. The health care unit however, generates double this revenue and profits.

How did this come about? In 2002, Sammy and his siblings proposed the creation of a family council and an executive board. The details of which I am not privy, other than what is publicly available.

The family council, is composed of Man Tat and his wife, their four sons and their one daughter. The council handles the family affairs, such as distribution and succession. The board, is composed of Man Tat and his sons, and this handles the business and its direction, growth and expansion.

Good family governance documentation needs to lean heavily on good corporate governance and provide ways to circumvent the mischief which this area of the law has uncovered. For example; I have seen directors of a family business drive down the business until it was virtually worthless, then buy the shares of their siblings who were not in the business, at a knock down price, to then drive up the business to its former profitability.

At the heart of good governance is the supply of adequate information and time before a decision needs to be taken. Then there needs to be enough people at the meeting for there to be a proper discussion at which all the issues of concern need to be raised and discussed.

Good governance provisions need to be able to settle disputes without recourse to lawyer’s opinions, mediation or litigation, although these must not be ruled out if there is a stalemate.

At GFOS we are experienced family governance experts as well as specialists in creating the structures to support it. We use trusts and foundations as necessary to achieve the founder’s or family’s requirements. We aim to protect the family and its assets by providing means to resolve disputes, stamp out indecision, and thwart opportunistic creditors, divorcing spouses and many other dangers and difficulties.

If you would like further information as to what GFOS does for its clients please visit www.garnhamfos.com, or phone for an appointment with Caroline on 020 3740 7422 or on 07979 188 288, or email on caroline@garnhamfos.com.

Please also go to our website if you would like to buy Caroline’s books; ‘When  you are Super Rich who do you Trust?’  or ‘Uncovering secrets; How to win business from Private Clients’ or  you can buy direct from Amazon.

2019 - not happy for some

Happy new year to all readers of my Note – may it be the best year ever.

Sadly, it won’t be happy for Ramses Owens and Dirk Brauer, two senior employees of Panamanian headquartered law firm Mossack Fonseca who have been charged with a string of offences. The Department of Justice (DOJ) alleges that both employees were connected in a decades long criminal scheme’ to conspire to evade US taxes on behalf of their clients.

The DOJ goes on ‘The charges announced today demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the cheats who utilize their services’ said Assistant Attorney General Brian A. Benezkowski.

But, before we shrug our shoulders and say ‘tut, tut’ let’s pause a moment and compare this with the claim against Credit Suisse in May 2014 for a similar charge.

Credit Suisse, it was claimed was guilty of criminal conspiracy to evade US taxes. It was fined a staggering $2.6 billions, roughly equivalent to the net profit for 2013. But, it was well publicized, that the deal with Credit Suisse was part of a plea bargain – with the Department of Justice – and was ‘structured in such a way as to allow the bank to ‘continue operating’’.

It has been said that the Zurich based bank was ‘on the regulator’s list of 29 global institutions which was considered to be systemically important and whose failure would be considered a threat to the entire financial system!’

In short, the DOJ had no choice, but to allow the bank to continue operating, and Credit Suisse had no choice, but to put in a plea of guilty.  For many, what it was guilty of, was ‘to recruit US clients to open Swiss accounts to help them conceal monies from the IRS’. This may not have been something which IRS liked, but at the time opening a Swiss bank account was legal and part of the bread and butter business of global international private banks.

The IRS was transparent in its intention behind its harsh treatment of Credit Suisse. It wanted to ‘name and shame’, it wanted the fine and the guilty plea bargain to be a ‘warning to foreign banks believed to be helping US taxpayers conceal assets’ from the IRS. AND IT WORKED.

In charging the two senior employees of Mossack Fonseca are we seeing a re-run of the claims in 2014? But rather than focussing on international private banks, is the IRS now, focussed on vulnerable employees in professional firms, starting with lawyers and accountants?

The Department of Justice alleges that the employees of Mossack Fonseca ‘defrauded the US Government through a large scale, intercontinental money laundering and wire fraud scheme’ it goes on to say ‘For decades, the … employees.. of global law firm Mossack Fonseca allegedly shuffled millions of dollars through offshore accounts and created shell companies to hide fortunes’.

These prosecutions are yet again expressed to be ‘a warning’ to all professionals, that what was considered acceptable yesterday, needs to be carefully reviewed today.

Trusts are not illegal, neither is owning assets through an offshore company, provided all taxes which are due are properly and correctly declared and paid.

The problems start, when the client has been advised that by setting up a trust or company offshore he or she has put in place a structure which is perfectly legal to mitigate taxation. The tax authorities however, may take the opposite view, that what is being done is a conspiracy to defraud taxation. If proved successful this is tax evasion, which carries criminal sanctions – and a possible jail sentence.

Most Swiss private banks now refuse to have clients with any US connections, and refuse to recommend any of their clients to any professional which could advise them how to mitigate their tax bill in the US – or elsewhere. If the allegations against the two senior employees of Mossack Fonseca succeed maybe professional service providers will similarly refuse to act for US citizens for fear of imprisonment!

The US may have been the first to initiate the automatic exchange of information under FATCA, but every time it is proved successful the OECD and the rest of the world follow. Many were of the opinion that the automatic exchange of information under FATCA was a breach of the human right to privacy, but as financial institutions across the globe invested huge sums to provide the IRS with the information it requested, it was seen as a success and the OECD took no time to follow suit.

So, what should we do?

Now is not the time to sit back and watch the hurricane gather speed, we each need to do what we can to put one’s house in order.

But insisting nothing is wrong, is simply not good enough. What is needed is a fundamental change of view; back to basics and embrace the fact that changing times require a change of approach.

There is a silver lining; many have already adopted it, but others simply refuse to believe anything can or need be done to avert the damage. It may blow over, but it is unlikely; so it is better to be safe now, than sorry later.

If you would like to find out more please write to me at caroline@garnhamfos.com or call on 020 3740 7422 for an appointment.

Please also contact the above or go to www.garnhamfos.com or Amazon to buy both or either of my books ‘When you are Super Rich who can you Trust?’ and ‘Uncovering Secrets, how to Win business from Private Clients’

Join me on the Nicky Campbell show

Last week the BBC asked if I would join Nicky Campbell on his show the Big Questions which will be live on Sunday 6th January 2018 from James Allen’s School for Girls in London. The issue to be debated will be whether it is fair that the super-rich earn in four days what the average man or woman earns in a year and whether London is only for the super-rich.

My response is, of course, it is not fair that some can earn in four days what others take a year to earn. But before we get heated up with issues of fairness and envy let’s look at what is really going on. My clients have money to invest, and this country/London needs cash for investment; into affordable housing, better child care, good education and excellent health. The simple question is how to get those with money to invest in what we want? One way is to raise taxes. Hollande tried this in France and the French simply sold up and walked away. Macron then reduced the rates and the investors came back.

My clients have lots of money to invest. On average, 28% want to invest in equities. If this were invested in our stock exchange it would create thousands of jobs across the country, and 18% in property, if this were invested in affordable housing it would solve the capital’s biggest crisis facing London’s workers; our cleaners, shop assistants, teachers and waitresses.

So, what are the barriers to entry, what is holding them back, why is the UK not benefiting from investments in the UK?  Simply, because our tax system, discourages it. Our foreign residents are incentivized to keep their money invested outside the UK, investors keen to invest in affordable homes to let, have to pay up to 15% on acquisition, and most investments in the UK attract inheritance tax at 40% – with a few simple tweaks this could be changed and we could see investments flood into the UK, from which we could all benefit; affordable housing, better education, care for the elderly and excellent health care – just a few simple tweaks and some political will to make the UK a better place!

As to the second part of the debate, we need the Government to free up the housing market. A lot of my clients have money tied up in property in which they do not live – empty homes. They would sell and reinvest if the Government were to introduce incentives to these owners to invest in what we want; affordable housing, better education, care for the elderly and health improvements.

So, what are the causes of stagnation in the housing market? George Osbourne in 2015 increased stamp duty land tax by a further 3% for second homes and buy to let homes. As a result we now have £4 billion shortfall in Stamp Duty Land Tax against projections and the overall tax take is less tax compared to before the changes. Sellers can’t find buyers for homes above £2 million, - the rates of tax are simply too high, owners are not selling and the government and we in Britain are losing out!

What we need is some joined up, long term, back to basics thinking. Who has the money, what do they want, what do we want and join up the two with some incentives and penalties. If we were to reduce the 15% top rate of tax on buy to let properties and introduce incentives to invest, the vast swathes of land east of London could be freed up for housing, industry, research and development. My clients would readily sell up their mansions and reinvest.

But, are our politicians more concerned with getting elected next time around, or what is best for Britain, are they rearranging the deckchairs as good ship Britannia sinks, are we in danger of throwing away a great future on some ideological mantel of ‘fairness’, sacrificing our potential out of political cowardice, consigning our fellow citizens to homelessness, because we stubbornly ignore some basic facts of reality, wanting some mythological ‘fairness’?

It is really very simple incentivize those with money to invest in what we, Britain, want and need.

Please let me have your comments ahead of the show and of course your comments after it.

If you would like to buy Caroline’s book When you are Super Rich who can you Trust? or Uncovering Secrets; How to win Business from Private Clients you can buy them from Amazon or direct from www.GarnhamFOS.com or you would like to book a meeting with Caroline to find out more about how to protect wealth without losing control, email her on caroline@garnhamfos.com or call on 020 3740 7422.

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