Originally published in IFC Review, April 2012
Undoubtedly Guernsey has been an excellent place to thrive as a financial services business during the past 30 years, says Michael Betley, Managing Director of Trust Corporation. Rather like the health warning on investment products; "past performance is no indication of future returns". It is generally accepted that Guernsey, as a jurisdiction, and those that operate within the financial services sector, continually need to strive to make their services relevant and competitive both in current and future markets. More than ever this is the challenge that is facing many.
In a time that many companies may be considering moderate approaches to growth and development, others have adopted a more positive assertive approach by embracing extension into foreign jurisdictions to ensure diversification and advancement. But where in the world depends on many factors.
Guernsey has a very healthy diversified global client base with many fiduciaries specialising in particular geographic markets. London has however, been the single most influential centre for the Islands, and will continue to be so for some time. That emphasis is changing and there are consistently fewer opportunities now coming out of London.
Moving into new markets is not an easy process and in particular where there are significant cultural differences. This is particularly true the further east one travels. It is anticipated that China will overtake the US as the next global economic powerhouse. When China liberalises it's attitudes to capital markets and allows its citizens to invest abroad it is predicted that there will be a wave of opportunities for centres like Guernsey but to take advantage of that we must get to know these markets.
By extending into the Asian market now, businesses can establish relationships and earn the trust of the Chinese financial services division, build an understanding of the culture and language, and be present to share in the opportunities which the increasing wealth and resources in that region will generate. Guernsey is renowned in China, for delivering a highly regarded financial services infrastructure provided by extremely skilled resources. In a land where reputation is paramount to success, this is crucial.
However, both culturally and commercially, there is a lot to learn from understanding how business is won and undertaken. In order to fully understand the cultural differences the industry need to start building relationships as the lead in time potentially is considerably longer than those that many of us experience in our traditional marketplace.
Whilst our business is considering how to enter the Asian market (probably through a presence in Hong Kong or Singapore) the fiduciary marketplace is still in its infancy and the more sophisticated product offering that the Islands are known for have yet to be fully developed in those regions. We have decided not to engage for now, as others have done, in frontiering an operation in Asia but to wait for the marketplace to mature.
It's not uncommon for local businesses to also explore opening doors in Switzerland, partly as a gateway into Eastern Europe and the Middle East, but also to offer a viable alternative to Guernsey, both from a product range perspective as well as an escape route should the Island start to lose its favourable status. Commercially now, Switzerland just doesn't make sense, principally due to the high cost of entry and the slower growth trajectory of entering an overcrowded marketplace.
For Trust Corporation, moving west, rather than east, has been our main focus for some time. West means North America first and from there to South America. This jurisdiction for many is thought to be one to avoid, as the impending US watershed created by the new US reporting regime (FATCA) creeps ever closer, establishing a financial business is deemed to be too cumbersome and awkwardly legislated. But all financial services businesses will need to address the new changes that FATCA will bring and will need to determine whether they wish to remain open to US business or not. Many companies may find a need to satisfy existing client needs in this area and therefore embracing a US offering is the only way forward. There is no middle ground.
Fiduciaries with an understanding of both onshore and offshore US issues is essential for international families with an exposure in that region, in order to create optimum wealth management solutions, managing US and non-US investment holding and trust structures either from within or outside the US or a combination of the two. While recognising the new and other anticipated regulations will have a dramatic effect on the way business is conducted as a foreign trustee we knew that extending our services to the US was the only answer for us to continue our unique personal and professional service, to our significant US client base.
In the end, Trust Corporation was client led when deciding where in the world our first jurisdictional extension would be situated. And surely client satisfaction is what others need to consider too, as well as opportunities for new ventures and enterprise. The US has identified financial services as a growth area, with many states introducing flexible trust laws to encourage investment. These states are open for business. Nevada, for example, is one of the states that actively encourage and welcome new private wealth businesses through its progressive legislative changes, it is easily accessible and makes it an ideal location for the setting-up of family offices and private trust companies.
The US provides a culturally similar platform with no language barriers (bar some dubious pronunciations from their side of the pond). Like all new markets there are both risks and rewards. Many see the risks of entering the US as much more significant than any potential rewards. We simply have a different view!
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.