|The Bahamas Investor Magazine
January 15, 2013
January 15, 2013
Havard Business School professor and competitive strategy expert Michael Porter said that innovation is the central issue in economic prosperity. This is no truer than in the world of international finance, where competition is fierce and the pressures of compliance are stronger now than they have ever been. Jurisdictions have been forced to think creatively and be proactive to remain competitive.
With a raft of legislation enacted at the start of last year, The Bahamas confirmed its commitment to facing these challenges by creating an environment where creative wealth management solutions could thrive and build prosperity. Among other things, the new legislation permitted the establishment of executive entities. The Bahamas Executive Entities (BEE) Act, 2011, is a unique and ground-breaking piece of legislation, designed specifically to resolve complex governance issues in fiduciary and wealth management structures. An executive entity is designed to act as a power holder in wealth management and estate planning structures. The pioneering legislation establishes the BEE as a perpetual entity for the sole purpose of carrying out executive functions, such as acting as a shareholder of a private trust company (PTC) or as a protector, enforcer, advisory board or corporate director.
The advantages of the BEE lie in its ability to remove unnecessary layers of ownership at the top level of wealth structures, to concentrate control with the right people who have the assurance of limited liability and to generally facilitate proper governance within the structure to avoid the risk of family conflict damaging the family wealth.
“Wealth generators, particularly with family businesses, are ever more cognizant of the need to put in place proper corporate governance style processes. The executive entity lends itself particularly well to this,” says Aliya Allen, chief executive officer and managing director of the Bahamas Financial Services Board (BFSB). “It also gives clients a very cost effective and flexible structure.”
Nassau to Zurich
With the legislation in place, it is now up to financial services providers to generate interest in the marketplace. International Protector Group (IPG)–a fiduciary services provider that offers the formation of BEEs as part of its estate planning portfolio–is already taking strides to realize the potential. The company is so confident of the benefits of this unique product, that in the first half of last year the financial services provider decided to take it to the European market.
Conducting a survey of top trust specialists in Geneva and Zurich, IPG found that 83 per cent of respondents believed that the newly launched executive entity would be an important tool to strengthen, as well as simplify, their clients’ international estate and estate planning structures. The survey of 40 of the top investment advisors, lawyers and senior banking executives in Switzerland was conducted following a series of introductory presentations on the BEE given by IPG’s specialists in Geneva and Zurich.
When asked about the possibility of their organizations using the BEE in the next 12 months, 61 per cent of respondents said it was likely they would do so.
This was the encouragement the company needed and in May last year it announced the official opening of IPG Switzerland GmbH in Zurich to enable Swiss-based trustees and their professional advisors to take advantage of the BEE.
Heading up the European operations is managing director Kevin Clerey, who worked at Credit Suisse for 23 years overseeing global trust operations, fund administration, and has led trust companies in centres such as The Bahamas, the Cayman Islands, the Isle of Man and Guernsey, as well as in the Middle and Far East. Most recently he established Clerey Associates, an independent fiduciary services provider.
At IPG, which has about $1.5 billion in assets under supervision, he will oversee growth across Europe.
The move to open the Swiss office, says Clerey, was partly spurred by a fundamental shift in the industry. “At this juncture, in Europe and particularly in Switzerland, there is enormous upheaval in the private banking sector,” he says. “Concerns with US and EU compliance have put Swiss companies very much on the defensive. There is only one way for them to reinvent themselves and that is to join a more compliant platform in terms of planning.”
Many existing structures, Clerey says, are not designed to be open to scrutiny. “Life becomes a little more demanding in the compliant world, because products have to meet certain needs and requirements, whilst being flexible enough to be used all around the world and remain compliant.”
The BEE, Clerey claims, is responsive to the demands of this sophisticated market, adding that in the future there will be far fewer IBCs (International Business Companies) being sold or “cheap and cheerful” products, because there will be far more attention paid to the type of entity you can place in wealth management and estate planning structures.
At the moment, The Bahamas is the only jurisdiction in the world offering this type of product and that gives it a unique advantage. The BEE follows a string of pioneering products, says Clerey.
“I think that is where The Bahamas has boxed so cleverly over the last few years. It has updated its laws and positioned itself well, with, for example, PTCs (private trust companies) and has been extremely innovative in terms of foundations and now the BEE.”
Clerey suggests, however, that it will not be long before other jurisdictions follow suit and financial services providers in The Bahamas have to work hard to maintain that advantage. Hence, IPG’s bullish approach to marketing the BEE.
When looking to set up in Switzerland, Zurich was a natural choice of IPG, giving easy access to the company’s network of more than 150 intermediaries in the region and providing a springboard into the wider European market. “At first, people had no idea what the BEE was, but they were ready and willing listeners and could quickly see the applications for the product.”
As a consequence, take-up has accelerated in recent months, with IPG securing a series of BEE contracts, including the first three BEEs to be established internationally since the product’s inception. These have been arranged in conjunction with a range of international professional and institutional advisors including legal, financial and banking organizations. The contracts are with client trusts worldwide, including in the US, Latin America and the UK.
Capitalizing on this momentum, IPG is now looking to target emerging Asian markets as well. “Asia is a very fast growing market and, because Asian countries have a very territorial approach to taxation, it is easy to structure solutions there that are compliant, but still have the attractions of the executive entity.”
Financial centres such as Hong Kong and Singapore are particularly suited to adopting the BEE, says Clerey, because of the strong connections “with the Commonwealth and English law, opening up opportunities to work with intermediaries in China and across southeast Asia.
“This is a very exciting time; it proves a point that I’ve been making for 10 or 15 years,” Clerey adds. “Things are changing and we need to work together. If you are not prepared to do things in a new way and adopt innovation, you will wither on the vine.”