Switzerland Has Added You as a Friend

The OECD-driven tax landscape has changed so much over the last year. In a story which will likely fail to capture notice from anyone, Switzerland signed a bilateral tax agreement with Bangladesh!

That's right Bangladesh. Try finding Bangladesh on the map. No offense but all I know is that is traditionally one of the poorest nations in the world. Every year the UN sends millions in food and essentials in humanitarian efforts.

Is there even a Swiss bank operating in Bangladesh? How many Swiss subsidiaries are operating in Bangladesh? How many HNW Bangladeshians (if that is what you call their nationals) do you have on your client list? Hard to imagine any Swiss tax practitioners will spend more than a nano-second dreaming up some scheme to take advantage of this. Hands up if you would like to be the first in your organization to open up the Bangladeshi branch. I suspect NRIs wouldn't want to go there to do business either.

Clearly the Swiss are scraping the bottom of the barrel in signing up tax treaty partners. Has all this OECD-stuff become nothing more than a Facebook competition....where who has the most "friends" wins??

Would You Like Fries with That?

The title line is a time-tested sales technique that the fast food giants have used to ensure that they maximize selling opportunities.

Now when it come to banks and their trust services, expect to hear: Would you like life insurance with that? Would you like one of our bank's own high yield offshore structured ELN derivatives with that? Would you like a pet dog cremation endowment fund to go with that?

Now look at the recruiting advertisement below. If you require fiduciary services, then you may want to consider shopping elsewhere. Now banks are in business of making money and greed is good but when you are too stupid, politically incorrect or inconsiderate to make it a mission statement then you deserve to be ridiculed. How do you feel about a bank that is hiring someone specifically to squeeze every cent out of your trust? It's one thing to do it implicitly, it's another to do it explicitly.

It is a bit unfair to make a big deal out of an advertisement which the bank may not have drafted or approved as the ad was put out by a recruitment agency but there's enough there to know that this bank wants to hire a "miner", someone who's revenue driven. Can you trust your Trust Relationship Manager if you know he/she is approaching your case with an angle to make money? Your needs or problems are only their problem if there's money to be made. For this bank, making money from trustee services is not enough. Just like selling a burger is not enough. The trust has to be milked. You must order french fries too.

If you're the applicant, you better be prepared to meet assigned revenue goals. Things like fiduciary duty are secondary. Notice you don't even need to have "trust" experience? Just an university degree and client relationship management credentials.

Look at this ad closer:

• "to identify new business opportunities" Is this what being a trustee is about? You create trusts to serve a purpose, not create new business opportunities. How much will they care about things that they can't make money from? Guess how many transactions you will be asked to make with this trustee? After all, no transactions, means no revenue. You would better hope that they have another person that reviews cases to look for things like proper minuting, record keeping, accounting, exposure to tax and regulatory laws, the beneficiaries are where they are supposed to be, what their needs are, etc.......you know.....all the things besides "new business opportunities" that ensure you still have a valid trust or an effective trust.
• "trust cases are properly priced" Loosely translated that means milk the trust for all it's worth and price out the dogs with fleas. I have yet to see any empirical studies on pricing fiduciary risk. The big institutions have models that base pricing on numbers like "time spent" or "AUM" but pricing is largely a number being pulled out of a hat. Just make sure your cases are in the black. So sell a lot of services and financial products and lie on your time sheet. Guess how long before you get the trustee's resignation letter from this trustee if you insist on keeping the trust fund in an annuity or long-term bonds?
• "ensuring client satisfaction" Nice but isn't carrying out your duty as trustee, you know working for the beneficiaries of the trust, a little more paramount? I will side-step the "trustees have no clients" argument. Chocolates can give great satisfaction. Are chocolates always good for your teeth or waist line? Do these seem like the people that will take the chocolates away when they should? We all would prefer doctors that gave client satisfaction but if we had to make a choice wouldn't you rather have a doctor that cured more than anything else. Purpose before pleasure folks.
• "ensuring compliance" Compliance is a nice overused and abused buzzword these days. To put it in a job description is somewhat puzzling. Shouldn't compliance be implicit? Second-nature? Do you need to be told to be a law abiding citizen every day? Do you need to be told "thou shalt not steal" before you walk into the office? I guess you do if the place was a little lax in compliance in the first place or you hire people that don't come from a compliance-oriented industry.
• "all relevant policies & procedures" Notice how you don't need to comply with laws and regulations? Just our in-house policies and procedures. You're only as good as the policies and procedures you have. It's the stuff you do not have a policy or procedure in place for that should worry you. I find it funning they chose the word: "relevant". Were they expecting you to comply with irrelevant policies?
• "able to work independently with minimum supervision" That means your boss knows nothing or they're busy doing other things. It's your show. We all hate micro-managers. We love people that can work independently but where is the line where you can safely send out people that won't embarrass your organization or screw up? If you're someone with some 6-years experience, are you confident or know enough to work with minimum supervision? Who will you learn from? If you're the "client", does being with a AAA bank mean as much as you thought it would when your trust is in the hands of a marginal 30-something working under minimum supervision? Perhaps more accurately, the Trust Relationship Manager is likely working under the direct supervision of someone very senior............your Private Banker. The privilege of working independently should be earned not given.

This bank is probably not as senseless, cold-blooded money grabbers as I make them out to be but don't you just get a sense the business is being run by bankers who have lost sight of the woods for the (money) trees?

See for yourself:

Our client, a top tier Private Bank in Hong Kong, is now looking for a high calibre candidate to fill for the following post:

Trust Relationship Management

Post Date: 14 Dec 2009

Responsibilities

Service a portfolio of client relationships by:

• Reviewing client relationships and trust structures to identify new business opportunities
• Ensuring new and existing Trust cases are properly priced
• Ensuring client satisfaction
• Ensuring compliance with all relevant policies & procedures

Requirements

• Degree holder in law / accounting / business
• Fluent written and spoken English and Chinese (Mandarin) is a must
• Minimum 6 years of experience in client relationship management
• Traveling is required on needed basis
• Able to work independently with minimum supervision & details orientated

Succession Planning

While many trust professionals pride themselves on also being succession experts, helping families navigate through the options and obstacles that occur when there is a death of a family member, many are oblivious to their own organisation's succession plans.

As the year winds down, mark down February 13th 2010. That is Chinese New Year. And what falls around that date are holidays and payment of annual and discretionary bonuses are paid in Asia. Of course there are some firms that don't follow that pattern (and some are off by a month or two) but many do and you need to be cognizant. Revised compensation packages are usually done as this time too.

The bonuses in Asia seem to represent a lot more than what they are or should be. It has become an "obligatory right" rather than performance recognition tool. Everyone likes raises but they like bonuses even more. Personally I think you can get away with a good bonus and no raise but you are not given the same level of appreciativeness if you give a pay small rise with no bonus. People far too often rely on discretionary bonuses to pay tax demands, holiday vacations, etc.. You can say it may be short-sighted, but cash bonuses are king. Other incentives, including stock options, are often frowned upon. The first counter-argument you get is if I wanted UOB shares, I would have bought them myself. Rightly or wrongly, the bonus is an intricate part of the total pay package. Irrespective of the economic climate, bonuses are seen as a direct correlation of how much the firm values the employee. Yes, that is what a bonus should reflect, but it is taken to the extreme in Asia, especially among the Chinese. Little or no bonus and you've "dissed" the person. There is no satisfactory excuse for why I didn't get a good bonus. If you want to disenfranchise a person and/or want them to resign, a lack of bonus gets through louder and clearer and any more subtle approaches or performance evaluations. Once out, people compare and contrast bonuses and self-worth. People are much more willing to talk or brag or bitch about bonuses than actual salaries. You cannot hide that fact that so-and-so got that much and so-and-so got this much. This is not just your institution but across the industry. Everyone seems to know much bonuses were paid by the big players like HSBC and Citi. You need not match the big or frivolous players in bonuses but you need to ensure that you understand what the message you are sending with bonuses. Be prepared for the aftermath and morale changes.

Although I am biased, I think that a "token" bonus or pay rise needs to be paid to everyone you want to keep. To the industry outsider, we are not talking about Wall Street-type, multi-million dollar investment bank pay outs. Trust people are 2nd class citizens when it comes to Private Banking bonuses. We are talking about a few months salary for a team of 10-40 people which will not add up to even US$1 million. If you can't afford that, or can't foresee when you will recover that outlay then you are not in business, you are delaying foreclosure. I am not advocating an indiscriminate payout. I am merely saying that you will be sending a powerful message out when paying (or not paying) bonuses. Take the time to ensure it is the correct message you are sending. Now how you pay the bonus and to whom is the challenge.

Many that award bonuses feel bound by the company's bonus pools and think their hands are tied. You got to fight for what you believe in. Who you retain is as much a succession planning issue as who you bring in or who you let go.

There will those that feel insulted by the bonus they got or didn't get. They will leave. Admittedly, this is a problem that affects mainly low and middle ranks. It may happen instantly if they have something already lined up. The bonus has been the only thing keeping them around the past few months. It may take a while in this subdued market for others, but this bonus rift is usually irreparable. It's only a matter of time. Will you be prepared when they do? Do you have a succession plan? Although a touchy subject, you need to monitor them closely in the interim period. Some will do something spiteful. I can't recall where I first saw it, but I found a related/secondary article by Aaron Lim:http://www.pressreleasecirculation.com/content.asp?ID=152550&ArticleCategory=Technology

The same is happening at your competitors. Is there someone you covet? Are there needs you need to fill? This is an opportune time to recruit.

I suspect that all the large trust companies, particularly the bank-run ones, have some succession plan on paper for senior management. Some companies make it mandatory to have a plan on record. It goes like: if Joe goes, then Mary moves up. Good you have a plan, but is Mary really ready to take over? Too often this succession plan is made by Joe and Joe's boss. Joe's boss knows nothing so it's really Joe's opinion. Joe may have a vested interest too. Sometimes Joe is grooming a successor, giving tidbits and practical experiences and opportunities to do Joe's job. Other times, the deputy is just a glorified title and that person has as much preparation or ability to replace the incumbent as some guy walking down the street. The question you need to ask is do you have a good Mary or a bad Mary or just average Mary?

Most trust operations rely on continuity to some degree. Someone must know the rules and practices. It would be nice if they knew the client too. Unlike private banking where individual people skills are more important than organizational awareness, it is somewhat difficult to plug someone in from a different organization at senior levels. It takes maybe a year for senior people to truly understand your business, from systems, to work flows, to risk appetite, to working with interested parties (lawyers and bankers) to people above and below them when switching firms. You may have to partially carry them and be on guard for them screwing up

on some area. It takes a rather energetic person with initiative to successfully adapt to a new environment. This makes Mary seemingly the best option for succession. However, new blood can do many things for an organization. A new hire may bring new and better ways of doing things. New or different skill sets. They bring new energy and could shake up the status quo. My experience is that new senior hires need to be isolated and protected. Not everything new is for the better. Some in the organization will resist change. You need to be able to isolate and contain. Like a lab experiment, if it goes bad, then only a batch goes with it, not the entire lab. Unless you plan on "cleaning house", changes should be well thought out. A few years ago, one major Swiss bank trust company in Singapore hired a high profile trust head only to see this person bitch about everything and embarked on a mission to make this company a mirror of his old company. Needless to say, it was messy, acrimonious and ended in divorce. So they ended up promoting the long time deputy. The deputy wasn't ready and the company is now on it's fourth Head in as many years. Tailspin.

For smaller trust companies, there is no in-house successor. The key executive was the trust business. The fact is you may never fully replace the person that built that business. A few firms have seen their trust business close down as no one was able to replace the departing trust person. Here, the key to succession is not always tied to finding a replacement. How you are able to shuffle responsibilities and tasks among the people you have may go a long way in ensuring your trust business survives. You may be left wounded but not left for dead. Know what gaps you have to fill and do not fixate on finding the perfect replacement. Here, being market savvy helps. Know who's out there so you don't need uncover every rock when you do need to go find someone. Here's where having a succession-consciousness helps. CPAs are generally quite good act training up their successors as that was a typical CPA firm structure. A typical 8-10year career path where Partners trained the managers. Managers trained the Seniors. The Seniors trained the Juniors. People had to work they way up the ranks. They were forced to delegate. They were forced to work in teams. Only the cream rose to the top. How many organizations hire Juniors with a view that are going to Partners? How many actually have a career path designed? That type of organizational training is virtually non-existent in the trustee business. How much emphasis on grooming and training your next generation of managers has your organization made? For those that do run some training, it is usually the department head talking about a few subjects to the rest of the team. Silo training equal silo employees. Who has the big picture in the organization? Are you sure your department head is good/competent and getting the right message across? Are they molding good successors or just molding people into their own likeness?

Do a quick survey.....ask each of your employees if they feel they are ready to step into their boss' shoes. How many jobs in the organization do they think they can fill? The answer will tell you how much succession planning you need to do over the holidays. The answer will tell you how to allocate the bonus pool. The answer will tell you how to revise the pay packages. The answer will tell you how many new hires you will need.

Hate to see you get caught with your pants down when Chinese New Year comes around.

Independent Trustees....can you trust them?

Continuing with a break-down of the private trust industry (I guess this is the 4th of the series), aside from the bank trustees, there are independent (meaning non-bank owned) trustees peddling their services around the world. There are probably 3 to 4 times more independents than bank trustees in Asia.

While it may seem like comparing your local sole proprietor CPA to that of a big 4 CPA, boutique hotel versus some mega chain or Pizza Hut versus Joe's Pizzeria down the street, it is a little more complicated than that. The range in every comparable measure, from size, to AUM, to professionalism, that the independents offer is absolutely astounding. Joe's Pizzeria may be better run than Pizza Hut. The boutique hotel may have more rooms than the local Holiday Inn. The little CPA may have a $100million trust he's looking after.

There are essentially 3 types of independent trustees:

1. Bank cast offs
2. Professional firm cast offs
3. ex-staff start-ups

Bank cast offs. These trust companies used to part of major bank. By sale or other deal, they became non-bank owned. The most recent case is the Fortis-Intertrust. At one time a bank trustee, now owned by a private equity group. Orangefield was a former ING trust company. These tend to be larger players with a good infrastructure, systems and procedures and international or region capability. Not McDonald's but more like Mos Burger in Asia.

Professional firm cast offs. Many accounting and legal firms set up dedicated service companies to provide a myriad of services such as company incorporation and secretarial, trade/invoicing services, financing and of course trusteeships, so as not to get the partnership (and the liability of its partners) dirty. [Note - Although we often call them "firms", accountants and lawyers that actually practice their trade, are usually required to do so in a form of a partnership. These used to be unlimited liability arrangements as a means of keeping people on their toes. Now, most, if not all, are limited liability partnerships or LLPs. Perhaps fairly limiting their collective liability. Those that are not technically practicing law or public accounting may do so in a limited (liability) company. The easiest way to tell which is which is the name. Partnerships have partner's names in front of the LLP: Price, Waterhouse, Coopers. Clifford, Chance. Companies have "Inc" or "Ltd". Why is that distinction important? Licensed and practicing professionals are sanctioned by their local governing body (Bar Association, Inns of Courts, ICPA, etc.) and are required to carry professional indemnity insurance, have codes of conduct, etc.. Anyone can start a $2 company, run unsupervised, without any insurance and offer you services from accounting to legal research or trust advisory as long as it isn't technically restricted as professional services.] Due to the crack down on potential conflicts of interest, many of these firms are now "non-partner" owned. They just get a retired partner or manager to leave the practice and step up as the puppet owner to get around the rules but you didn't hear that from me. Although they do deal with the general public, most of their business is derived from the founding professional practice who is sure to make a friendly referral. These tend to be small local players but some like Walbrooks (a former Deloitte Touche Tohmatsu service company) can be quite international. Usually quite professional but sometimes lacking in big time capability. A related group are the Company Incorporation/Secretarial/Management firms. They were usually started by Chartered Secretaries, sometimes independent of the other pro firms so they were not technically cast offs. Some of these have grown very large like Amicorp or Portcullis and encompass many services but their bread and butter was CoSec work.

Ex-staff start ups. These can be former private bankers, asset managers, lawyers, accountants trustees or a combination of them, that start up their own firm. Trusts are usually an ancillary service. They tend to be niche oriented, offer fewer services but are "owner operated" and run hands-on, servicing former clients. Often just local with a handful of staff. While more common in Europe and Switzerland, we starting to see a few more of these "mini family offices" in Asia run by former high profile people. Expect more as the economics force more people out of the big companies.

Over time, these distinctions become less important and less clear. As with any industry, there are mergers and acquisitions, breakups and dissolutions. Tricor was an amalgamation of many CPA service companies' and trust businesses but now owned by a bank!

Some also become incestuous with one another. What many outsiders do not see are the brass plate operations: XYZ bank has a trust license in say the BVI but they have only one person there, a cubicle office. Their trustee operation is really sub-contracted to ABC independent trustees. Happens more often then you might think. Sometimes, due to conflicts with big corporate deals on the investment/corporate banking side, the bank trustees need to back out of the deal. Sometimes it's risk, sometimes its non-permissible assets. So they throw a bone to their favorite independent trustee to "front" the trust instead of letting a real competitor win the job. Some arrangements are known, like Abacus (a former Coopers & Lybrand trust company, the "Coopers" in PwC) linked up publicly with Merrill Lynch a few years ago to handle the stuff ML couldn't or wouldn't touch.

The first question asked is usually about can you trust them? Will they run off with my money? In general yes and no respectively. As long as where the trust is set up has trust laws and the trustee is duly licensed and insured then a safety nets exists. Sure there are thieves and cons but on paper you have the protection of the law. Obviously, the smaller the organization the less controls there are to prevent bad deeds in these companies. But some of biggest and most regulated organizations weren't successful in stopping Heinrich Keiber or Jerome Kerviel or the Carroll Foundation Charitable Trust from their naughty behavior either.

Aren't they too small? Some independent trustee companies can rival the international bank trustees in terms of manpower and geographic coverage. In fact, some are bigger. Some are still 3-man operations. Bear in mind that some independents have more AUM, than many local or even regional bank trustees. Some of the largest trust cases have booked with the independents, but you are unlikely to hear about it. Or unless it blows up like the Esteem/Grupo Torras affair with Abacus were several hundred million trusts. Who knows how much is in the trusts billionaire Eric Hotong set up with Hillhead Trustee - a former Arthur Young (the "Young" in Ernst & Young), trust company? As I mentioned above, some of the big banks often use the independents for sub-contracting jobs so who are you to judge? Ask to visit the office and count the number of trust people. Although it varies according to the to complexity of the cases, 1 trust person rarely looks after more than 50 cases. Yes, there are the really simple cases where 1 person can look after 100 trusts, but there are cases where 1 person looks after only 1 or 2 cases. If your trust is going to be part of your empire that is currently using 2 accountants, 1 tax lawyer and 3 administrative staff, you better make sure your trustee has similar manpower to devote to you.

Now as far as the question of whether they give competent advice, that depends on the individuals. Like the big banks, these trustees may have a great brain trust but if the people in your branch aren't good, where does that leave you? Some of the best and brightest tax/legal professionals work in the independents but so do some of the worst. If you have the ear of a former tax & trust senior partner of Big4 CPA or magic circle firm, can you do worse? You can if you get a former tax associate who couldn't land a job elsewhere in the city or was lured more by tax-free salary, tropical beaches and maitai's than career growth. I haven't checked recently but in the early days of the internet, there were some trust companies that actually tried to sell trusts on-line! Fill out the form and charge $50 your credit card and voilà, you supposedly have a trust! God help those that went this route.

Will they go bust? These are people in business and tend to want to stay in business. But everywhere businesses go bust. Who cares I say you? If a proper trust was created, the laws have successor trustee provisions in place. There are almost no fly-by-night operations as cost of getting trust licenses, CoSec/Management licenses, etc is not exactly easy or undertaken lightly.

So what good are they? These players tend to have strong specific skills and expertise. The ones started by tax experts, tend to be tax experts. The ones started by asset managers then to be good asset managers. The smaller ones tend not to do too much and do only things that they are good at or have a niche in. It's like a pie maker. All he bakes are pies. No bread, no cakes, just pies. Practice does make perfect. The larger (or more aggressive) the firm, the more likely they tried to be everything to everyone, meaning when you have a lot of something, you really have a lot of nothing. The major problem with the independents are they are often stretched too thin. The people they have are often more generalists than specialists. They need to put a lot of items on the menu and of course, they can't be good at doing all of them. Unfortunately, some will be incompetent at some also. These players also offer services from top to bottom: company management, trade services, accounting, investment, etc.. Virtually what every non-cash trust needs. They fill the gaps that banks services won't or can't provide. Whereas many banks are shying away from non-bankable assets, most of the independents are ready and willing to do so. At the extreme, these are some independents of the only major players when it comes to non-conventional assets like planes, ships and artwork. Those with strong business acumen, like the CPAs, make better arguably trustees as they are better equipped to manage assets like operating companies. They are more familiar with commercial deals like leveraging, financing, transfer pricing, IPOs, etc. as that what they used to do (or do for their non-trust clients). Sure, bankers know a few things about these things but remember they were sitting on one side of the table and the finance accountants/lawyers were sitting on the other side.

Like cockroaches (in a complementary way), some of the global players are in every inhabitable place in the world. That can be a plus when you need a structure with moving parts in white listed, grey listed and blacklisted jurisdictions. How well their global networks work depend on the organisation. Anyone who has worked in any global organisation can tell you tales of bitter turf wars, non-cooperation and under-cutting. These issues are not uncommon among the global independents. Again, beware of sub-contractors.

Pricing. Without the massive overhead of their banking and pro firm peers, many of these firms' services are less expensive. Without the obscene bank-like revenues, you also end up with lower paid staff. Usually only those without options choose to work at a low pay, low profile player as opposed to a brand name firm. (Not always as the banking and pro firm industry does spit out many good people for no reason other than politics, appearance, age or some other rather irrelevant factor.) There is a some drop off in talent and skill. So you can't always have your cake and eat it too. There is usually a huge drop off in professional development of staff. For some the learning stops as client work is paramount and you end up being outdated very quickly. There simply isn't time or money for frivolous things like training.

Service. Will you get personalized and detailed service? Likely. Sort of like the TV series Cheers....everybody knows your name....well it can be like that. They know you case and details by heart. It shouldn't take 4 "please hold the line" answers before they can track down who's looking after your case. Senior staff turnover is rarely as problematic as it is with the major banks or pro firms. Their senior employees tend to have been with the firm for usually long periods. How many bank RMs and trust officers have been assigned to your case at the big bank? Probably a new one every year. Heck, your RM at the independent could be the owner/director himself. How many Head of Trusts at Citi or Merrill Lynch have you dealt with? Unless you or your family is on a Forbes richest list, probably never. However, turnover at intermediate and junior levels is usually a chronic problem. They often require cheap, multi-talented people who are able to hit the ground running which is hard to find. They often are poor judges of talent and can't afford to hire/retain the best.

Are they above board? Yes and no. Sure the industry is rampant with allegations of assisting tax evasion and money laundering but when you work vice in the bad neighborhoods, there are bound to be some dirty cops. What say you about the shenanigans at UBS and their US marketing efforts? What about KPMG and their tax shelters? Sure, controls and KYC isn't as important as landing the next meal ticket, but hey, Chan Shui Bian (former Taiwan president) allegedly laundered money with some of the biggest banks. So much for their KYC and PEP screens.

Are they good trustees? Yes and no. For some, it's not their core business but just another means to make money. So they make the same mistakes and fall into the same traps as novices do. Some just go through the motions, "window dressing trustees" I call them. Some are too driven by meeting client demands that they forget their fiduciary duties, afraid to bite the hand that feeds them. Being too rigid like the big banks can be takes away from the relationship. Being too flexible may not be in everyone's best interest. Some are the most professional trustees you will ever find.

Are they good at investments? Although some independents have their "investment team" at your disposal or are themselves former bankers/asset managers, you typically have the bankable trust assets placed with a bank. Thought you might get away with rigorous KYC didn't you? The trustee simply opens an account at whatever institution, just like you would. Get the same advice you would. Be offered the same products you would. The major difference is that a trust account, in theory, should be much more conservative and have specific investment criteria than an individual's account. There's no point in setting a up trust to gamble. Remember losing less is a gain.

Bottom line, the independents can have a lot to offer. They can be great, understanding and professional trustees. They can offer a rounder/complete picture to your wealth planning than most bank trustees. The biggest hurdle to finding the good ones. It takes some skilled due diligence. Merrill Lynch vetted over 140 independent trust companies before settling on Abacus. It takes a certain degree of trust, the kind you may be giving the big bank trustees far too easily.

Next up, the financial providers.

Ask Me No Questions, I Tell you No Lies

So much tax related industry news these days.......

This gem comes from our embattled Swiss friends: http://www.swissinfo.ch/eng/business/Swiss_banks_eye_tax_pledge_for_foreigners.html?siteSect=164&sid=11494980&ty=nd

"The chairman of the Swiss Bankers Association (SBA), Patrick Odier......said one option would be to make customers from nations that have a tax agreement with Switzerland sign a written declaration that they are conforming to their country's tax laws"

Let me see if I get this right, you're going ask Yank Joe to sign a bank form saying he's good with the IRS? Fine if he is. But if he's cheating on his taxes, what does signing another form mean to him? He's already lied on his tax form under penalty of perjury! If he's not afraid of fines and jail time, what threat does a bank form have? Knock off 50bps on his interest income if he's lying to you too? Close his bank account? Refuse him lift tickets at St Mortiz or Gstaad? Whooooo...

Does it help the bank? He signed the form! He was supposed to be innocent! Not our fault! Not the strongest of arguments but better something than nothing.

White is Good

Should come as no surprise....Singapore is now on the OECD "white list".

Which kind of means we're going to blacklisted by many of those from the 12 nations that Singapore has info exchange treaties with.

If the Tax Evader won't come clean, then the rest of world must clean the tax evader

Fluff article from Bloomberg on Hong Kong as a landing place for American tax evaders: http://www.bloomberg.com/apps/news?pid=20601080&sid=axQFGFjoAzkE

Why do I just get this feeling that this is nothing more than propaganda for the Yanks to drum up support for a righteous crusade against "foreign assisted" tax evasion?

Fluff because the onus to report taxable income is on the American, not the rest of the world. Why is it my responsibility or yours to know whether our American client properly declared and file his income taxes?

Fluff because, anyone in the know, will tell you that Hong Kong companies/banks are not exactly the best to use for outright tax evasion activities. You can do it better and cheaper elsewhere. The truth lies close to what David Ellis of Mayer Brown JSM says. Hong Kong companies can make for good (& dodgy) business and tax planning, where legitimacy (or at least an air of it) is required. Not to say that Hong Kong (or other jurisdictions mentioned) have perfect systems but the system is there to provide a service, not catch foreign tax evaders. How did Warren Buffet buy into BYD if he (more correctly Berkshire Hathaway) didn't have a Hong Kong company or Hong Kong bank account somewhere in his empire of holdings? Should we consider him to be a tax evader too? Even if he was, was it the system or the person at fault?

In the case of American tax evasion, we are talking about a very limited "abuse" of that system. The overwhelming majority of financial professionals are as guilty when it comes to US tax evasion, as say American Airlines or Carnival Cruises are in allowing your tax evaders out to do their dirty deeds. As guilty as AT&T or Sprint for allowing them to make long distance calls to their foreign bankers or access their foreign bank statements online.

Fluff because you could write the same article on 365 other jurisdictions aside from those already mentioned.......how about Delaware for starters?

Oh What a tangled web we weave when first we practice to deceive

Sir Walter Scott was a wise man.

I turn your attention to the trust beneath the recent (and on-going) controversy surrounding Akai Holdings and Ernst & Young (E&Y). There are many layers, each making lawyers rich, that span the globe. Could be made into a movie starring Julia Roberts as a Borrelli Walsh paralegal who relentlessly goes after Chow Yun Fat as the charismatic Chairman of Akai, James Ting. Yes, same James Ting of the Semi-Tech fiasco with Bankers Trust and E&Y in New York a decade ago. Throw in Clooney as some courtroom litigator.

Akai was in the consumer electronics business: stereos, VCRs (remember those?). The brand ended up belonging to Grande Holdings, a listed Hong Kong company (which also owns other Japanese consumer AV producers such as Emerson, Sansui and Nakamichi (who made great cassette players in the day, remember those?) and had an interest in Singer and Pfaff, the sewing machine makers. Ernst & Young Hong Kong was the company's auditor.

In the late 1990's, Akai amassed a $1.5 billion or so in losses. By far the largest corporate failing in these parts. The Ting skips town. Enter Borrelli Walsh (BW), the liquidators (http://www.borrelliwalsh.com/significant_assignments.html).

Fast forward a few years and after a CSI-like investigation, BW sues E&Y for negligence! Apparently a few suspicious deals involving millions between Akai and Grande and others went unnoticed just before Akai went belly up, leaving the company's cupboard bare. Allegations of auditor's "document tampering" (nice way of saying dodgy as some audit evidence was signed off by some accountant who had yet to work for the auditor until some 4 years later....some back-to-the-future time traveler trick I guess) which of course ruffled a few feathers at the Hong Kong Institute of CPAs (http://www.hkicpa.org.hk/file/media/section8_communications/media_centre/pdf-pr/2009/pr-20091005e.pdf). E&Y decides that no fight is better than to lose the fight and settles without admission of wrongdoing for approximately $200million!!! Unfortunately for E&Y partners in Hong Kong, it appears their global brothers want nothing to do with them and will jettison them from the global network rather than help pay the bill according to the SCMP newspaper (Ernst & Young's US$200m snag

Naomi Rovnick and Enoch Yiu ) . So much for partnership. Could be only Big 3 in Hong Kong from now on.

Enter E&Y audit partner on the Akai case, Christopher Ho (http://people.forbes.com/profile/christopher-ho/29254) with business ties to gambling magnet Stanley Ho in Macau though unrelated. Andy Lau can play him. Ho gives up his daytime job to become Chairman of Grande! BW also sued Grande and Ho. BW wins a Mareva injunction against Ho (ie freezing his assets). Here's where I take notice.......http://legalref.judiciary.gov.hk/lrs/common/ju/ju_body.jsp?DIS=67746&AH=&QS=&FN=&currpage=

Like any good professional with potential liabilities, Ho had set up a discretionary trust in 1993: The Ho Family Trust of which he was apparently sole beneficiary. The appointer/protector to the trust was Stephen Lau, a E&Y tax partner. The trustees was a PTC called Accolade Inc.. Details are: The shareholders of Accolade are Dr Sabrina Ho and Ms Christine Asprey (both sisters of Mr Ho). Ms Christine Asprey is a director of Grande Holdings. According to Dr Ho, the Board of Directors of Accolade comprises Mr Alister Asprey, a former secretary for security and the husband of Ms Christine Asprey, and Ms Eleanor Crosthwaite: (who has worked with Mr Ho for years and she is now the head of the Human Resources Department and the Central Treasury Department of Grande" The Trust holds some 70% interest in Grande which of course "acquired" Akai from Ting. In one of the many judgments stemming from this case, the creditors of Akai were a victim of "had been subjected to a ‘double mugging’, first at the hands of Mr Ting, and thereafter, upon the latter’s departure from the scene, at the hands of Mr Ho and the Grande defendants, who had removed what assets remained after the pillaging that Akai already had received at the hands of Mr Ting."

According to BW's counsel, Ho is now stripping assets out of Grande as we speak!

So the Hong Kong courts have essentially disregarded the trust and considered the trust assets as that of Ho's and subject to the Mareva order. Ho's fighting for a leave. So far he's been unsuccessful....stayed turn to see if he's successful in the BVI courts to "uphold" the trust.

Interesting Read: Board Stupid by Clive Horwood for Euromoney

Link: http://www.euromoney.com/Article/1859509/Category/17/ChannelPage/0/Board-stupid.html?single=true

Loved the "Sinecures for sycophants" bit.

Although a bit one-sided, the article reinforces what many already know: those at the top, know-not-what-they-are-doing. Look at the CEOs of the Fortune 500 and tell me how many are truly qualified for their post? Big businesses are a collection of many smaller businesses, each with its own particular risks, challenges, demands, intricacies and rewards. There is no way any individual or even small group of individuals can amass the knowledge to intimately understand each business. All you can hope for is that they have business smarts, are fed the "right data" and make a sensible (not always correct) decision. Many decisions are nothing more than a crap shoot. No one truly knows the outcome. Sometimes, they're playing with loaded dice.

You need not look too far up the food chain to know this problem exists even at managerial or department head levels. Our immediate superior often makes puzzling decisions or fail to appreciate what we've told them. They suffer from a lack of knowledge and so do you. It's very easy to be overwhelmed in this day and age. The amount of specialist knowledge required is just shocking and unattainable. Just look at your "ideal" trust person: needs to know trust law, company law, immigration law, probate law, succession law, marital law, contract law, banking regulations, investments, anti-money laundering laws, tax laws, etc.......

The superior decision makers are the ones that question, probe, make comparisons, seek alternatives and "see the big picture" before rendering a decision. Having direct experience helps but the key is having good data and keeping an open mind. If the person is misinformed, under-informed, biased or steered in the wrong direction then the decision they make is tainted or flawed.

Before I worry about my decision-makers, I would worry about those providing the data. Are they specialists? Do they understand the problems? Have they analyzed the alternatives? Can they put their findings in "layman's" terms? What are their biases? Shit rolls uphill too. You're only as good as the shoulders you stand on.

Bank Trustees - Rahman anyone?

I've discussed (or disgusted) the lawyers and accountants, so whose next?

If there's an equivalent of a wild west, no rules trust arena then it comes to the bankers, financial advisers, insurance companies and independent trustees. Here, you find the gamut of leaders of the profession to the dredge of the industry and everything in between. Here's where things can get real dicey. Unlike insurance or most investment products, there really is no code of conduct or rules and regulations on marketing trusts.

Although I often downplay the trust skills of some lawyers, accountant and CoSec's, there is one thing that automatically puts them above other trust salesmen is that they are professionals. The ones in "private practice" (law firm, accounting firm, etc), are licensed professionals, with a certain degree of self-respect and professional liability. Rogues are few and far in between. There is a great degree of "yes, I am my brother's keeper" mentality. Beware of those in "in-house" positions. People in banks and non-pro firms giving advice, usually do so without "professional" consequence. They can be wrong, so sue the bank because it's likely negligence (if you can prove it), not professional misconduct nor malpractice. They can get fired, so they move onto the next bank. They could lose their license (if they even had one to begin with), so what? They don't need one, they're in the private sector. Even their bosses do not know whether they are good or competent advisers as they as not lawyers or accountants or trustees themselves.

Although the line is thin and often blurred, recognize that lawyers and accountants are primarily selling advice. You need not used them for their other trust related services (if they have them). With financial firms, they are selling their services not their advice. It is somewhat like an insurance broker versus an insurance agent; while both can give competent (and incompetent advice) one works for you, the other works for the institution.

Also noteworthy is that these trust businesses also have varying business models. Unlike legal/accounting firms which are essentially a partnership of sole proprietors, each partner is running his/her own business, these trust business are either run as profit centers or cost centers, sometimes an odd ball combination of both. Why is that important? If it is a profit center then they need to generate revenue. These trust businesses tend to be more aggressive, much more market savvy and in-your-face and customer-oriented. How much they can spend on good people and systems depends on how much they can make. Cost centers typically behave much more conservatively, less accommodating and managing costs is paramount over drumming up new business. How much they can spend on good people and systems depends on how much someone else makes (usually the private bank). Capitalism versus communism. Each model creates a different set of challenges for the institution. Creates certain advantages and disadvantages. Which is better? I think it varies with the individual institution. I believe that it takes much stronger leadership to manage a profit center. Weak management can lead to disastrous results. It is very easy to fall into a numbers game, where you end up having internal turf wars and getting the "kill" is more important than the service. Cost centers are more stable, perhaps too stable, but often victimized and crippled by those who are steering that do not have the business' best interest in mind. Many a trust company have been left floundering and under-producing, loaded with under-achieving people because it was an albatross around one's neck instead of being considered an asset. A mismatch of models and institutions and you have a mess. Stay away, be you a potential client or employee.

Banks and bank Trustees. Grab a cup of coffee and sit back as this will be a long read.

For much of early private trust history, the trustee was a lawyer or accountant. Often a friend of the family or family business. Trusted adviser. With big money involved, more and more chose to work with bank-owned trust companies instead. With continuity, tax, cross-border and other commercial considerations, a corporate trustee was a much more viable option than your favorite Esquire or Chartered Accountant. Although some rules still make individual trustees a viable option, particularly in the UK and Australia (heck its even better to be the trustee yourself there!), in Asia, it is virtually a corporate trustee's world and why not go with some of the world's biggest corporates, the banks?

The usual appeal for choosing to work with a bank trustee is that it's all in-house, one-stop shop. Fair enough but as with any chain, there is a weak link. Can you live with the weakest links in the chain? Perhaps their trust services is the weak link.

Some also say banks are safe. True but anyone reading the news in the past year have seen banks come and go or get life preservers. In reality, the trust business is just another non-core business division within the bank. It is a separate legal entity if you look at the fine print. Being a non-core business means that the banks can live without it. Divisions can sometimes be bought and sold and sometimes wound down, sometimes merged with another bank. Has happened before and will happen again. I would say that some 15-20% of the trusts in existence in Asia are being managed by a successor trustee company and that the change was due to involuntary changes in the original trust company.

Banks have global capabilities. Yes, some do but do you truly need global capabilities? You really only need one account onshore and one offshore (and preferably with a different bank). Sometimes more is not better as how many foreign governments and tax authorities do you want your wealth to be exposed to? You know, the same ones signing tax information exchange agreements with your home country as we speak. There are often complex and conflicting laws on investments, privacy and tax which you need to account for before signing up for the global package. Communicating with foreigners at odd hours is not always conducive to good long term relationships. Then again, you can sometimes use the banks global network to your advantage has there can be arbitrage opportunities in pricing in different regions.

Banks have deep pockets. Deep pockets also means that they can afford better attorneys than you can.

Banks have reputational risks to protect. Reputations have never been more meaningless than in any other time on our history. You can make humongous blunders, you can commit fraud, you can break the law, you can lose 50% of your capitalization, you can shaft the consumer and it's yesterday's news in a flash. OK, things can be damaging and everyone wants to avoid a messy situation but remember with their deep pockets, they always have the option to rigorously defend any action that may sully their brand.

Banks know investments. Yes, but investing trust funds is just part of the job. Don't confuse that with being a good trustee. A good cook doesn't translate to being a good wife. You have the option of eating out if Gisele Bundchen can't cook.

The main problem with banks is that their trust business is often a means to an end. The trust is the means by which the bank can accumulate and access funds. Generating revenue from the trust funds by investing/churning and purchasing their financial products is the banks' goal. Bank executives drool when they hear things like trust relationships are "sticky" in that trust relationships tend to stay with the bank for longer periods of time than normal banking relationships. When you have a customer with several million which you can milk several hundred bps off from, year after year, that's when they like us trustees. Heck, some will even give you a trust for free, perfectly willing to drain you afterwards. So, yes they like term-term relationships, as long you understand why.

The litmus test for whether the bank is a serious and comprehensive trustee is whether they take on trust relationships with non-bankable assets, such as your company shares, your house, your Gulfstream....you know anything that isn't cash or readily convertible into cash. You know, things that make up a sizable chunk of your wealth and things that you are very likely to need a trust to take care of. Things which banks have a difficult time making money from. Things which banks have a hard time managing. Here's the "for better and for worse part" of the deal. I once met this idiotic banker telling me about their "holistic wealth planning" when his organization refuses to take on non-bankables. Guess what fool? You would have turned away a plaid shirted, Docker wearing, bespectacled Willy H Gates in 84' because all he had were shares of his fledging startup: Microsoft. Guess, in what form, most new wealth in Asia is?

Cash-only trustees are after one thing only. Like teenage boys, who may take you to the movies, tell you they like you and buy you sweets, they are really after one thing and one thing only. Whether that is good enough for you, you decide. There's nothing wrong with cash/stocks/bonds only trust but does it get you where you need to be in your total wealth planning? Be sure to ask whether your bank trustee will allow the trust funds to be deposited with other financial institutions, after all wouldn't any smart investor pick from best of breed and not be stuck with only in-house products and services?

The big bank trustees tend to have high priced help in terms of qualified trust people and external advice from high priced trust lawyers. So what you get is usually up-to-snuff and state-of-the art. Quality control and systems are top notch. This high degree of knowledge and professionalism may work for you and against you too. Look at banks and the money they make. Bend over and take if you so desire. Banks are rarely cheap. Look at the court dockets and half of the trusts cases in litigation are brought on by the trustee not some slighted party. So if you're looking for a pushover, then big banks may not be right for you. If you are looking for a real trustee that will take action then you sign up with those who live in court. Of course there are banks that prefer to be bankers more than trustees. These banks will bend over backwards to ensure you keep banking with them. These are "window-dressing" trustees. They do as you say in fear of losing the account. Great if you need control, but if it undermines the integrity of the trust as it so often does, why bother? This is like installing a burglar/security alarm system but continually turning it off. You have no one to blame but yourself should you wish to override the system and find out it won't help when you need it.

I mentioned the great infrastructure the big banks have but it comes down to people who run the big machine. Many senior trust posts are held by former trust lawyers/accountants but that doesn't necessarily mean that the persons you are dealing with are of similar high quality. Having a trust dream team in the banks' HQ in Zurich or Delaware doesn't mean you get good service in Singapore or Shanghai branch. Your case may never make it that far up the ivory tower to benefit from the expertise the bank has. Remember too, you may be dealing with anex-accountant or ex-lawyer. Despite their implicit and explicit credentials, they are not giving you advice. Take a look at someone like JP Morgan who has traditionally hired former tax accountants and private client lawyers to man their trust advisory business. They proudly say so in their marketing materials. But the fine print says they do not give tax or legal advice and you are required to sign off saying you were told to seek independent advice. You go to them because they are the "experts" but you cannot rely on their "expert" advice. Nice catch-22.

Your first point of contact is usually your banker. How well they understand your needs depends on the individual. You could be dealing with a silver maned private banker who has seen it all or a former hair dresser just dragged off the street (see:Singapore: the paper Lion city)However, by uttering the words: "Have you considered a trust?", most are merely trying to meet their referral quotas and couldn't care less about or even begin to comprehend your needs as long as they get their credit or kickback from the trustee department. Some don't even bother as the kickback they receive is not worth their time and effort when they are making millions conning you into their "structured" products. As well making your funds that much difficult to procure when that banker leaves that bank. A true friend would drag you to a trust adviser before dragging you to their trust department.

The next person you'll likely meet is a "trust expert". This could be a seasoned trust professional or a pimply-faced kid with the glossy trust services brochure in hand. If you don't have your own trust adviser who can assessed the professionalism of the bank for you, ask a simple (and thoroughly ridiculous) question and you'll know: Does your trust deed have a Rahman clause? This is like going into Chanel and asking for a Birkin bag (made by Hermes) or going into McDonald's and asking for a Whopper burger (trademarked by Burger King). If they laugh then you know they know - a good start. If the person doesn't know who Rahman is, then they not trust educated just like every fashionista should know what a Birkin bag is. [Chase v Rahman is a textbook trust case and not likely to be unknown to any personal trust professional] If the person doesn't know if the deed has the subject clause then they are not familiar with the bank's own "product" just like every McDonald's server should know what's on the menu. If the person says yes, then they are dishonest as no such clause exists. How many people it takes to solve your little question tells you how far up the organization it takes to find someone who is a trust professional. If this isn't settled in a matter of minutes, or your question requires clarification or referral back to Head Office, then you should leave and never turn back. This question works equally well in recruitment/assessment interviews. I should have it copyrighted and license it out.

The next person you meet is your Trust Officer/Administrator. This is the person that ultimately takes your telephone calls, tells you what you can and cannot do with trust. Some are just processing paperwork. Some can be your best friend for years to come. As with everything in the banks, the level of service and attention to detail depends on your wealth. You either :enter 5 for trust distributions, you may enter star at anytime to go back to the main menu" or you get the leather sofa and cappuccino service. You may get a seasoned veteran or a glorified clerk. Bear in mind that these people are almost never the ultimate decision makers, they are messengers and don't shoot the messengers, they are just doing their job.

Big banks are getting notorious for their inflexibility. A streamlined, homogeneous product and services means big savings for them. It also means they don't need to retain high-priced, smart, resourceful and knowledgeable people to handle the quirky cases. All their people are compartmentalized and specialist at one job. McDonald's model of fast food efficiency in a bank setting. Ever notice that many of the high end fashion houses have a tailor/seamstress on staff? That's customer service, you walk and get fitted before you walk out. Do you see anyone with a sewing kit at GAP or Bossini? No alterations. No modifications. Take-it-or-leave it. Did you hire interior decorators to do your new flat? Do you have tailored bespoke suits? Did you think about any of the 400 options on your Bentley or Maybach? If so, why would you consider an off-the-shelf solution when dealing with perhaps some of the most personal and financially important decisions of your life and family? Granted that many typical trust needs are met with the "standard" offering, but recognize that sometimes you cannot squeeze a round peg into a square hole. One size does not fit all. If the trustee isn't probing, questioning and measuring you (including uncomfortable jabs into your crotch during inseam measurements) then they are the ones that just don't care.

For those who do want or need special treatment and can afford it, there are the "family office" alternatives that the really big or niche private banks can offer. Not that doing it yourself means getting it right, but with help and a lot of money, a private trust company may be the answer for large complex family arrangements. Most of the really big cases I have witnessed or been part of, involved the collaboration of many institutions. You need not rely on just one bank or pro firm.

Your choices are not just the big international players. A growing trend in Asia is that the smaller, local and regional banks are getting into the game. Now some have been in the trust business for ages, which is a good sign. Heck, HSBC was a local/regional bank for most of its history wasn't it? The general feel I get is that you are dealing with second or third-rate people and services. In general these banks, especially the newer PRC banks, show a lack of understanding for their trust ventures. Trusts for them is sort of their way of keeping up with the Joneses but not knowing how to go about it exactly. It's like Bank X offers bancassurance, so let's get into the bancassurance business too. Despite their glossy appearance, many of these banks are woefully undermanned at the skill positions. Skill sets (which they have a difficult time assessing anyway) are often secondary to cost. A watch is to tell time so forget Rolex or even Omega, a Timex will suffice. I literally coughed up my coffee when a friendly recruiter asked for leads to fill Head of Trust position for some Taiwan based bank for HK$60k/month. For that kind of money you might not even get a 5-years experience trust manager and you want to make them the centerpiece of your trust business? This guy will be your backstop...there is no dream team in Zurich to back him up. Be afraid, be very afraid. Which is unfortunate for the bank because most of them do have some loyal Forbes list-level HNWIs and trust prospects in their client lists. Will a 5-year pro build a good team, a reputable business and capture market share for you? I think not. Foot soldiers may win the occasional battle, but generals win wars.

So who's good and who's not? A good place to start asking lawyers and accountants who regularly send their clients to these banks. They know who knows their stuff and who doesn't. Of course some get referral fees too (where permitted) but in general, they like working only with other professionals and won't steer you to a bank trustee that is crap. Perhaps a little more biased and limited, but you can ask some private bankers (only the ones that have been around the block a few times) which trust companies have served their clients well. At the very least, they can tell you about the mishaps and accidents that occurred with their current and former employers.

Now on pensions, corporate/investment trusts and charities, usually bigger is better. Small trust departments simply can't handle the volume of transactions. Economies of scale and expertise usually lie with the big experienced players. In Hong Kong, a few years ago, a new trust company: Bank Consortium Trust Company was formed by a group of smaller banks and financial houses in order to capture the pension (namely mandatory provident fund) business that none would have been able to going at it alone. With many funds and structures set up under foreign law, you have no choice but to go, say a Caymans lawyer or those banks with Cayman branches as it beyond the scope of what local/region firms can manage.

Next up.....the non-bank or independent trustees

The Boys Are Back in Town

A few familiar faces popping back into the Asia trust arena in Hong Kong.

Peter Trace. Really old timer from Schroders now with Winterbotham's new set up. Haven't seen him for some 10years!

Peter Hodson. It's like he never really left (given all the work Peter has done in the region over the years, both commercially and academically and for STEP) but he's now with Butterfields. Dare you to find someone who hasn't had dealings with Peter in one way or another. If you haven't then the person next you probably has.

Joe Fields. Hasn't left Withers, just adding "weight" to their office here. One of the best, as many in the US and Europe already know. Although he frequents Hong Kong, I don't think he's ever lived here. So welcome.

Sometimes there is just no substitute for experience.

You don't know what you got until.........

Had lunch with a friend. Her bank recently hired a new senior trust person. Unfortunately, the new hire has already soured on many of their colleagues. Why? My guess (based on some obviously biased comments) was that the person was not senior enough. It didn't take long before the team discovered that their leader wasn't experienced in certain areas and lacked skills in others that they were expecting to be there in a senior person. In other words, they weren't impressed which could spell trouble.

When you don't have a clear superiority in skill or knowledge or experience then it is extremely difficult to be in a position of power as people will start challenging your judgement/decisions/authority and eventually start scheming to undermine, override or supplant you. Simple "Lord of the Flies" scenario. The thing in Asia is that you usually won't know what hit you until it's too late. Hidden Dragon, Crouching Tiger. Your enemies are cunning, silent and often 2-faced and rarely confrontational. Art of War.

This is mismatch is not uncommon. Different institutions, different clientèle and different roles lends to giving different experiences. Previous job titles can be misleading. Some Trust Managers are more RM-types, dealing with clients is their strong suit. Others are more trust documentation/administration oriented types, handling paperwork is where they excel. It is difficult to slot one type into a role more suited for the other type. The number of years of service does not always have a direct baring on scope and depth of their ability. Not every 10-year veteran has the same skills or knowledge. Some people have been doing the same job for years, resulting in no growth or expansion of skills in other areas. It doesn't mean they have no value, it means their value lies in that specific job only. The key is tapping what that person has and whether it is right for the role you envision. My friend's problem is they hired a person who can't cover all the bases. That person may be great at certain things but now how do you deal with the things they are not good at?

The key is knowing where their deficiencies are and compensating accordingly. Fluidity in roles is often a better solution than rigid job descriptions. This is very much like team sports. You have a basketball point guard who can run fast and dribble but is a terrible shot so you have them run with ball and pass off to a better shooter. If you continually and stubbornly try to have the guard shoot (and miss) you will doom the team. You'll eventually have to replace the guard and have under-utilized your shooter. You may mistakenly forgo your shooter too because you think it's him that is also not producing. To the casual observer, Yao Ming is great basketball player. Wrong, Yao Ming plays the center position, he is a great center. There are many positions or roles on the basketball team that he does not do well. If Yao is on your team, you need to recognize the things he cannot do or does not do well at and find complementary players. Don't try to sell him to internal or external parties as a great basketball player as you will raise false expectations and make his weaknesses so much more glaring.

Where you can, you find players to fit the scheme. When you can't, you change the scheme to fit the players you have. Of course, whoever is doing the hiring has to intimately know the scheme and be able to evaluate talent. That is often the weakness companies (particularly smaller bank trustees or independents) where the decision-maker is often not a trust person, they do not understand the scheme. They hire the wrong person to run (or fill important positions within) the trust business and the domino effect flows downward. Let's say this new trust hire was a poor marketer....then hire a marketer to handle client facing tasks. Or if they have no local technical experience, then hire a local trust lawyer, etc.. This is called having a game plan. The sooner you have one the better. Some never do, destined to repeat this mistake over and over again.

I once carried a nice lady on the team until her retirement. Starting out as assistant in the Jurassic era and slowly (more like begrudgingly) promoted to manager by the time I got there. She was crippling shy and incomprehensible in front of clients. She had no sense of management whatsoever. She would wilt under the pressure of having a full plate of tasks that her peers had. She hated certain aspects of her job. She was 40. No doubt she would have been fired if we didn't have the luxury to do something out of the ordinary. I would have paid anyone to take her off my hands had we been stuck to keep her as full fledged manager. I would have laughed had anyone hired her to be a regular trust manager. But she was also one of the most efficient and detailed-oriented persons ever and could do certain parts of her job blindfolded. We reached an accord to keep her in the back office. Restricted her role to certain tasks. She accepted a static pay and grade package over the last 10 years and had little to do except her job as we narrowly defined it. Worked out great for both parties as she held the fort, freed up others to concentrate on their other tasks, passed on her "good" skills to her assistants, minimalized her liability to the company and made her a happy camper. She was like a designated hitter in baseball. She couldn't run, she couldn't pitch, she couldn't catch. But she could hit well. We made her the designated hitter. She produced. The team won. It could have been a long road trying to find someone who has the right combination of ability to run, pitch, catch, run and hit.

Far too often in HR and building a team business is you don't know what you got until:

1. The person is on the job. All the lies and exaggerations on the CV reveal themselves. Character flaws come out. Almost never is botching a hire a factor in assessing management or the HR function. Does anyone keep records on hit & misses? Or do they just file another personnel requisition form? Hiring the wrong person should be a punishable offense for the offender.
2. The predecessor has left the job. All the things you took for granted reveal themselves. Things that weren't taught now need to be. Good HR is also about retainment an not just about recruitment. Good help is sometimes truly hard to find. Losing the wrong person can be crippling and more far reaching than you can image.
3. You underpay someone. There are usually reasons why people are willing to accept lowball offers. Yes, economics are a factor in today's market but more often than not, these people are in some way, flawed and are passed over by others for a reason. Needles in haystacks can be found. There are those that win the lottery. Are you really that lucky? This is not to say that aren't good at some aspects of the job. It is that you were expecting and perhaps counting on a Grand Slam tennis player but will find out that they can't play on clay or grass. If they are good, they will leave as they will get a better offer one day. If they're not, then you got what you paid for. There are no bargains, just trade-offs.
4. You hire someone at above market. People with consistently high pay grades usually can do something special. Forget the 1 year, one-hit wonders, but if the guy/gal has been pulling $X for several years, then they got something. There is a difference between overpaying (not getting your money's worth) and paying a premium (to get more than your money's worth) and that boils down to your talent assessment skills. I often hear people balk at even paying market, and the thought of going above market never occurs to them. It's unfortunate that managers are too often reluctant to challenge preset budgets or "wheel & deal" to get good staff. Meeting payroll budget is more important than finding a shoe that fits. They rather live with what they can afford and live with the callouses or pain than seek out the better, forget about a quest for the best. Some are just blind to the opportunities. They wouldn't recognize talent if it came up and bit them. I would be sympathetic to those very small organisations where meeting the next month's rent is the goal, but is there any excuse for any of the larger firms? Far too often, they have a bargain hunting mentality and they immediately give up and say we can't afford him/her. Can you say the sirloin you have is good until you've tried the filet mignon? You may find out you don't even have sirloin. Try it, you're allowed to make mistakes...remember no one is counting. Signing David Beckham to your team may not bring championships but has anyone said it wasn't worth it? It's not always goals scored but also intangibles like skill sets, experience, marketing, credibility, leadership, work ethics, increasing the professionalism of your team, raising profile of your organisation, etc. that could take you places your organisation have never been. Unlike Beckham, we are not talking tens of millions here. Very often, the difference between an average trust person and great trust person is a matter of a few thousand US$ per month. I've seen entertainment expenses higher than that. Read the part about American football coach/manager Sean Payton and his recruitment tale here (#2 story): http://sportsillustrated.cnn.com/2009/writers/peter_king/10/04/mmqb.week.4/index.html It appears a mere 25% budget increase in one single salary offer changed the fortunes of the organisation. Now that's a bargain. Forget the personal sacrifice aspect, do you even have such "visionaries" who would suggest such a move doing the hiring for your team? Or did they just come back with someone who came in under budget?
5. You study team sports. I strongly recommend that your HR people and senior personnel decision makers spend a weekend at some offsite facility and "analyze" (not watch but read all the books, and writings of managers of) team sports, like American NFL football or North America NHL ice hockey or NBA basketball, European UEFA football/soccer. These organizations' success depends greatly on the skills of the people they put on the playing field. Aren't we the same? Every year, there are batch of young collegiate graduates/juniors that get drafted onto your team. Don't many of us use new recruits? Every season, there are players that get traded/transferred/poached from one team to another or retire or get released or change positions on the team. Don't we have the same people moves? All these personnel transactions are done within the constraint of team size and team budget. Don't we have headcounts and budgets? There are a limited number of superstars like Kobe Bryant or LeBron James to go around, so how do teams compensate when they don't have a superstar at certain positions? The managers have to be good judge of talent, balance team chemistry as well as produce wins in addition to balancing the books except team managers often get fired for their bad transactions. Look closely at the critiques of the strategies and techniques of team managers that have been successful and also those that have been abysmal. In case you think it's trivial, the sums that a Cristiano Renaldo or Alex Rodriguez command may exceed the payroll of more than a few small banks. The value of Man U or the Dallas Cowboys run close to $2billion, not Citigroup-sized but how many trust businesses are worth $2billion? Sustained success like the New York Yankees organization shows that it can be done and done by having a formula for acquiring and retaining talent, not luck. Finding the formula that's right for your organization is the goal. Lastly, remember no one wants to play for or support a dysfunctional team as they lose more often than they win. Your intermediaries are watching your personnel moves. Your competitors are watching your personnel moves. Your staff and prospective hires are also watching.

Performance Assessment & Staff Evaluations = crock o shit

Allow me to stray from my usual trust ramblings for a minute.

As we near the time where we spend literally several hours on the process of filing Evaluation Forms and reviews and goal setting for each employee, I just have to say: What a waste of time!

I strongly believe in providing feedback and setting goals and targets, etc. I strongly believe that only good people should be rewarded. What I also strongly believe is that the processes we now endure are not achieving the goal it was supposed to. In the end, it comes own to a very simple question: Did you do your job? The larger the organization it seems, the more ludicrous the forms and convoluted the process. To paraphrase, the system is a mere shadow of what it was intended to represent, sometimes distorted beyond recognition.

Instead of hours of paperwork, how about a face-to-face with supervisors, underlings, internal and external customers/vendors and peers? A 360degree summary would surely tell us more than the stack of literally worthless paper we are generating wouldn't it? And for those that foolishly rely on numbers (such as revenue targets, etc), numbers can tell you anything you want, including and excluding the truth.

We, in the trustee industry, are in the business of providing a service (which may come to a surprise to our banker friends that far-too-often consider trusts to be a product). Sales figures do not reflect whether it was good service. Consider the scenario of a young OL going into Louis Vuitton. She will walk out with a handbag. Was it because of the brand? Was it the design of the bag? Was it the sales staff? Was it the price? Numbers don't tell you what you need to know in staff evaluations because whether the customer was happy with the staff (regardless of whether a sale was made) should have been the paramount evaluation criterion. If someone choses Chanel or Ferragamo instead, was it your sales staff at fault or your product people? Was it your marketing people?

An interview with interested parties would get you closer to the truth and how to manage your organization and people better. You may have the best trust team and not know it because other factors drove customers away. You may have the worst trust team but get away with it because you have the strongest brand or cheapest pricing. For those who do have the organization's long term interests at heart, knowing why you are successful and knowing why you have failed is just as important as the result. Are you in the trust business or dumb luck business?

Alas, we tend to give out promotions and bonuses based on good numbers and not good service. We tend to chastise and punish for bad numbers. I had a team once that went overboard on hours spent and were red flagged to my attention. A cursory view was they were simply inefficient and mismanaging resources, in other words: doing a bad job. A deeper investigation turned out that the problem was much worse in that they were understating time costs in order to look better. Where was the time going? It was picking up the slack for a loss of a senior team member, spent training up a junior replacement and getting the run around from another user who had made a rather ridiculous demand for data which require manual adjustments to the standard computer generated reports. So whose to blame? The supervisor who let the senior staff go? The same supervisor who hired an inadequate replacement? The supervisor that allowed inter-department intrusions? The other department head? The team itself? With facts and details, you can decide. With a simple bad number, you have no idea.

Oh well....back to the forms.