If you're American or serve Americans, then we have just started another "Amazing Race".
"The" Amazing Race is a popular reality TV program where a couple form a team to race against time and other teams by accomplishing a multitude of tasks around the world. There was a Asian version too. At its best, it is a slice of the Discovery Channel and a testament to team work. At its worst, it was stereotypical of foreign cultures and showed the ugliness of human behaviour fueled by greed (prize money).
Well our new race, is a race by teams formed by American tax evaders, Americans investing/living abroad, foreign banks and institutions (which could lump in everything from private equity, funds, pensions or insurers), foreign investors of US securities and a slew of lawyers, accountants, compliance people and advisers. These teams will all go nuts either trying to comply or trying to avoid the raft of new measures designed to uncover all the financial activities of Americans outside the US.
The acronyms HIRE (Hiring Incentives to Restore Employment Act) and FATCA (Foreign Account Tax Compliance Act) will slowly but surely creep into the minds of anyone who has anything to do with American clients or US capital markets.
The US already has many rules designed to get American taxpayers to report what they own and earn overseas (so the IRS can tax it) but since Americans like cheating on their taxes so much they haven't exactly complied. Since attacking the demand side wasn't working, the US, rather ingeniously, started attacking the supply side: those who provide banking and other financial services to Americans. Whether it be QI or TIAS or the new rules, the US has created a greater onus on foreign (governments and) institutions to report or allow the US to get into their records to ferret out Americans. So the US has effectively turned many foreign bank/financial institution into being snitches or face heavier taxes on their dealings with the US or be barred from the US market entirely.
For Americans, it means it will be a lot tougher hiding. Even if you weren't hiding, as many Americans living and working overseas have or will find out, your name will appear on the sweep lists and possibly red-flagged for audit. You will looked upon as an on-boarding risk, perhaps shunned or made to make a series of degrading declarations before you're accepted as a client. There will be those designing and selling you structures/solutions. Some will be on the cutting-edge of regulation/law. Some will be grey and some will be down right fraud. Some will be end up costing you more than you had. Some will allow you to enjoy the fruits of your deceit on some Thai beach when you retire. Most will be complicated and expensive. Obviously, expatriation remains an option if it means that much to you. For those that like to live dangerously, consider using undocumented human nominees. You are in a race to disappear or turn yourself in.
For non-Americans, it means that your bank will spend millions of dollars in systems, compliance and reporting (and take it out of your pocket later in terms of higher transactional or relationship fees) so you can invest in US securities without punitive withholding taxes or perhaps even allow IRS auditors to review your account to ensure you are not American. I wonder if your home country could access your data in a foreign country collected by the IRS under one of those exchange of information treaties that governments have been swarming to sign? Once you're in the system, who knows who get it. You may be in a race to divest or move to a non-complying bank.
Advocates of chaos will say let's all dump the US stocks together! If done on an institutional basis, the synchronized global selling off of overseas owned US securities would probably be the create a financial meltdown that makes the sub-prime crisis look like a hiccup so that's unlikely. Of course, some will make the withdrawal as Americans and US stocks are not a significant enough part of their business to warrant playing the game.
For others, namely the international banks, this is organised blackmail as billions of fees go down the drain (and to your competitors) if you pull out of the US market so you must play the game and the race is on to comply.
The savvy will see this as an opportunity to design and market non-US securities or "derivative/mirror" investment solutions. So you might as well beef up your Product Development teams ASAP. You are in the race to gain market share.
For lawyers and auditors, there will be huge sums to reap from those deep pocketed financial institutions as they need your services to understand the rules and then attempt to implement and maintain their US-compliant position. You are in the race to get that meal-ticket engagement.
Not serving Americans is easier to do but if Americans are perfectly willing to lie to their government, what makes you think they won't lie to you and tell you they're not American? There will be a host of plans designed and used by Americans to deceive you and the IRS. You are in the race to avoid hefty fines, bad publicity or business censure.
You will be sent on many "wild-goose chases" just to prove your client is really not an American. You need to fully understand what a complex trust is and what a simple trust is. You need to know what W8 Form (or whatever new form) to file. Are you certain that there are no US persons in that broad class of beneficiaries your trust has? Is your trust administrator ready? Is your Compliance/Risk team ready? You are in the race shore up the fences and mend the nets.
For those in risk or compliance, demonstrating a little knowledge about HIRE or FATCA may be the difference between a corner office and the unemployment line. You're in the race to be headhunted.
Let the races begin!
Tuesday, March 30, 2010
Friday, March 26, 2010
Unseen, Be Seen or Obscene?
A few of you have had March 26-28 blocked off in your calender. It is the annual rugby 7's tournament in Hong Kong. More correctly, it is the Cathay Pacific Credit Suisse Hong Kong Sevens.
This raises an interesting debate on corporate sponsorships. If you were retrenched or didn't get a raise/bonus, or were given the mandate to slash another 20% off your expense budget by CS or CX for cost savings, then this event is just adding fuel to the fire of discontent. If you're a patron, then you should know that the millions spent here will be re-couped by fees that you end up paying.
Does a bunch of intoxicated, cross-dressing, painted men and ladies do much for business? Does a marathon bring in business for Standard Chartered Bank? Does a golf tournament help UBS? The answer for those who green-light these sponsorships, the answer is yes. For the rest of the world the answer is maybe.
The obvious, yet very intangible, benefit is exposure. You get your logo and name plastered on everything and often mentioned in every news article. Do you believe the ad companies when they tell you that a good (and expensive) ad campaign will increase inquiries/business by X%?
What often remains out of sight are all the meetings, private parties and re-connections that coincide with these events. Here's where the big payoff usually is. People are calling clients, prospects, business heads and movers & shakers with event ticketing/guest offers (and although you wonder why they couldn't call out of the blue anyway), the guise/lure of tickets often does lead to fruitful discussions. So getting face-to-face time is far more important than a casual observer might think.
Clients in Asia are rather passive. The majority, even those who know they have a need, like or prefer to be approached, wooed and pitched. There's almost a loss of "face" if they call you up. There are usually events where they get to parade their front line staff in front of you, hoping that you will keep a name card or that some chit-chat could blossom into a business relationship. If you're the invitee, then you are a piece of meat. If you are the host, then you are the spider asking the fly to walk into your parlour.
But now we need factor in another consideration when we deal with private wealth, particularly trust/estate/succession planning, which is secrecy. Yes, that nasty word that is becoming cancerous to private banking. Asians are particularly secretive. They don't like their friends, employees, family, spouses or children to know everything. They don't like their advisors or bankers or trustees to know everything. The wealthy are very cognizant to the point of paranoia that it very easy to lose everything (or a lot) if over-exposed. In Asia, a wealthy family may be have had direct experience in everything from war, communist expropriation, coups and revolutions, race crimes, kidnap and ransom, thieving relatives, blackmail syndicates, corrupt governments, dodgy businesses, organised crime to tabloid expo-says. Of course some of your clients are not the victims but the instigators.
Ever wonder why the typical Asian private bank client has 3-6 relationships? I dare say only about 10-15% of the Asian cases I work on are totally transparent. In the others, there are usually instructions or wishes that certain parties be kept in the dark about the trust or its terms until it becomes relevant. This could be everyone from their own lawyers, to their accountant, to their bankers to trust beneficiaries. People simply do not want you to be able to connect-the-dots. It usually not until estate administration that things start coming to the surface, if they ever do.
Not all secrecy is "bad". There was a extremely nice housewife I once worked with who inherited a small fortune from her husband. [It brings back sweet memories of her youngest daughter, about 3 at the time, bringing in crayons and drawing on trust documents while we adults talked business]. She had secretly set up trusts for her young children for no other reason than to be able to live a rather middle-class life where she could instill the value of a good education and hard work upon her kids. Her greatest fear was producing an aimless, spendthrift trust fund kid a la Paris Hilton.
Some view us trustees (and private bankers) as people that should be heard but not seen, kept hidden away like some mistress that no one knows about. How many of our clients refuse to come into the office or request we meet in their homes or in some hotel room (and not lobby or restaurant)? Do we turn up at these corporate functions? Do we shake their hand and pose with them for the photographer from the Asia Tatler? Sometimes the reception is cordial, sometimes inquisitive, sometimes you get the cold shoulder and sometimes you are avoided like a STD/VD doctor.
So do these corporate events help the wealth business? I think the direct impact is minor. At best you get them to open a crack in the door. What you do with that little opening is anyone's guess. Some turn it into a major business opportunity, others let it close.
Excuse me.....time to go put on my make-up and Marilyn Monroe dress.
This raises an interesting debate on corporate sponsorships. If you were retrenched or didn't get a raise/bonus, or were given the mandate to slash another 20% off your expense budget by CS or CX for cost savings, then this event is just adding fuel to the fire of discontent. If you're a patron, then you should know that the millions spent here will be re-couped by fees that you end up paying.
Does a bunch of intoxicated, cross-dressing, painted men and ladies do much for business? Does a marathon bring in business for Standard Chartered Bank? Does a golf tournament help UBS? The answer for those who green-light these sponsorships, the answer is yes. For the rest of the world the answer is maybe.
The obvious, yet very intangible, benefit is exposure. You get your logo and name plastered on everything and often mentioned in every news article. Do you believe the ad companies when they tell you that a good (and expensive) ad campaign will increase inquiries/business by X%?
What often remains out of sight are all the meetings, private parties and re-connections that coincide with these events. Here's where the big payoff usually is. People are calling clients, prospects, business heads and movers & shakers with event ticketing/guest offers (and although you wonder why they couldn't call out of the blue anyway), the guise/lure of tickets often does lead to fruitful discussions. So getting face-to-face time is far more important than a casual observer might think.
Clients in Asia are rather passive. The majority, even those who know they have a need, like or prefer to be approached, wooed and pitched. There's almost a loss of "face" if they call you up. There are usually events where they get to parade their front line staff in front of you, hoping that you will keep a name card or that some chit-chat could blossom into a business relationship. If you're the invitee, then you are a piece of meat. If you are the host, then you are the spider asking the fly to walk into your parlour.
But now we need factor in another consideration when we deal with private wealth, particularly trust/estate/succession planning, which is secrecy. Yes, that nasty word that is becoming cancerous to private banking. Asians are particularly secretive. They don't like their friends, employees, family, spouses or children to know everything. They don't like their advisors or bankers or trustees to know everything. The wealthy are very cognizant to the point of paranoia that it very easy to lose everything (or a lot) if over-exposed. In Asia, a wealthy family may be have had direct experience in everything from war, communist expropriation, coups and revolutions, race crimes, kidnap and ransom, thieving relatives, blackmail syndicates, corrupt governments, dodgy businesses, organised crime to tabloid expo-says. Of course some of your clients are not the victims but the instigators.
Ever wonder why the typical Asian private bank client has 3-6 relationships? I dare say only about 10-15% of the Asian cases I work on are totally transparent. In the others, there are usually instructions or wishes that certain parties be kept in the dark about the trust or its terms until it becomes relevant. This could be everyone from their own lawyers, to their accountant, to their bankers to trust beneficiaries. People simply do not want you to be able to connect-the-dots. It usually not until estate administration that things start coming to the surface, if they ever do.
Not all secrecy is "bad". There was a extremely nice housewife I once worked with who inherited a small fortune from her husband. [It brings back sweet memories of her youngest daughter, about 3 at the time, bringing in crayons and drawing on trust documents while we adults talked business]. She had secretly set up trusts for her young children for no other reason than to be able to live a rather middle-class life where she could instill the value of a good education and hard work upon her kids. Her greatest fear was producing an aimless, spendthrift trust fund kid a la Paris Hilton.
Some view us trustees (and private bankers) as people that should be heard but not seen, kept hidden away like some mistress that no one knows about. How many of our clients refuse to come into the office or request we meet in their homes or in some hotel room (and not lobby or restaurant)? Do we turn up at these corporate functions? Do we shake their hand and pose with them for the photographer from the Asia Tatler? Sometimes the reception is cordial, sometimes inquisitive, sometimes you get the cold shoulder and sometimes you are avoided like a STD/VD doctor.
So do these corporate events help the wealth business? I think the direct impact is minor. At best you get them to open a crack in the door. What you do with that little opening is anyone's guess. Some turn it into a major business opportunity, others let it close.
Excuse me.....time to go put on my make-up and Marilyn Monroe dress.
Tuesday, March 16, 2010
Bourne International, Saving Private Banker or Debt of Dis-Honor or The Tax Return or Paycheck II?
If HSBC's Swiss Private Bank wasn't already in enough hot water over its stolen client data, the thief has more tales to tell: http://www.wealth-bulletin.com/wealth-business/content/4058543984/
Hervé now claims international espionage and intrigue. We have the Mossad, we have the Lebanese Hezbollah.
Geez, we need Matt Damon as Jason Bourne who's now assigned to go behind enemy lines and rescue Hervé and bring him to safety in France....Saving Private Hervé (OK he wasn't really a PB but that's literary license). We could also have Harrison Ford as Jack Ryan who analyzes Hervé's CD of data and uncovers a plot by the TARP-rescued, re-branded International Bank of Business and Credit (IBBC) to start (and of course provide financing at 300bps for) a world war. Let's get Clive Owen to reprise his Louis Salinger role to take down the scoundrels at IBBC. How about Tom Cruise as a Grisham-ish tax attorney helping his client re-file his tax return within the amnesty deadline in light of the disclosure of his undeclared IBBC bank account? Maybe throw in Ben Affleck as a reverse engineer who has built IBBC's client data encryption software all but now only has clues to help him remember. No movie is complete without George Clooney so he's Michael Clayton, with a new law firm representing IBBC in their legal fight against the IRS.
Life is indeed stranger than fiction.
Hervé now claims international espionage and intrigue. We have the Mossad, we have the Lebanese Hezbollah.
Geez, we need Matt Damon as Jason Bourne who's now assigned to go behind enemy lines and rescue Hervé and bring him to safety in France....Saving Private Hervé (OK he wasn't really a PB but that's literary license). We could also have Harrison Ford as Jack Ryan who analyzes Hervé's CD of data and uncovers a plot by the TARP-rescued, re-branded International Bank of Business and Credit (IBBC) to start (and of course provide financing at 300bps for) a world war. Let's get Clive Owen to reprise his Louis Salinger role to take down the scoundrels at IBBC. How about Tom Cruise as a Grisham-ish tax attorney helping his client re-file his tax return within the amnesty deadline in light of the disclosure of his undeclared IBBC bank account? Maybe throw in Ben Affleck as a reverse engineer who has built IBBC's client data encryption software all but now only has clues to help him remember. No movie is complete without George Clooney so he's Michael Clayton, with a new law firm representing IBBC in their legal fight against the IRS.
Life is indeed stranger than fiction.
UBS Trust CEO For Hire
Pointless but I think it's kinda of funny...
Either someone is playing a joke on old Raymond or he's a little careless (or there are issues): http://sg.linkedin.com/pub/raymond-gwee/19/384/198
What kind of Head puts: "Interested In: career opportunities" on their LinkedIn page??
Shouldn't that be interested in "retirement" opportunities Ray? For those not in the Singapore trust arena, Raymond has done a lot for the industry and deserves nothing but the grandest of retirement parties that UBS can throw when he does eventually retire.
Have you searched for your employees on LinkedIn? Are they interested in career opportunities and uploaded their CV for the world to see? Looking for staff? In many places, such open flirtation with the enemy is frowned upon. However, in Singapore, recruiting is a rather open affair. In fact, large companies should have a room blocked, like a smoking area, so their employees can meet with headhunters and recruiters so not have them call in sick or disappear for hours on end. They are typing their CVs and calling agents on company time anyway, so why not make it easy for those who want to leave and make it easier for those who to join? Have open-house days once a month, where interested prospects can come in and meet with your hiring managers like university and college recruiters. Why waste time with ads and agencies and just cut to the chase. Instead of all this stop-and-go, hide-and-seek business, let's just play musical chairs out in the open. No use pretending the game doesn't exists just because it's done outside the office.
Either someone is playing a joke on old Raymond or he's a little careless (or there are issues): http://sg.linkedin.com/pub/raymond-gwee/19/384/198
What kind of Head puts: "Interested In: career opportunities" on their LinkedIn page??
Shouldn't that be interested in "retirement" opportunities Ray? For those not in the Singapore trust arena, Raymond has done a lot for the industry and deserves nothing but the grandest of retirement parties that UBS can throw when he does eventually retire.
Have you searched for your employees on LinkedIn? Are they interested in career opportunities and uploaded their CV for the world to see? Looking for staff? In many places, such open flirtation with the enemy is frowned upon. However, in Singapore, recruiting is a rather open affair. In fact, large companies should have a room blocked, like a smoking area, so their employees can meet with headhunters and recruiters so not have them call in sick or disappear for hours on end. They are typing their CVs and calling agents on company time anyway, so why not make it easy for those who want to leave and make it easier for those who to join? Have open-house days once a month, where interested prospects can come in and meet with your hiring managers like university and college recruiters. Why waste time with ads and agencies and just cut to the chase. Instead of all this stop-and-go, hide-and-seek business, let's just play musical chairs out in the open. No use pretending the game doesn't exists just because it's done outside the office.
Friday, March 12, 2010
Gold Mountain
The Chinese use a term: "gold mountain" to describe a place where people go to make it rich before returning to their village.
It used to be that the Chinese had to venture abroad to find a gold mountain, now it looks like the gold mountain, at least in the financial world, is Shanghai. Check out the 7th Global Financial Centres Index: http://www.cityoflondon.gov.uk/Corporation/LGNL_Services/Business/Business_support_and_advice/Economic_information_and_analysis/Research_publications/
Shanghai is one of those very interesting cities in the world. An eclectic blend of ancient China, 19th century Europe, art deco 1940s, communist bland, communist extravagance, modern glass and steel towers with tasteless/spooky neon lighting that the Chinese love in their night skylines and daring architecture (think Beijing Olympic buildings). You now have new BMWs next to the 1970s Volkswagen Foxes. Modern art galleries next to Chinese erhu shops. Although Shanghai ranks below Shenzhen, the former is the platform to the West and the latter is the internal financial engine as I see it. Once known as the Paris of the orient, Shanghai is becoming the New York of the orient as far as finances go.
While still behind overall Asian leaders Hong Kong and Singapore, look at "Table 9
Centres Where New Offices will be Opened" to see where the future lies and Shanghai tops the list, followed by Hong Kong. Singapore sits 5th but with only half the number that Hong Kong has.
Among the things that surprise me is the ascension/strength of other PRC cities like Shenzhen and Beijing. Coupled with the expansion of Seoul, as I noted in my blog about the future of Singapore, the world of finances in the near future is North Asia.
It's hard to characterize mainland Chinese business people. It's a blend of high technical competence, brute force, corruption, stubbornness, under-handedness, ingenuity, hard work, perseverance, pettiness and hunger. They may dress in Armani and adorn themselves with Louis Vuitton then squat on the street. They may not speak a word in a meeting then spout out facts and figures like android with a 1TB hard drive of memory. They may haggle over a dollar then overpay in some other area. They go silent for days then send 10 people over to ask you a thousand questions. They drink like a fish then put in 20 hours in the office. They give you a limp hand shake then slap you in the back hard enough to almost bowl you over. Whatever it is, it seems to be working. Embrace it or you will be left behind. Under-estimate them and you will be rolled over by them.
It used to be that the Chinese had to venture abroad to find a gold mountain, now it looks like the gold mountain, at least in the financial world, is Shanghai. Check out the 7th Global Financial Centres Index: http://www.cityoflondon.gov.uk/Corporation/LGNL_Services/Business/Business_support_and_advice/Economic_information_and_analysis/Research_publications/
Shanghai is one of those very interesting cities in the world. An eclectic blend of ancient China, 19th century Europe, art deco 1940s, communist bland, communist extravagance, modern glass and steel towers with tasteless/spooky neon lighting that the Chinese love in their night skylines and daring architecture (think Beijing Olympic buildings). You now have new BMWs next to the 1970s Volkswagen Foxes. Modern art galleries next to Chinese erhu shops. Although Shanghai ranks below Shenzhen, the former is the platform to the West and the latter is the internal financial engine as I see it. Once known as the Paris of the orient, Shanghai is becoming the New York of the orient as far as finances go.
While still behind overall Asian leaders Hong Kong and Singapore, look at "Table 9
Centres Where New Offices will be Opened" to see where the future lies and Shanghai tops the list, followed by Hong Kong. Singapore sits 5th but with only half the number that Hong Kong has.
Among the things that surprise me is the ascension/strength of other PRC cities like Shenzhen and Beijing. Coupled with the expansion of Seoul, as I noted in my blog about the future of Singapore, the world of finances in the near future is North Asia.
It's hard to characterize mainland Chinese business people. It's a blend of high technical competence, brute force, corruption, stubbornness, under-handedness, ingenuity, hard work, perseverance, pettiness and hunger. They may dress in Armani and adorn themselves with Louis Vuitton then squat on the street. They may not speak a word in a meeting then spout out facts and figures like android with a 1TB hard drive of memory. They may haggle over a dollar then overpay in some other area. They go silent for days then send 10 people over to ask you a thousand questions. They drink like a fish then put in 20 hours in the office. They give you a limp hand shake then slap you in the back hard enough to almost bowl you over. Whatever it is, it seems to be working. Embrace it or you will be left behind. Under-estimate them and you will be rolled over by them.
Wednesday, March 10, 2010
Giving "Wealth" a Bad Name
Anyone that has something to do with money and finances is now a Wealth Planner or Wealth Manager/Advisor. In the last installment I plan on doing about players in the trust industry are these "wealth" people.
Trust people were traditionally very weak in finances and investments. Only in the last 30years or so have trustee investment laws evolved to account for the ever changing investment market. Before, trustees were limited to "safe, low risk" investments so investment performance and ability wasn't a big a weakness as it is today. Jurisdictions like Hong Kong are still in the dark ages when it comes to trustee investment laws. Trust people traditionally built the structure to house the investments but now the investment people run it.
So who are these investment people? Now with the financial advisers, it gets a little messy. Like gold-diggers are attracted to old men with heart conditions, this mish-mash of IFAs, independent stock brokers, wealth managers, retirement advisers, financial planners/consultants, financing and forex traders are springing up all over the place trying to capture a piece of the lucrative market. They can be small and local or large and international. They can be ex-Lehman Brothers, they can be fresh grads. Some have even opened up restricted banks. All of them seem to offer advice on wealth protection, succession, estate/probate and will planning and trusts. Now you say that's no different than some of the retail trustee banks and independent trustees out there. True to a certain degree, but the difference is those organisations actually have trust companies and trust licenses and typically end up with the trust. These advisers only yap from the sidelines, they have no trust companies. Their goal is to manage your money, sell you those unit trusts, put you in some product. They couldn't care less about the whats or hows as long as they are the investment manager of the funds.
For those who know they know a little and refer their clients to a trust adviser are commendable (even though they may get a referral commission). I have no problems with those.
Although I wish it was an urban myth, I have seen FAs and WMs that have trust application forms in hand. To speed up the process, they are essentially representing some trust company that they are aligned with and have the audacity to fill out the forms and complete the trust documentation themselves and of course, appoint themselves as the trust's investment adviser/manager. The trustee never meets the settlor and everything is sent back and forth by the FA/WM. If that doesn't scare you then nothing will.
The ones I do have a problem with are those that try to plan trusts (or even estate or tax planning). Here is where a little knowledge is a very dangerous thing. They are regulated as far as investment and their insurance sales but when it comes to trusts, these are by far the scariest advisers (if you can call them that) I have ever encountered. Some of the most incorrect, misleading and incompetent trust advice and planning have come from this bunch. If you believe they are good for something fine, just don't let them advise on trusts. If you need to work with them, tell them to shut and let you do the talking. These guys make private bankers look respectable. Wait a minute, some of them are ex-private bankers! Some of them weren't good enough to even get a private banking job. Harsh words and a disservice to those that try hard and do well for their clients but prove me wrong. If they have good trust people, I haven't seen them. You really need to do due diligence on their people before signing up with them. Have any of them worked in a trust company before? Are any former probate lawyers?
Just to be fair, I know about a half a dozen former Head of Private Banking or Director Trust and Fiduciary Services out there in their own financial advisory firms in Asia. If they are your financial adviser than I say you're one of the lucky ones and that if they have trust advice then it is probably very good. Unfortunately, that's only 6 out of the hundreds of FA firms out there.
In case it appears I am undecided, then I make it simple: avoid these types of trust advisers. They spew out catch-phrases and buzz words but know little of the implications. They prey on the unsophisticated (and many with wealth in Asia are unsophisticated, simple hard-working entrepreneurs. Just look at Li Ka-Shing, one of the wealthiest men in the world and he is as educated as your typical country pumpkin. That's not saying he isn't smart, he's just not sophisticated). They abuse their position of trust by "pretending" to be all-round competent advisers.
They are selling aspirin as a cure without any medical training or knowledge. Aspirin may offer some relief but it doesn't cure a lot. Aspirin can kill too.
Trust people were traditionally very weak in finances and investments. Only in the last 30years or so have trustee investment laws evolved to account for the ever changing investment market. Before, trustees were limited to "safe, low risk" investments so investment performance and ability wasn't a big a weakness as it is today. Jurisdictions like Hong Kong are still in the dark ages when it comes to trustee investment laws. Trust people traditionally built the structure to house the investments but now the investment people run it.
So who are these investment people? Now with the financial advisers, it gets a little messy. Like gold-diggers are attracted to old men with heart conditions, this mish-mash of IFAs, independent stock brokers, wealth managers, retirement advisers, financial planners/consultants, financing and forex traders are springing up all over the place trying to capture a piece of the lucrative market. They can be small and local or large and international. They can be ex-Lehman Brothers, they can be fresh grads. Some have even opened up restricted banks. All of them seem to offer advice on wealth protection, succession, estate/probate and will planning and trusts. Now you say that's no different than some of the retail trustee banks and independent trustees out there. True to a certain degree, but the difference is those organisations actually have trust companies and trust licenses and typically end up with the trust. These advisers only yap from the sidelines, they have no trust companies. Their goal is to manage your money, sell you those unit trusts, put you in some product. They couldn't care less about the whats or hows as long as they are the investment manager of the funds.
For those who know they know a little and refer their clients to a trust adviser are commendable (even though they may get a referral commission). I have no problems with those.
Although I wish it was an urban myth, I have seen FAs and WMs that have trust application forms in hand. To speed up the process, they are essentially representing some trust company that they are aligned with and have the audacity to fill out the forms and complete the trust documentation themselves and of course, appoint themselves as the trust's investment adviser/manager. The trustee never meets the settlor and everything is sent back and forth by the FA/WM. If that doesn't scare you then nothing will.
The ones I do have a problem with are those that try to plan trusts (or even estate or tax planning). Here is where a little knowledge is a very dangerous thing. They are regulated as far as investment and their insurance sales but when it comes to trusts, these are by far the scariest advisers (if you can call them that) I have ever encountered. Some of the most incorrect, misleading and incompetent trust advice and planning have come from this bunch. If you believe they are good for something fine, just don't let them advise on trusts. If you need to work with them, tell them to shut and let you do the talking. These guys make private bankers look respectable. Wait a minute, some of them are ex-private bankers! Some of them weren't good enough to even get a private banking job. Harsh words and a disservice to those that try hard and do well for their clients but prove me wrong. If they have good trust people, I haven't seen them. You really need to do due diligence on their people before signing up with them. Have any of them worked in a trust company before? Are any former probate lawyers?
Just to be fair, I know about a half a dozen former Head of Private Banking or Director Trust and Fiduciary Services out there in their own financial advisory firms in Asia. If they are your financial adviser than I say you're one of the lucky ones and that if they have trust advice then it is probably very good. Unfortunately, that's only 6 out of the hundreds of FA firms out there.
In case it appears I am undecided, then I make it simple: avoid these types of trust advisers. They spew out catch-phrases and buzz words but know little of the implications. They prey on the unsophisticated (and many with wealth in Asia are unsophisticated, simple hard-working entrepreneurs. Just look at Li Ka-Shing, one of the wealthiest men in the world and he is as educated as your typical country pumpkin. That's not saying he isn't smart, he's just not sophisticated). They abuse their position of trust by "pretending" to be all-round competent advisers.
They are selling aspirin as a cure without any medical training or knowledge. Aspirin may offer some relief but it doesn't cure a lot. Aspirin can kill too.
Tuesday, March 9, 2010
Insurers, Pension Companies and Fund Houses as Trust Providers?
This is the 4th installment on the various people in the marketplace vying for your trust business. (Go back and look for write ups on lawyers, accountants & company secretaries, banks and independent trustees). This part focuses on insurers, insurance agents/brokers and pension/retirement scheme providers an Fund/Asset Managers.
For pension providers, they are already trustees. However, the trusteeship of pensions or employee benefit schemes is slightly different than personal trusts. Pensions usually have restricted asset classes and investments and very large number of silent beneficiaries. Private trust, typically have a much wider range of assets from bankables to real estate including homes, private operating/holding companies, art and jewelry and sometimes aircraft and yachts. Pension trust administration is highly regulated (at least onshore it is) more transactional and valuation oriented than dealing with tax, succession and other family issues. Taxation of pension benefits is usually straight forward. Taxation of private trust income and distributions is usually anything but straight forward. Pension distributions, additions and removals are very mechanical as pension vesting is usually quite contractual and non-discretionary. Almost everything with private trusts is discretionary. Just like trustees of mutual funds/unit trusts, asset securitization trusts, REITs, etc., the general trust theory is there. In practice there is little similarity with personal trusts. Hang gliding and powered flight are 2 different things despite same aeronautical principles. However, the background and infrastructure of large pension and corporate trustee providers make them well suited to leap into private trusts and some do. I would say you can get sound service and advice but I would say you are likely to get better service and better advice from those who do private trusts as a main business and not those who do it as a side business. Why ask Land Rover to build you a sports car when Ferrari specialises in them? I have no doubt if you have the money that Land Rover would entertain you and do a reasonably good job but is it worth the time and trouble?
Beware of those that try to use pensions as a tax planning tool. There is a lot of interesting (and questionable) planning that involves thinly disguised pension schemes as tax-mitigating investment holding vehicles. If it doesn't fly onshore, meaning it must be set up outside your country of residence, then you may want to avoid the risk.
For insurers, trust business used to pretty much mean pensions. Some of the large insurers had pension trust businesses for many years. So they had an infrastructure. They saw that personal life insurance and K&R insurance playing a big part in Asian (and international) wealth planning. They now had a workforce that was accustomed to dealing with the HNWI. It shouldn't be a big surprise that the insurers want a bigger slice of the wealth pie.
Some people expressed shock that insurers like AIG were caught up in the GEC. Well it shouldn't, insurers are some of the biggest gamblers, ah...investors in market. They want money to play with. It is a more recent phenomenon that the insurers had ventured into private wealth management and some have even ventured into private banking and portfolio management. Now we are seeing many of them attempt personal trust services. All because they want more money to play with.
Some insurers have business partnerships with external trust companies to provide trust services. In general, I have nothing against a referral program and these insurers as they aren't "selling" or planning the trust part.
Unfortunately, some go about all by themselves. My limited experience with these insurer trust companies is that I haven't come across any trust heavy-weights yet, just surprisingly well trained brochure-spewing Ken and Barbie dolls. They don't know the real answer, they just know where to find the relevant Q&A section in the brochure/sales manual. I have seen their glossy brochures and 3-page trust deeds. I would bet they have had high-priced external help in setting up documentation and procedure manuals. I would bet that they can offer a highly efficient operation. A simple, template product for mass market distribution. A simple trust, with little or no administration during its duration with a simple distribution at the end. Doesn't take much skill. Doesn't offer much benefit. You don't take on much fiduciary risk. It doesn't cost much to roll out. It's small unit revenue, nice easy revenue if you can build up a mass. A 10-20% penetration rate into your existing client base and your a rich man.
In many ways, they are like the retail/consumer banks, selling a trust for succession over a bank account and probate avoidance. What is going on is they are taking certain features of a trust for the purpose enhancing the appeal of their insurance product. You get a so-called "insurance trust" which is a trust purely for holding insurance policy. One-trick pony. This is like buying one of those strange kitchen utensils you find on late night TV paid advertisements. You have some specialist tool just for peeling oranges. Cool! Only $2.99, great! But do you really need it? Is there real value added? You could do a lot more with a (little more expensive and useful) stainless steel paring knife. In life, things are complex and inter-related. An insurance trust may be satisfactory if all your interested in is that insurance policy. What about your other insurance policies? Will your insurer-trustee let you put those in their trust too? I doubt it? What about your other valuables? Nope...only our insurance policies please. Are you even dealing with a "regulated" insurance policy?? If the insurance company is selling you a policy, that policy has to be approved by some government agency as being suitable for the local market (even if the policy is written under a foreign law like Bermuda or Ireland). With many of these "wealth planning" insurance products, they are not approved by the regulators. They are often "private placement" products which due to their monetary value, risk or sophistication, are not suitable for the general public but can only be sold to sophisticated investors/parties or outside your country. Guess who is usually considered a sophisticated investor? Guess who is often set up outside your country of residence? The trustee of your trust silly. See how nicely they have manage to circumvent....eh navigate, past local regulations and also pad their profit? Instead of letting the tail wag the dog, go to a good trust adviser and see if there's a better solution.
The problem is you now have a force of several hundred unqualified agents out there mass marketing trusts. There are bound to be some mis-selling, errors in form, screening of clients, etc.. Fortunately, they for the most part are just creating simple, essentially bare trusts, to hold their insurance policies and little else. I would be a much more apprehensive if they started venturing into true irrevocable discretionary trusts with assets other than an insurance policy. Still, there are many issues with trust administration that even bare trustees need to get right and I don't know whether the insurer trust administrators are up to the task.
Unfortunately for you, that simple trust may also ruin the chance your beneficiaries of getting all the proceeds. You may be put in worse position by having the trust than not. Adding a layer to the distribution of insurance proceeds, which is what these trusts do, has consequences. Some rules surrounding the legal and tax attributes of personal life insurance no longer apply or change if the policy is held by a trust. Did you take tax or legal advice? God no.....the adviser would have cost more than the $500 trust itself. Do you know what bearing divesting (if indeed you even did divest) part of your wealth has in relation to your spouse, heirs or creditors? Maybe you should. You have a trust that is not suited for tax planning. Fine, you say, I didn't need tax planning.....what they don't tell you is sometimes tax creeps up on you. If you are someone with "pre-existing condition" like foreign residency or citizenship/domicile/marriage, or your intended beneficiaries do, take advice. If you would like to achieve more than a redirected distribution of insurance proceeds, seek advice. How does this trust affect the rest of your wealth and estate planning? Seek advice.
Bear in mind that there are some specialist brokers/insurers out there, catering to the insurance needs of the HNWIs and UHNWIs that have become very well versed in using trusts in conjunction with insurance. These are usually the ones on the front line with respect to million dollar Universal Life policies, tax planning/compliant policies for the HWI and UHWI. I'm not talking about them as they usually do not provide trust services nor advisory. But they may try to get you to sign up for a trust. They do so from experience in working with the tax and trust lawyers/accountants. Some of them were tax and trust people. If they have general advice, usually you should take it and go with them to see a trust adviser.
The last group are what I refer to as Fund Houses and Asset Managers, traditionally serving institutional clients. These days it's hard to classify what the big financial houses do. For instance, most of them like say State Street Bank & Trust mainly serves institutional clients but they have a private wealth division. Some of them serve their key private clients and offer private trust services. The main distinction, if any, is these are usually a very big clients, US$10M or more in funds that they put a personal trust on top of. Admittedly I have only seen a few of their trusts but from what I've seen, they are competent and utilise top-notch external counsel. If you're big enough to be dealing with these players then you can afford your own trust counsel and so there's nothing I can add. Just beware of the smaller players getting into the market.
For pension providers, they are already trustees. However, the trusteeship of pensions or employee benefit schemes is slightly different than personal trusts. Pensions usually have restricted asset classes and investments and very large number of silent beneficiaries. Private trust, typically have a much wider range of assets from bankables to real estate including homes, private operating/holding companies, art and jewelry and sometimes aircraft and yachts. Pension trust administration is highly regulated (at least onshore it is) more transactional and valuation oriented than dealing with tax, succession and other family issues. Taxation of pension benefits is usually straight forward. Taxation of private trust income and distributions is usually anything but straight forward. Pension distributions, additions and removals are very mechanical as pension vesting is usually quite contractual and non-discretionary. Almost everything with private trusts is discretionary. Just like trustees of mutual funds/unit trusts, asset securitization trusts, REITs, etc., the general trust theory is there. In practice there is little similarity with personal trusts. Hang gliding and powered flight are 2 different things despite same aeronautical principles. However, the background and infrastructure of large pension and corporate trustee providers make them well suited to leap into private trusts and some do. I would say you can get sound service and advice but I would say you are likely to get better service and better advice from those who do private trusts as a main business and not those who do it as a side business. Why ask Land Rover to build you a sports car when Ferrari specialises in them? I have no doubt if you have the money that Land Rover would entertain you and do a reasonably good job but is it worth the time and trouble?
Beware of those that try to use pensions as a tax planning tool. There is a lot of interesting (and questionable) planning that involves thinly disguised pension schemes as tax-mitigating investment holding vehicles. If it doesn't fly onshore, meaning it must be set up outside your country of residence, then you may want to avoid the risk.
For insurers, trust business used to pretty much mean pensions. Some of the large insurers had pension trust businesses for many years. So they had an infrastructure. They saw that personal life insurance and K&R insurance playing a big part in Asian (and international) wealth planning. They now had a workforce that was accustomed to dealing with the HNWI. It shouldn't be a big surprise that the insurers want a bigger slice of the wealth pie.
Some people expressed shock that insurers like AIG were caught up in the GEC. Well it shouldn't, insurers are some of the biggest gamblers, ah...investors in market. They want money to play with. It is a more recent phenomenon that the insurers had ventured into private wealth management and some have even ventured into private banking and portfolio management. Now we are seeing many of them attempt personal trust services. All because they want more money to play with.
Some insurers have business partnerships with external trust companies to provide trust services. In general, I have nothing against a referral program and these insurers as they aren't "selling" or planning the trust part.
Unfortunately, some go about all by themselves. My limited experience with these insurer trust companies is that I haven't come across any trust heavy-weights yet, just surprisingly well trained brochure-spewing Ken and Barbie dolls. They don't know the real answer, they just know where to find the relevant Q&A section in the brochure/sales manual. I have seen their glossy brochures and 3-page trust deeds. I would bet they have had high-priced external help in setting up documentation and procedure manuals. I would bet that they can offer a highly efficient operation. A simple, template product for mass market distribution. A simple trust, with little or no administration during its duration with a simple distribution at the end. Doesn't take much skill. Doesn't offer much benefit. You don't take on much fiduciary risk. It doesn't cost much to roll out. It's small unit revenue, nice easy revenue if you can build up a mass. A 10-20% penetration rate into your existing client base and your a rich man.
In many ways, they are like the retail/consumer banks, selling a trust for succession over a bank account and probate avoidance. What is going on is they are taking certain features of a trust for the purpose enhancing the appeal of their insurance product. You get a so-called "insurance trust" which is a trust purely for holding insurance policy. One-trick pony. This is like buying one of those strange kitchen utensils you find on late night TV paid advertisements. You have some specialist tool just for peeling oranges. Cool! Only $2.99, great! But do you really need it? Is there real value added? You could do a lot more with a (little more expensive and useful) stainless steel paring knife. In life, things are complex and inter-related. An insurance trust may be satisfactory if all your interested in is that insurance policy. What about your other insurance policies? Will your insurer-trustee let you put those in their trust too? I doubt it? What about your other valuables? Nope...only our insurance policies please. Are you even dealing with a "regulated" insurance policy?? If the insurance company is selling you a policy, that policy has to be approved by some government agency as being suitable for the local market (even if the policy is written under a foreign law like Bermuda or Ireland). With many of these "wealth planning" insurance products, they are not approved by the regulators. They are often "private placement" products which due to their monetary value, risk or sophistication, are not suitable for the general public but can only be sold to sophisticated investors/parties or outside your country. Guess who is usually considered a sophisticated investor? Guess who is often set up outside your country of residence? The trustee of your trust silly. See how nicely they have manage to circumvent....eh navigate, past local regulations and also pad their profit? Instead of letting the tail wag the dog, go to a good trust adviser and see if there's a better solution.
The problem is you now have a force of several hundred unqualified agents out there mass marketing trusts. There are bound to be some mis-selling, errors in form, screening of clients, etc.. Fortunately, they for the most part are just creating simple, essentially bare trusts, to hold their insurance policies and little else. I would be a much more apprehensive if they started venturing into true irrevocable discretionary trusts with assets other than an insurance policy. Still, there are many issues with trust administration that even bare trustees need to get right and I don't know whether the insurer trust administrators are up to the task.
Unfortunately for you, that simple trust may also ruin the chance your beneficiaries of getting all the proceeds. You may be put in worse position by having the trust than not. Adding a layer to the distribution of insurance proceeds, which is what these trusts do, has consequences. Some rules surrounding the legal and tax attributes of personal life insurance no longer apply or change if the policy is held by a trust. Did you take tax or legal advice? God no.....the adviser would have cost more than the $500 trust itself. Do you know what bearing divesting (if indeed you even did divest) part of your wealth has in relation to your spouse, heirs or creditors? Maybe you should. You have a trust that is not suited for tax planning. Fine, you say, I didn't need tax planning.....what they don't tell you is sometimes tax creeps up on you. If you are someone with "pre-existing condition" like foreign residency or citizenship/domicile/marriage, or your intended beneficiaries do, take advice. If you would like to achieve more than a redirected distribution of insurance proceeds, seek advice. How does this trust affect the rest of your wealth and estate planning? Seek advice.
Bear in mind that there are some specialist brokers/insurers out there, catering to the insurance needs of the HNWIs and UHNWIs that have become very well versed in using trusts in conjunction with insurance. These are usually the ones on the front line with respect to million dollar Universal Life policies, tax planning/compliant policies for the HWI and UHWI. I'm not talking about them as they usually do not provide trust services nor advisory. But they may try to get you to sign up for a trust. They do so from experience in working with the tax and trust lawyers/accountants. Some of them were tax and trust people. If they have general advice, usually you should take it and go with them to see a trust adviser.
The last group are what I refer to as Fund Houses and Asset Managers, traditionally serving institutional clients. These days it's hard to classify what the big financial houses do. For instance, most of them like say State Street Bank & Trust mainly serves institutional clients but they have a private wealth division. Some of them serve their key private clients and offer private trust services. The main distinction, if any, is these are usually a very big clients, US$10M or more in funds that they put a personal trust on top of. Admittedly I have only seen a few of their trusts but from what I've seen, they are competent and utilise top-notch external counsel. If you're big enough to be dealing with these players then you can afford your own trust counsel and so there's nothing I can add. Just beware of the smaller players getting into the market.
Monday, March 8, 2010
Malaysia on the White List
There is a building right now.........that is the address for 18,000 corporations. Well that is either the biggest building in the world or the biggest sham in the world, and I think we know which one it is. I will shut down those offshore tax havens and all those corporate loopholes as President, because you shouldn’t have to pay higher taxes because some big corporation cut corners to avoid paying theirs. All of us have a responsibility to pay our fair share. That’s putting country first. - Barack Obama
Well most of us know Barack was talking about.......Delaware. Well he could have been referring to an island close to his old neck of the woods....Labuan.
Despite the "offshore" baggage known as Labuan, Malaysia on now on the OECD "white list" and fair game to park money and structures.
Like some of its Asian tiger neighbours, Malaysia has remained on the cusp of being a player in global finances. As for trusts, on paper, it was every bit a competitive a trust jurisdiction as Singapore or Hong Kong,......thirty years ago that is. English law based, some local jurisprudence, etc. Unfortunately, the competition just soaked up everything and left the place as is thirty years later.
Labuan is another matter. Labuan is a politically and geographically part of Malaysia but isn't when it doesn't want to be. The special economic zone of Malaysia.....quite an advanced concept back in the 90s. It was perhaps the most tax, funds and corporate vehicle advanced and sophisticated place in Asia at one time. At one time, there were perhaps as many international CPA/law firms, trust, funds and corporate providers there to rival the BVI or Caymans in their formative stages. Then "offshore" became a bad word, the tax "planning" got a little overzealous and Labuan's light started to dwindle and never reached the heights that it might have. It very well could have become the Delaware of Asia.....the Channel Islands of the East. Perhaps the Achilles' heel was that there was no "onshore" to support and bolster the offshore component.
Looking forward, there will always be a lucrative Malaysian wealth market to tap but unless there's some factor (ie tax) that drives you into Malaysia or Labuan, there's simply nothing to motivate you to move onto onshore Malaysia. In fact, the strategy will be as it was thirty years ago........pull the money out Malaysia and park it in Singapore or Hong Kong.
Well most of us know Barack was talking about.......Delaware. Well he could have been referring to an island close to his old neck of the woods....Labuan.
Despite the "offshore" baggage known as Labuan, Malaysia on now on the OECD "white list" and fair game to park money and structures.
Like some of its Asian tiger neighbours, Malaysia has remained on the cusp of being a player in global finances. As for trusts, on paper, it was every bit a competitive a trust jurisdiction as Singapore or Hong Kong,......thirty years ago that is. English law based, some local jurisprudence, etc. Unfortunately, the competition just soaked up everything and left the place as is thirty years later.
Labuan is another matter. Labuan is a politically and geographically part of Malaysia but isn't when it doesn't want to be. The special economic zone of Malaysia.....quite an advanced concept back in the 90s. It was perhaps the most tax, funds and corporate vehicle advanced and sophisticated place in Asia at one time. At one time, there were perhaps as many international CPA/law firms, trust, funds and corporate providers there to rival the BVI or Caymans in their formative stages. Then "offshore" became a bad word, the tax "planning" got a little overzealous and Labuan's light started to dwindle and never reached the heights that it might have. It very well could have become the Delaware of Asia.....the Channel Islands of the East. Perhaps the Achilles' heel was that there was no "onshore" to support and bolster the offshore component.
Looking forward, there will always be a lucrative Malaysian wealth market to tap but unless there's some factor (ie tax) that drives you into Malaysia or Labuan, there's simply nothing to motivate you to move onto onshore Malaysia. In fact, the strategy will be as it was thirty years ago........pull the money out Malaysia and park it in Singapore or Hong Kong.
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