The appeal of the Channel Islands to Middle Eastern wealth managers
07 December 2021
A special edition of Businesslife magazine, exploring the relationship between the Middle East and the Channel Islands, is now available and includes a contribution from Nancy Chien, partner and head of International Private Client in Jersey.
Nancy spoke to David Burrows about why wealthy Middle Eastern families are increasingly looking to the Channel Islands for structuring and succession strategies. David's article entitled 'Strategies for Succession' can be found on pages 26-32 of Businesslife Middle East edition 2021 and the full interview between David and Nancy can be read below.
David: Jersey and Guernsey have been ranked within the four most favoured jurisdictions by advisers to Middle Eastern families seeking wealth management and succession solutions outside the region. Why is this?
Nancy: Many Middle Eastern families have connections with the UK, so the proximity of the Channel Islands to the UK makes them an ideal jurisdiction for families to set up their structures. It is very easy for them to come to the Channel Islands for meetings with their service providers and advisors. Further, Jersey and Guernsey are mature offshore centres with robust legal and regulatory frameworks. Many Middle Eastern families are setting up their structures for asset protection and succession purposes. Tax is often not a key driver, therefore establishing their structures in mature jurisdictions which can grow with the family and having the requisite infrastructure and expertise to deal with any disputes is important for them.
David: Presumably the emphasis is the need to create liquidity whilst safeguarding trophy family assets or the drive towards diversification?
Nancy: Yes, the main reasons for Middle Eastern families to set up offshore structures are asset protection, wealth preservation and succession. The professionals in Jersey or Guernsey have significant expertise in assisting the families with their objectives. Whilst the patriarchs/matriarchs who establish the structure might be motivated by wealth preservation and therefore tend to be more conservative with a focus on diversification in their investment strategy, the younger generation are more hands-on with their investment and are keen to make more focused investments rather than relying on traditional investment models.
David: Why the growing importance for high-net-worth individuals and businesses with international assets (either via personal account, corporate structure or trust) to properly prepare their succession plan and navigate the complexities of succession planning?
Nancy: There are increasing compliance burdens and regulations that clients must comply with in respect of their structures, both onshore and offshore. If they do not have a proper plan in place and work with experienced advisors, their structure could inadvertently be in breach of the regulations. Further, as family dynamics become more complex, due to the increase in non-conventional family units and the fact that families are becoming more international, there are a lot more laws and cross border issues to consider. It would be imprudent of families not to engage in proper succession planning should the family wish to preserve its family wealth in accordance with its wishes.
David: There have been reports of families seeking to create a specially designated corpus of funds to enable the younger generation to invest in sectors such as medical research and development, healthcare, education and technology. What is driving this?
Nancy: There is a greater focus on the younger generation on ESG (environmental social and governance) initiatives. In order for families to engage the younger generation to achieve their family objectives and values, they need to engage with them and tailor their investment strategies to the visions and values of the younger generation. This will enable the family governance which has been put in place by the patriarchs and matriarchs to be more sustainable.
David: It appears these younger generations are also now working with the advisory community in driving positive engagement in respect of discussions around family governance, constitutions and values. Why are they taking a more integral part in the decision-making process and what different perspectives and insights are they providing?
Nancy: the younger generation is more conscious about how their actions or financial choices impact the society as a whole, which is why they are putting more attention on sustainable investing as opposed to investing purely for financial gain. Further, it has been far easier with the assistance from social media and advancement of technology for the younger generation to obtain information than the baby boomers. As the younger generation has been engaged longer with sustainable investing, they are encouraging the older generation to shift their views on investing. This will help to align family values and governance in the longer term.
David: How has this increased engagement had an effect on the local market in terms of the development of solutions utilising the DIFC and ADGM to create local foundations?
Nancy: the younger generation seems to prefer to make more targeted investments whereas the baby boomers have tended to focus more on philanthropic giving generally. The more targeted approach means that a more hands-on approach would be required. DIFC and ADGM foundations would enable family members to have more control over the investment decisions which in turn directly allows the younger family members to achieve their objectives. Further, the older generation can nevertheless sit on the council board and oversee that investment decisions are also aligned with their values.
David: The Channel Islands are already managing these challenges and are ideally placed to support Middle East businesses in their own transitions – how is/can this be developed further?
Nancy: there is a need for more green and sustainable funds. it is foreseeable that offshore vehicles will continue to be used to establish such funds. Therefore some light regulation in this space (e.g. to prevent greenwashing, misleading description of how green a project is) would be helpful so that investors are not misled. Specifically the regulation could cover how funds can market themselves, the information reported, the decisions a board should take into account when making decisions (e.g. environmental concerns). Guernsey already has started this journey with some new legislation affecting corporate board governance coming into force from 1 October 2021.
Credit: David Burrows and Busineslife Middle East edition 2021